* Major U.S. indexes red; Nasdaq off ~2.2%
* Cons disc, tech weakest major S&P sectors; energy sole
* Dollar up; gold down, crude rallies
* U.S. 10-Year Treasury yield ~1.68%
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INFLATION MAY NOT PERSIST, BUT THE RIDE SURE MAY BE BUMPY
(1345 EDT/1745 GMT)
Fed Vice Chair Richard Clarida said on Wednesday that the
twin surprises of weak jobs growth and stronger inflation in
April hadn't dented the Federal Reserve's plans. And it will be
"some time" before the U.S. economy is healed enough for the
U.S. central bank to consider pulling back its crisis levels of
LPL Financial Research has some thoughts on the matter in
the wake of today's hot April CPI:
“Today’s data release is only going to escalate the market’s
focus on inflation,” explained LPL Financial Chief Market
Strategist Ryan Detrick. “Big beats in inflation data like
today’s will increase the pressure on Federal Reserve (Fed)
Chair Jerome Powell’s characterization of inflation as
‘transitory’ and pull forward calls for tapering asset
While LPL forecast inflation to jump in the
short-to-intermediate term, they believe that longer-term
inflation will remain reasonably well anchored.
This because LPL says that market-based measures can tend to
overshoot in both directions, based on prevailing sentiment.
With this, LPL thinks that in the end, Fed Chairman Powell will
be successful in preventing inflation from spiraling out of
Additionally, although the economy's restart has created
supply disruptions that feed into inflation, LPL believes that
in time, these effects should self-correct. LPL says that "a
similar phenomena occurred exiting the 2008 recession, albeit on
a more elongated timeline." Ultimately, however, inflation did
not persist, as longer-term suppressors of inflation, such as
globalization and technology, won the day.
"We anticipate the story will end much the same this time
around, but the ride may be bumpy in the meantime."
CATHIE WOOD IS CERTAINLY KEEPING A POSITIVE ATTITUDE (1319
Cathie Wood is certainly keeping a positive attitude these
days. Her flagship Ark Innovation ETF slumped 3% in
Wednesday's tech driven selloff on Wall Street, faring worse
than the tech-laden Nasdaq's 2.1% decline.
The near-celebrity stock picker, whose stellar performance
last year made her Ark Invest family of funds wildly popular
with investors, said on a webcast on Tuesday that she sees
"pretty incredible" opportunities following the stock market's
After bets on Tesla and other high-growth stocks fuelled a
149% surge in the Ark Innovation fund last year, the ETF in 2021
has tumbled 18%, compared to a gain of about 1% in the Nasdaq.
The ETF saw almost $800 million in estimated net outflows
last week, its biggest weekly drop ever, according to Refinitiv
data. Stung by those outflows and also by the decline in the
value many of its biggest holdings, the ETF's market
capitalization has tumbled to $19.5 billion from $28 billion in
Vanda Research said in a research note on Wednesday that the
vast majority of inflows into ARK Invest's various funds since
November have been from institutional investors rather than
retail investors. And at times of large redemptions, retail
investors mostly bought the dip, according to the financial data
firm, which tracks retail investor flows.
Tesla, Ark Innovation's largest holding, has lost
more than 30% from its January record high, while virtual
healthcare provider Teladoc Health, the fund's second
largest holding, has lost half of its value after hitting a
record high in February.
Coinbase Global, which the ETF began buying
immediately after the cryptocurrency exchange's poorly received
direct listing last month, has fallen 24% from the opening price
in that listing.
U.S. CHIP STOCKS TUMBLE AS PANDEMIC THREATENS TAIWAN (1207
U.S. chip stocks are extending their recent losing streak on
Wednesday, with an escalating coronavirus threat in Taiwan
sending the Philadelphia Semiconductor 3.6% lower, and
leaving it down 13% from its April record.
Wall Street's chip selloff followed a steep drop in
Taiwanese tech stocks after the country's health minister warned
that the island could move to a high alert level following the
report of largest daily rise in domestic COVID-19 cases.
Taiwan is a key part of the global semiconductor supply
chain, and U.S. shares of Taiwan Semiconductor Manufacturing Co
(TSMC), which manufactures chips on behalf of many U.S.
chipmakers, are down 3.4% at mid-day.
TSMC customers Broadcom and Qualcomm, are
falling 4.6% and 3.5%, respectively, weighing more than any
other stocks on the Philadelphia chip index, which is on track
to close at its lowest since mid-March.
Nvidia, whose $346 billion market capitalization
makes it the most valuable U.S. chip company, is losing 3%.
Nvidia is also a TSMC customer.
In any event, the Philadelphia chip index is up almost 3%
year to date, and it remains up 66% over the past 12 months.
DEMAND BOOM + SUPPLY DROUGHT + LABOR SHORTAGE = APRIL CPI
(1101 EDT/1501 GMT)
The U.S. consumer is vaccinated, flush with stimulus and
savings, and demand is roaring back with a vengeance.
But that pent-up demand is colliding with spiking
commodities costs as materials producers struggle to keep pace,
and with a labor shortage driving wages higher.
As a result, consumer prices put the pedal to
the metal in April, jumping 0.8%, four times the rate analysts
expected and an acceleration from March's 0.6% pace.
The Labor Department's CPI report, which measures the prices
consumers pay for a basket of goods, was hotly-anticipated by a
market increasingly worried over whether expected price jumps
will defy the Fed by morphing into long-term inflation.
"The argument is whether this bout of inflation is
transitory or here to stay," said Peter Tuz, president of Chase
Investment Counsel in Charlottesville, Virginia. "And time will
"I think it’s here to stay until you see labor costs and
commodity costs mitigate some," Tuz added.
Core CPI, which strips out volatile food and
energy prices, rose by an even 3% year-over-year, blowing past
the central bank's average annual 2% inflation target.
The chart below shows various major inflation indicators and
how they compare with the Fed's preferred yardstick, core PCE:
Elsewhere, falling interest rates prompted an increase in
mortgage demand last week, according to the Mortgage Bankers
The average 30-year fixed contract rate shed 7
basis points to 3.11%, leading to a 1% increase in applications
for loans to purchase homes and a 3% rise in refi
But spiking materials prices crept into the report's press
"Most markets this spring continue to see robust demand, but
activity continues to be constrained by insufficient inventory
levels, as well as homebuilder challenges related to the ongoing
shortages and price increases for building materials," writes
Joel Kan, associate vice president of Economic and Industry
Forecasting at MBA.
Stock futures plunged on the CPI news and carried the
sentiment into the trading session, as market participants
fretted over the prospect of the Fed raising rates sooner than
All three major U.S. stock indexes are down, with the
tech-laden Nasdaq suffering the biggest drop.
MAJOR U.S. INDEXES RED AFTER HOT CPI (0958 EDT/1358 GMT)
Major U.S. indexes are under pressure in early trade
Wednesday. This after U.S. April CPI data came in hot.
The U.S. 10-Year Treasury yield is now up to
around 1.68%. Although, still below its 1.7760% March 30
intraday high, it is on track for a 4th-straight daily gain,
which has come with a more than 20 basis point rise off its
1.4690% May 7 intraday trough.
Under the surface, tech is taking the biggest hit,
while financials, and energy post gains. Banks
are up, while FANGs and chips fall.
With this, growth is once again weakening vs value
. The IGX/IVX ratio is flirting with 2-months lows.
Regarding the CPI, Frances Donald, Global Chief Economist,
Manulife Investment Management in Toronto, said, "This
inflationary pressure in April is not driven by broad based
inflationary pressure. Its being heavily distorted by ongoing
COVID-19 impacts, particularly in the used car space."
Donald added, "What will be more important for markets on a
go-forward basis is whether we're still seeing elevated
inflation by July and August in which case inflationary
pressures are not transitory and can start to weigh on general
growth and also on markets."
Here is where markets stand in early trade:
(Terence Gabriel, Sinéad Carew)
U.S. INFLATION: EUROPEAN BANKS ARE BIG FANS! (0855 EDT/1255
Data showing U.S. inflation rising faster than expected has
given a nice boost to euro zone government yields and the
European banking sector.
While European lenders have had a stellar Q1 earnings season
so far, many analysts believe rock-bottom interest rates would
keep putting pressure on their margins going forward.
Now with U.S. inflation seemingly making a comeback, things
are looking up on that front, at least that seems to be the
thinking behind the surge in the European banking index.
The benchmark jumped about 1.3%, making its way to positive
territory (+0.5%) just a few minutes after the data showed the
U.S. CPI reaching 4.2% yearly instead of the 3.6% expected.
DOW INDUSTRIALS: FEELING GRAVITY'S PULL (0846 EDT/1246 GMT)
The Dow Jones Industrial Average has suddenly
stumbled. Indeed, the blue-chip average had been defying Nasdaq
weakness into its most recent record closing high last
Friday, and its record intraday high on Monday.
However, in just 2 days, with its 1.5% slide, the Dow is now
on track for its worst weekly performance since late February.
And with CBT e-mini Dow futures quoted down around 0.3%
ahead of the open, the DJI looks to continue to the downside
when the regular session kicks off.
Of note, the Dow's rise into its recent highs appears to
have exhausted essentially at a log-scale resistance line from
early 2019. Despite a modest intraday penetration on Monday, the
line, now around 34,925, has capped on a closing basis:
With this, the Dow has spent more than 6 months struggling
to sustain a breakaway extension relative to its rising 200-day
moving average (DMA). Since hitting around a 15.2% disparity
above this long-term moving average on December 4, the Dow has
only managed to register 6 trading days above that level before
quickly slipping back relative to the 200-DMA. It ended Tuesday
13.5% above the long-term average.
The 34,925/25/35,091 area is now seen as a significant
barrier for the Dow, as is a 15.9% disparity vs the 200-DMA.
The Dow has support in the 33,765/33,685 area, but a break
back below the former resistance line from 1929, which is now
support around 33,250, and the 8.7% disparity support level,
which is now around 32,850, can suggest the downside reversal
may be about to intensify. This with the 200-DMA down closer to
FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0845 EDT/1245
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)