franckreporter
U.S. stocks on Wednesday opened lower, on extended worries over elevated oil prices from the previous session. Weak economic data out of Germany also weighed on sentiment.
Minutes after the opening bell, the tech-heavy Nasdaq Composite (COMP.IND) was down 0.34% to 13,973.24 points. The benchmark S&P 500 (SP500) was lower by 0.39% to 4,479.14 points, while the blue-chip Dow (DJI) slipped 0.31% to 34,533.34 points.
All 11 S&P sectors were in negative territory, with the exception of Energy.
WTI crude oil futures (CL1:COM) hit a 10-month high on Tuesday while brent futures (CO1:COM) rose above a key level at $90/bbl, after major oil producing nations Saudi Arabia and Russia surprised markets with longer-than-expected production cuts till the end of the year. Brent (CO1:COM) was back below $90 on Wednesday, but concerns over elevated oil prices and its impact on inflation remained on investors’ minds.
Though energy is not included in core inflation and the higher oil prices will likely have no impact on that gauge, headline inflation will likely get a boost. Following the announcement from Saudi Arabia and Russia, U.S. National Security Adviser Jake Sullivan on Tuesday said that President Joe Biden is “doing everything within his toolkit to be able to get lower prices for consumers at the gas pump.”
“This run-up in oil prices continues a trend that’s been going since the end of June, back when Brent was still only at $72/bbl,” Deutsche Bank’s Jim Reid said. “At the lows in June, oil was c.-45% Y/Y. Now it’s nearly flat, down about -3% Y/Y as I type.”
“It’s true that this won’t directly show up in core inflation since it’s energy, but the risk is you ultimately get second-round effects in other categories,” Reid added. “In addition, since central banks’ targets are still measured in headline terms, it’s going to be harder for them to pivot in a dovish direction the longer inflation stays above target.”
Sentiment was also under pressure after a report out of Germany showed that factory orders in Europe’s largest economy slumped by their biggest level since lockdowns in 2020. The reading follows worse-than-expected services activity data across the Eurozone yesterday.
The economic calendar at home was slightly busier on Wednesday. Mortgage applications declined to their lowest level since 1996. Meanwhile, the U.S. trade in goods and services deficit widened less than expected in July. Traders will also receive the Federal Reserve’s Beige Book later in the day.
“The U.S. trade deficit widened after upward revisions to past data leave the balance narrower in recent months. Trade flows continue to normalize, and the early read on Q3 GDP is that net exports will provide a modest boost to headline growth,” Wells Fargo’s Shannon Seery said.
Treasury yields were lower on Wednesday, after posting gains in the previous session. The longer-end 10-year yield (US10Y) was down 2 basis points to 4.25%, while the more rate-sensitive 2-year yield (US2Y) was down 1 basis point to 4.96%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Turning to active movers, Apple (AAPL) was a drag on equities after a report that China had told government agencies to stop using the tech giant’s iPhone and other foreign electronic devices at work.
