Category Archives: Business

Business

Asian markets open lower after price data slam Wall Street

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Asian markets skidded lower on Wednesday after Wall Street fell the most since June 2020 as a report showed inflation has kept a surprisingly strong grip on the U.S. economy.

Tokyo’s benchmark Nikkei 225 lost 2.8% in early trading Wednesday, to 27,816.58, while Sydney’s S&P/ASX 200 declined 2.5% to 6,834.80. In Seoul, the Kospi lost 2.6% to 2,386.29.

U.S. futures edged higher, with the contracts for the Dow industrials and the S&P 500 up 0.1%. European futures also declined.

On Tuesday, the Dow lost more than 1,250 points and the S&P 500 sank 4.3%. Tuesday’s hotter-than-expected report on inflation has traders bracing for the Federal Reserve to raise interest rates still more, adding to risks for the economy.

The steep sell-off didn’t quite knock out the market’s gains over the past four days, but it ended a four-day winning streak for the major U.S. indexes and erased an early rally in European markets.

The S&P 500 sank 4.3% to 3,932.69. The Dow fell 3.9% to 31,104.97 and the Nasdaq composite closed 5.2% lower, at 11,633.57.

Bond prices also fell sharply, sending their yields higher, after a report showed inflation decelerated only to 8.3% in August, instead of the 8.1% economists expected.

The yield on the two-year Treasury, which tends to track expectations for Fed actions, soared to 3.74% from 3.57% late Monday. The 10-year yield, which helps dictate where mortgages and rates for other loans are heading, rose to 3.42% from 3.36%.

The hotter-than-expected reading has traders bracing for the Federal Reserve to ultimately raise interest rates more than expected to combat inflation, with all the risks for the economy that entails.

“Right now, it’s not the journey that’s a worry so much as the destination,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “If the Fed wants to hike and hold, the big question is at what level.

All but six of the stocks in the S&P 500 fell. Technology and other high-growth companies fell more than the rest of the market because they’re seen as most at risk from higher rates.

Most of Wall Street came into the day thinking the Fed would hike its key short-term rate by a hefty three-quarters of a percentage point at its meeting next week. But the hope was that inflation was falling back to more normal levels after peaking in June at 9.1%.

Such a slowdown might let the Fed reduce the size of its rate hikes through the end of this year and then potentially hold steady through early 2023.

Tuesday’s report dashed some of those hopes. Many of the data points were worse than economists expected, including some the Fed pays particular attention to, such as inflation outside of food and energy prices.

Markets honed in on a 0.6% rise in such prices during August from July, double what economists expected, said Gargi Chaudhuri, head of investment strategy at iShares.

Traders now see a one-in-three chance the Fed will hike the benchmark rate by a full percentage point next week, quadruple the usual move. No one in the futures market was predicting such a hike a day earlier.

The Fed has already raised its benchmark interest rate four times this year, with the last two increases by three-quarters of a percentage point. The federal funds rate is currently in a range of 2.25% to 2.50%.

Higher rates hurt the economy by making it more expensive to buy a house, a car or anything else bought on credit. Mortgage rates have already hit their highest level since 2008, creating pain for the housing industry. The hope is that the Fed can pull off the tightrope walk of slowing the economy enough to snuff out high inflation, but not so much that it creates a painful recession.

Tuesday’s data casts doubt on hopes for such a “soft landing.” Higher rates also hurt prices for stocks, bonds and other investments.

Investments seen as the most expensive or the riskiest are the ones hardest hit by higher rates. Bitcoin tumbled 9.4%.

Expectations for a more aggressive Fed also helped the dollar add to its already strong gains for this year. The dollar has been surging against other currencies in large part because the Fed has been hiking rates faster and by bigger margins than many other central banks.

The dollar bought 144.59 Japanese yen, up from 144.57 yen late Tuesday. The euro rose to 0.9973 cents, up from 0.9969 cents.

Oil prices rose. U.S. benchmark crude added 38 cents to $87.69 per barrel in electronic trading on the New York Mercantile Exchange. It lost 47 cents to $87.31 on Tuesday. Brent crude, the international pricing standard, climbed 38 cents to $93.55 per barrel.

___

AP Business Writers Stan Choe, Alex Veiga and Damian J. Troise contributed.

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Business

Dow Jones Futures: Stocks Dive On Call For Biggest Fed Rate Hike In 40 Years; Apple, Tesla Tumble

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Dow Jones futures tilted higher overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally plunged Tuesday on a hotter-than-expected inflation report, with the major indexes breaking below their 50-day moving averages and wiping out all or almost all of their recent gains.




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The August consumer price index was much worse than expected. Consumer prices rose 0.1%, vs. views for a 0.1% drop, with food prices and rents pushing up costs despite plunging gasoline prices. The core CPI, which excludes food and energy, popped 0.6%, double what was expected. Headline inflation cooled somewhat again, to 8.3%, but Wall Street expected 8%. Core inflation rose more than forecast, to 6.3%.

That spurred one Wall Street firm to predict that the Federal Reserve will increase rates by a full percentage point at the Sept. 20-21 Fed meeting. That would be the most since the early 1980s, when then-Fed chief Paul Volcker waged all-out war on inflation.

Pure Storage (PSTG), Tesla rival Nio (NIO), Devon Energy (DVN), Wolfspeed (WOLF) and Enphase Energy (ENPH) showed relatively healthy action on Tuesday.

Megacaps Apple (AAPL) and Tesla (TSLA), which had flashed buy signals recently, fell hard on Tuesday, back below key levels. Nvidia (NVDA) and Facebook parent Meta Platforms (META), nobody’s idea of current market leaders, plummeted to 2022 lows.

DVN stock is on IBD Leaderboard. PSTG stock is on SwingTrader and was Tuesday’s IBD Stock Of The Day. Tesla stock and Devon Energy are on the IBD 50. Devon and ENPH stock are on the IBD Big Cap 20.

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Dow Jones Futures Today

Dow Jones futures climbed 0.2% vs. fair value. S&P 500 futures rose 0.2%. Nasdaq 100 futures advanced 0.15%.

At 8:30 a.m. ET, the Labor Department will release the August producer price index.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally

The stock market rally suffered its worst loss of 2022, with the major indexes closing near session lows on the hot inflation report and Fed rate hike fears.

Another factor? The U.S. mulling options for sweeping sanctions vs. China to head off any Taiwan invasion, Reuters reported Tuesday. The European Union is facing pressure to do the same. That would raise the risks of a massive economic decoupling between China and the West.

The Dow Jones Industrial Average tumbled 3.9% in Tuesday’s stock market trading. The S&P 500 index plunged 4.3%. The Nasdaq composite dived 5.2%. The small-cap Russell 2000 lost 3.9%.

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Nvidia stock and META stock plunged more than 9%, both undercutting their 2022 lows.

U.S. crude oil prices dipped 0.5% to $87.31 a barrel.

The 10-year Treasury yield rose 6 basis points to 3.42%. The benchmark yield hit 3.45% intraday, just below the 11-year high of 3.48% set on June 14. Short-term yields rose much more.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) retreated 2.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2.35%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 4.7%. The VanEck Vectors Semiconductor ETF (SMH) plunged nearly 6%. NVDA stock is a major SMH holding.

SPDR S&P Metals & Mining ETF (XME) gave up 3.7%. SPDR S&P Homebuilders ETF (XHB) dived 5.9%. The Energy Select SPDR ETF (XLE) retreated 2.5% and the Financial Select SPDR ETF (XLF) shed 3.75%. The Health Care Select Sector SPDR Fund (XLV) slumped 3.3%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dived 6.8% and ARK Genomics ETF (ARKG) 5.6%. TSLA stock is a major holding across Ark Invest’s ETFs.

Five Best Chinese Stocks To Watch Now

Stocks Showing Strength

PSTG stock fell 3.8% to 29.64 on Tuesday, but closed above its 21-day line. Pure Storage stock is working on a cup-with-handle base with a 31.62 buy point. Investors could use a move above Monday’s high of 30.88 as a slightly lower entry.

Nio stock edged up 0.9% to 21.95, touching its 200-day line intraday after skyrocketing 13.5% on Monday. Shares of the China EV startup have soared 28% over the last five sessions, four in heavy volume. Analysts are increasingly bullish on Nio’s lineup. Nio begins deliveries of the ET5 sedan, its third new EV this year, on Sept. 30. Nio stock has a 24.53 bottoming base buy point, but investors could use a decisive move above the 200-day line as an early entry.

DVN stock fell 3% to 69.07, pulling back after breaking the trendline of a handle on Monday. The cup-with-handle buy point is 75.37. Investors could now use Monday’s high of 71.57 as an early entry. A longer pause would let the 50-day moving average catch up somewhat.

WOLF stock fell 2.5% to 113.98 on Tuesday after sinking to 111.26 soon after the open. Evercore ISI initiated the chipmaker with an outperform, saying it’s a great way to play the EV space. Investors could treat the recent action as a handle to a huge consolidation, with a 123.35 buy point. A move above Monday’s high could offer an early entry, but Wolfspeed stock is extended, it has greatly outrun some of its moving averages.

ENPH stock dipped 1.1% to 305.50 after testing its 21-day line. Investors could buy Enphase stock now off the 21-day line, though market conditions raise the risks. A longer ENPH stock pause would let a fast-rising 50-day line make up some ground.

Apple Stock

Apple stock plunged 5.9%, tumbling back below its 50-day and 200-day lines in heavy volume, giving up the gains from the prior two sessions. AAPL stock had broken a downtrend in a handle on Monday, offering an early entry, but that’s off the table now. Shares of the Dow Jones tech titan are working on a 176.25 buy point from that handle.

Apple iPhone 14 preorders appear to be running as strong or stronger than for the iPhone 13 last year. Actual iPhone 14 sales start Friday.

Tesla Vs. BYD: Which EV Giant Is The Better Buy?

Tesla Stock

Tesla stock skidded 4% to 292.13, back slightly below its 200-day line but holding its 21-day and comfortably above its 50-day. Volume was light, but higher than in the five-day rally.

TSLA stock arguably has a short base within a much-larger consolidation, with a 314.74 buy point. A move above Monday’s high of 305.49 could offer an early entry.

Tesla investor relations chief Martin Viecha said at a conference Tuesday that supply-chain constraints and costs are easing for EVs, which should lead to lower prices. Viecha said Tesla would eventually unveil a cheaper EV model, but gave no details on when that might occur. Tesla recently introduced a lower-range Model Y in Europe for a much-cheaper price.

Market Rally Analysis

The recently revived stock market rally ran headlong into the CPI inflation buzz saw on Tuesday. The major indexes and Russell 2000 all tumbled below their 50-day moving averages. The Dow Jones undercut last week’s lows while the S&P 500 nearly did so. The Nasdaq wiped out most of the gains from the prior four sessions.

Leading stocks, many of which had some strong advances in recent days, also suffered Tuesday. Losers trounced winners, following robust market breadth in recent days.

Apple stock showed damaging action Tuesday. Tesla also retreated, following some low-volume gains, but its chart looks a little better.

While Pure Storage and Nio stock still look OK, the odds are that they’ll falter if the market comes under more pressure.

The stock market had rallied over the past several days in no small part on expectations of a tame inflation report. That, in turn, would spur the Fed to start raising rates less aggressively.

But after the hot inflation report, Nomura Securities forecast Fed policymakers will hike rates by 100 basis points on Sept. 21. Late Tuesday, Ed Yardeni of Yardeni Research said a full-percentage point Fed rate hike is “more likely” than 75 basis points.

Markets are fully pricing in at least 75 basis points for a third straight Fed meeting next week. But there’s now a roughly one-third chance of 100 basis points, up from zero before the CPI data. Markets are betting on a higher year-end rate.

The 10-year Treasury yield continued its torrid run over the past several weeks.

A more aggressive Fed, higher Treasury yields and a stronger dollar aren’t a great recipe for stocks. That’s especially so when markets were betting on the opposite.

Now the question is where the market goes from here. Will the major indexes undercut last week’s lows and head toward the June bottom? It’s possible the market will be rangebound as Wall Street waits for actual signs that the Fed will slow rate hikes.

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What To Do Now

Investors may have wanted to take profits heading into Tuesday’s CPI inflation report, given the low-volume advance that priced in good news. At this point, you may want to lock in remaining gains in recent buys, or cut losses.

It’s a good idea to keep exposure light. The hot inflation data undermined the short-term bull case of tamer Fed rate hikes, with the market direction now uncertain.

At some point, whether it’s next week, next month or next year, the market will be in a clear uptrend. That’s when the real money will be made.

So work on your watchlists, focusing on relative strength and signs that big institutions are acquiring shares.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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The 200-Day Average: The Last Line Of Support?



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Business

Jim Cramer wasn’t selling stocks in Tuesday’s wreckage. Here’s why

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CNBC’s Jim Cramer said he was not marching in the parade of sellers Tuesday, as the major U.S. stock indexes on Tuesday recorded their worst one-day drop-off since June 2020.

“Look, I cannot blame anyone for panicking after we got still one more red-hot consumer price index number, showing that non-commodity inflation has yet to peak,” the “Mad Money” host said, acknowledging it was a “horrendous day no matter how you slice it.”

However, Cramer said investors rarely make wise decisions when they panic, so it’s important for long-term investors to keep their focus on the big picture on a day like Tuesday, when only five stocks in the S&P 500 finished in positive territory.

“I’m not saying you need to buy something here yet,” Cramer said, noting his Charitable Trust, the portfolio used by the CNBC Investing Club, bought just one stock amid the wreckage. “We know a bounce may not directly be in the offing,” he added. “But the bottom line? We sure weren’t selling.”

Cramer said the reason he didn’t sell rests in his belief that the market entered Tuesday’s session in a no-win position. On the one hand, he said he thinks bearish investors overreacted to August’s CPI report, stressing it was only slightly worse than consensus estimates even though it likely guarantees a third-straight aggressive interest rate hike from the Federal Reserve next week.

At the same time, Cramer said if the inflation data had, hypothetically, come in slightly better than expected, bearish investors would’ve found a way to spin the narrative toward a focus on whether the Fed was being too aggressive with price pressures already easing.

Cramer said he’s choosing to look past that “false dichotomy.” Instead, he said he believes that even after the August CPI report it remains possible for the U.S. central bank to “thread the needle” and raise interest rates to control inflation without sending the economy into a downturn akin to the Great Recession. “This is not 2007 or 2008,” he said.

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Business

Whistleblower: China, India had agents working for Twitter

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WASHINGTON (AP) — Twitter’s former security chief told Congress Tuesday there was “at least one agent” from China’s intelligence service on Twitter’s payroll and that the company knowingly allowed India to add agents to the company roster as well, potentially giving those nations access to sensitive data about users.

These were some of the troubling revelations from Peiter “Mudge” Zatko, a respected cybersecurity expert and Twitter whistleblower who appeared before the Senate Judiciary Committee to lay out his allegations against the company.

Zatko told lawmakers that the social media platform is plagued by weak cyber defenses that make it vulnerable to exploitation by “ teenagers, thieves and spies” and put the privacy of its users at risk.

“I am here today because Twitter leadership is misleading the public, lawmakers, regulators and even its own board of directors,” Zatko said as he began his sworn testimony.

“They don’t know what data they have, where it lives and where it came from and so, unsurprisingly, they can’t protect it,” Zatko said. “It doesn’t matter who has keys if there are no locks.”

“Twitter leadership ignored its engineers,” he said, in part because “their executive incentives led them to prioritize profit over security.”

In a statement, Twitter said its hiring process is “independent of any foreign influence” and access to data is managed through a host of measures, including background checks, access controls, and monitoring and detection systems and processes.

One issue that didn’t come up in the hearing was the question of whether Twitter is accurately counting its active users, an important metric for its advertisers. Tesla CEO Elon Musk, who is trying to get out of a $44 billion deal to buy Twitter, has argued without evidence that many of Twitter’s roughly 238 million daily users are fake or malicious accounts, aka “spam bots.”

Even so, “that doesn’t mean that Musk won’t use Zatko’s allegation that Twitter was disinterested in removing bots to try to bolster his argument for walking away from the deal,” said Insider Intelligence analyst Jasmine Enberg.

The Delaware judge overseeing the case ruled last week that Musk can include new evidence related to Zatko’s allegations in the high-stakes trial, which is set to start Oct. 17. During the hearing, Musk tweeted a popcorn emoji, often used to suggest that one is sitting back in anticipation of unfolding drama.

Separately on Tuesday, Twitter’s shareholders voted overwhelmingly to approve the deal, according to multiple media reports. Shareholders have been voting remotely on the issue for weeks. The vote was largely a formality, particularly given Musk’s efforts to nullify the deal, although it does clear a legal hurdle to closing the sale.

Zatko’s message echoed one brought to Congress against another social media giant last year. But unlike that Facebook whistleblower, Frances Haugen, Zatko hasn’t brought troves of internal documents to back up his claims.

Zatko was the head of security for the influential platform until he was fired early this year. He filed a whistleblower complaint in July with Congress, the Justice Department, the Federal Trade Commission and the Securities and Exchange Commission. Among his most serious accusations is that Twitter violated the terms of a 2011 FTC settlement by falsely claiming that it had put stronger measures in place to protect the security and privacy of its users.

Sen. Dick Durbin, an Illinois Democrat who heads the Judiciary Committee, said Zatko has detailed flaws “that may pose a direct threat to Twitter’s hundreds of millions of users as well as to American democracy.”

“Twitter is an immensely powerful platform and can’t afford gaping vulnerabilities,” he said.

Unknown to Twitter users, there’s far more of their personal information disclosed than they — or sometimes even Twitter itself — realize, Zatko testified. He said Twitter did not address “basic systemic failures” brought forward by company engineers.

The FTC has been “a little over its head”, and far behind European counterparts, in policing the sort of privacy violations that have occurred at Twitter, Zatko said.

Zatko’s allegation that Twitter was more concerned about foreign regulators than the FTC, Enberg said, “could be a wakeup call for U.S. lawmakers,” who have been unable to pass meaningful regulation on social media companies.

Sen. Lindsey Graham, a Republican from South Carolina, said one positive result that could come out of Zatko’s findings would be bipartisan legislation to set up a tighter system of regulation of tech platforms.

“We need to up our game in this country,” he said.

Many of Zatko’s claims are uncorroborated and appear to have little documentary support. Twitter has called Zatko’s description of events “a false narrative … riddled with inconsistencies and inaccuracies” and lacking important context.

Still, Zatko came off as a convincing whistleblower who has “a lot of credibility in this space,” said Ari Lightman, professor of digital media and marketing at Carnegie Mellon University. But he said many of the problems he raised can likely be found at many other digital technology platforms

“They avoid security protocols in a sense of innovating and running really fast,” Lightman said. “We gave digital platforms so much autonomy at the beginning to grow and develop. Now we’re at a point where we’re, ‘Wait a minute … This has gotten out of hand.’

Among the assertions from Zatko that drew lawmaker attention was Twitter’s apparent negligence in dealing with governments that sought to get spies a job inside the company. Twitter’s inability to log how employees accessed user accounts made it hard for the company to detect when employees were abusing their access, Zatko said.

Zatko said he spoke with “high confidence” about a foreign agent that the government of India placed at Twitter to “understand the negotiations” between India’s ruling party and Twitter about new social media restrictions and how well those negotiations were going.

Zatko also revealed Tuesday that he was told about a week before his firing that “at least one agent” from the Chinese intelligence service MSS, or the Ministry of State Security, was “on the payroll” at Twitter.

He said he was similarly “surprised and shocked” by an exchange with current Twitter CEO Parag Agrawal about Russia — in which Twitter’s current CEO, who was chief technology officer at the time, asked if it would be possible to “punt” content moderation and surveillance to the Russian government, since Twitter doesn’t really “have the ability and tools to do things correctly.”

“And since they have elections, doesn’t that make them a democracy?” Zatko recalled Agrawal saying.

Sen. Charles Grassley, the committee’s ranking Republican, said Tuesday that Agrawal declined to testify at the hearing, citing the ongoing legal proceedings with Musk. But the hearing is “more important than Twitter’s civil litigation in Delaware,” Grassley said. Twitter declined to comment on Grassley’s remarks.

In his complaint, Zatko accused Agrawal as well as other senior executives and board members of numerous violations, including making “false and misleading statements to users and the FTC about the Twitter platform’s security, privacy and integrity.”

Zatko, 51, first gained prominence in the 1990s as a pioneer in the ethical hacking movement and later worked in senior positions at an elite Defense Department research unit and at Google. He joined Twitter in late 2020 at the urging of then-CEO Jack Dorsey.

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O’Brien reported from Providence, R.I.; Ortutay reported from Oakland, Calif.

___

Follow Marcy Gordon at https://twitter.com/mgordonap



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Business

Stubbornly high rents, food prices boost U.S. inflation in August

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  • Consumer price index rises 0.1% in August
  • Rents, food and healthcare account for increase in CPI
  • Core CPI surges 0.6%; increases 6.3% year-on-year

WASHINGTON, Sept 13 (Reuters) – U.S. consumer prices unexpectedly rose in August and underlying inflation accelerated amid rising costs for rents and healthcare, giving the Federal Reserve ammunition to deliver a third 75 basis points interest rate hike next Wednesday.

The surprisingly firm inflation readings reported by the Labor Department on Tuesday were despite an easing in global supply chains, which had contributed to a surge in prices earlier in the year. With a resilient labor market supporting strong wage growth, inflation has probably not peaked, keeping the Fed on an aggressive monetary policy path for a while.

“The Fed is all but sure to hike rates aggressively next week, likely by 75 basis points, while pushing back strongly against talk of a near-term pause in the tightening cycle,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

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The consumer price index edged up 0.1% last month after being unchanged in July. Though consumers got some relief from a 10.6% decline in gasoline prices, they had to dig deeper to pay for food, rent, healthcare, electricity and natural gas.

Food prices rose 0.8%, with the cost of food consumed at home increasing 0.7%. Food prices surged 11.4% over the last year, the largest 12-month increase since May 1979.

Economists polled by Reuters had forecast the CPI dipping 0.1%. In the 12 months through August, the CPI increased 8.3%. That was a deceleration from July’s 8.5% rise and a 9.1% jump in June, which was the biggest gain since November 1981. Inflation has overshot the Fed’s 2% target.

Beyond the dilemma the August inflation numbers present to the U.S. central bank, they are a headache as well for the Biden administration and congressional Democrats hoping to limit their losses in the Nov. 8 mid-term elections, which are expected to flip the House of Representatives into Republican hands. The annual CPI has remained above 8% for six straight months.

President Joe Biden said on Tuesday it would “take more time and resolve to bring inflation down,” and cited the recently passed Inflation Reduction Act aimed at lowering the cost of healthcare, prescription drugs and energy as steps taken by the White House to ease the burden of higher prices on Americans.

Fed officials gather next Tuesday and Wednesday for their regular policy meeting. Financial markets have priced in a 75 basis points rate increase next Wednesday, with potential for a full percentage point, according to CME’s FedWatch Tool.

Stocks on Wall Street fell, ending a four-day winning streak. The dollar rallied against a basket of currencies. U.S. Treasury prices rose.

BEHIND THE CURVE

A person shops in a supermarket as inflation affected consumer prices in Manhattan, New York City, U.S., June 10, 2022. REUTERS/Andrew Kelly

“It’s becoming more apparent to market participants that the amount of tightening from the Fed thus far has not been enough to cool the economy and bring down inflation,” said Charlie Ripley, senior investment strategist at Allianz Investment Management in Minneapolis, Minnesota.

Fed Chair Jerome Powell reiterated last week that the central bank was “strongly committed” to fighting inflation. The Fed has twice hiked its policy rate by three-quarters of a percentage point, in June and July. Since March, it has lifted that rate from near zero to its current range of 2.25% to 2.50%.

Some of the price pressures are coming from the labor market, where the Fed is trying to dampen demand for workers.

Data last week showed first-time applications for unemployment benefits at a three-month low. Job growth was solid in August and there were two job openings for every unemployed person on the last day of July.

That is supporting strong wage gains, contributing to higher prices for services and keeping underlying inflation elevated.

Excluding the volatile food and energy components, the CPI rose 0.6% in August after advancing 0.3% in July. Economists had forecast the so-called core CPI increasing 0.3%.

Owners equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, increased 0.7%. It jumped 6.3% on a year-on-year basis, the largest increase since April 1986. Rents are sticky and account for a significant share of the CPI basket, meaning that inflation will remain elevated for some time.

Higher mortgage rates and home prices are reducing affordability for many first-time buyers, driving up demand for rental accommodation. A potential strike by rail workers, which could shutdown the American rail system and hinder the movement of goods as early as Friday could add to the inflation fires.

“While private sector measures of rent growth suggest the corresponding CPI categories may be close to peaking on a monthly basis, the slow-moving nature of primary rent and OER in the CPI data suggest housing will continue to provide a sizable boost to core inflation in the coming months,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.

Underlying inflation was also driven by higher prices for household furnishings and operations as well as motor vehicle insurance and education. New motor prices vehicles increased 0.8%. But there were decreases in the costs of airline fares, communication and used cars and trucks. Prices for hotel and motel rooms were unchanged.

Healthcare costs rose 0.7%, with prices for hospital services increasing 0.7% and prescription medication gaining 0.4%. In the 12 months through August, the core CPI increased 6.3% after rising 5.9% in July.

“Wages and shelter costs will remain the primary drivers of future inflation,” said Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles. “No significant respite in inflation is in sight.”

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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Business

Stocks Fall on Hotter-Than-Expected Inflation Data

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The Dow Jones Industrial Average slumped more than 1,000 points Tuesday after hotter-than-expected inflation data dashed investors’ hopes that cooling price pressures would prompt the Federal Reserve to moderate its campaign of interest-rate increases.

Investors sold everything from stocks and bonds to oil and gold. All 30 stocks in the blue-chip average declined, as did all 11 sectors in the S&P 500. Only five stocks in the broad benchmark were in the green in recent trading. Facebook

 

META -9.36%

parent

Meta Platforms

dropped 8.3%,

BlackRock

declined 7.2% and

Boeing

fell 6.4%.

The 3.3% tumble in the Dow put the index on pace for its worst day since May. The S&P 500 declined 3.7%, while the Nasdaq Composite slid 4.5% as rate-sensitive technology stocks took a heavy beating.

The Dow is off 14% in 2022, while the S&P 500 is down 17% and the Nasdaq Composite has fallen 25%.

Investors had eagerly anticipated Tuesday’s release of the consumer-price index, which provided a last major look at inflation before the central bank’s interest-rate-setting committee meets next week. Expectations for the path of monetary policy have held sway over the markets as investors factor higher rates into asset prices and try to project how well the economy will hold up as rates rise.

“It increases the probability of recession if the Fed has to move more significantly to address inflation,” said Chris Shipley, chief investment strategist for North America at Northern Trust Asset Management.

The consumer-sentiment index and the consumer-confidence index both try to measure the same thing: consumers’ feelings. WSJ explains why the Federal Reserve is keeping a close eye on consumer confidence in 2022. Illustration: Adele Morgan

The new data showed the consumer-price index rose 8.3% in August from the same month a year ago. That was down from 8.5% in July and 9.1% in June—the highest inflation rate in four decades.

The figures show inflation is easing, but at a slower pace than investors and economists had anticipated. Economists surveyed by The Wall Street Journal had been expecting consumer prices to rise 8% annually in August.

Analysts had hoped that officials would consider easing their pace of interest-rate increases if data continued to show inflation subsiding. The data undercut those hopes, seeming to settle the case for the Fed to raise rates by at least 0.75 percentage point next week. After the release, stock futures fell, bond yields rose and the dollar rallied.

Traders began to consider the possibility that the central bank will raise interest rates by a full percentage point next week.

As of Tuesday afternoon, they assigned a 28% probability to a 1-percentage-point increase at that meeting, up from a 0% chance a day earlier, according to CME Group’s FedWatch Tool.

The market-based probability of a half-percentage-point increase, by contrast, fell to 0% from 9% on Monday, according to the CME data.

The most likely scenario remained an increase of 0.75 percentage point.

Beyond next week, the suggestion that inflation is sticking around raises the possibility that the Fed might ultimately raise rates higher than markets had been anticipating.

“That’s really the challenge,” said Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing. “The Fed might have to do a lot more work in order to contain inflation.”

Food prices have surged as part of a broader pickup in U.S. inflation.



Photo:

michael reynolds/EPA/Shutterstock

Fed Chairman

Jerome Powell

said earlier this month that the central bank is squarely focused on bringing down high inflation to prevent it from becoming entrenched as it did in the 1970s.

The reaction to the new inflation reading could be seen across asset classes.

The communication services, technology and consumer discretionary sectors of the S&P 500 all fell more than 4.5%. Semiconductor stocks were particularly hard hit:

Western Digital,

Nvidia,

Advanced Micro Devices

and

Micron Technology

declined more than 7%.

In bond markets, the yield on the benchmark 10-year U.S. Treasury note jumped to 3.429% from 3.361% Monday. Yields and prices move in opposite directions. The rise in bond yields was an additional sign that investors were expecting higher interest rates after the data. 

Brent crude, the international benchmark for oil prices, fell 0.9% to $93.17 a barrel. Gold prices declined 1.3%.

The U.S. dollar, by contrast, rallied Tuesday. The WSJ Dollar Index, which measures the greenback against a basket of other currencies, rose 1.3%. The strong dollar has weighed on the value of other currencies against the greenback this year.

Overseas, the pan-continental Stoxx Europe 600 fell about 1.5%. In Asia, major indexes closed mixed. South Korea’s Kospi Composite rallied 2.7% , while Hong Kong’s Hang Seng declined 0.2%. 

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Karen Langley at karen.langley@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Germany, EU race to fix energy crisis

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  • Germany plans to expand lending to energy firms
  • EU securities watchdog mulling EU-wide measures
  • Commission to announce broader plans on Wednesday

BERLIN/FRANKFURT, Sept 13 (Reuters) – Germany will step up lending to energy firms at risk of being crushed by soaring gas prices, it said Tuesday, as Europe readied proposals to help households and industry cope with an energy crisis.

The European Commission will on Wednesday announce targets to cut electricity consumption and a revenue cap for non-gas fuelled plants. Energy ministers will hold an emergency meeting on Sept. 30 to discuss them. read more

Separately, the EU’s securities watchdog is considering measures to help energy firms struggling to meet rocketing collateral demands. Firms were caught out by surging prices after Russia cut gas supplies to Europe to counter Western sanctions following Moscow’s invasion of Ukraine. read more

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The crisis is weighing heavily on Europe’s economy, even before winter when industrial users could face rationing if gas reserves prove inadequate. Industry sentiment in the bloc’s economic powerhouse, Germany, has tumbled.

“Of course we knew, and we know, that our solidarity with Ukraine will have consequences,” German Chancellor Olaf Scholz said on Tuesday. He urged Germans to brace for a tough winter as its energy supply shifts from Russian gas. read more

Under pressure utilities are in line for further state aid.

Germany’s finance ministry wants to boost state loans for energy firms using facilities set up to offer relief during the COVID-19 pandemic, it said. The German cabinet is expected to approve draft legislation on Wednesday. The loan guarantees could amount to 67 billion euros ($68 billion). read more

Last week, VNG, one of Germany’s biggest importers of Russian natural gas, became the latest energy firm to ask the government for aid.

Uniper (UN01.DE), the country’s largest importer of Russian gas, was bailed out in July. It is weighing legal action in Sweden to claim billions of euros in compensation from Russia’s Gazprom (GAZP.MM), Reuters reported on Tuesday. read more

RAFT OF EU PROPOSALS

Companies may also benefit from an easing of regulations.

The European Securities and Markets Authority (ESMA) is “actively considering” whether any regulatory measures are necessary to help support energy firms, a spokesperson said on Monday. read more

ESMA regulates clearing houses in the EU, which in turn set minimum levels of collateral based on risks from markets and counterparties. Public intervention in this area is rare, especially after the global financial crisis over a decade ago led to tougher margin requirements.

A draft of the European Commission’s proposals, seen by Reuters, would cap at 180 euros per megawatt hour the price at which wind, solar and nuclear plants could sell their power in the 27-nation bloc. It would also force fossil fuel firms to share excess profits. read more

Governments would be required to use the cash to help consumers and companies facing sky-high energy bills.

EU officials said, however, that plans for emergency liquidity support for power firms facing soaring collateral needs were still being drafted, and would likely be published later than Wednesday.

NO GAS PRICE CAP

Diplomats say there is broad support for a revenue cap for non-gas generators, as well as plans to impose electricity demand cuts. But countries are split over other ideas – including a gas price cap.

The EU has also backed away from an earlier plan to impose a price cap on Russian gas. Countries including Hungary and Austria had opposed that idea in case Moscow retaliated by cutting off the supplies it still sends to the EU.

Meanwhile, investor sentiment in Germany deteriorated more than expected in September as concerns over its energy supply weighed on the outlook for Europe’s largest economy. read more

“The prospect of energy shortages in winter has made expectations even more negative for large parts of the German industry,” said Achim Wambach, president of the ZEW economic research institute.

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Additional reporting by Kate Abnett in Brussels and Andreas Rinke in Berlin; Writing by Ingrid Melander;
Editing by Mark Potter, Matt Scuffham and Mark Heinrich

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Business

Twitter’s whistleblower testifies before Senate committee

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One of Zatko’s chief allegations against Twitter is that it does not reliably delete the data of users who cancel their accounts.

Expanding on that claim, Zatko told lawmakers Tuesday that the company’s chief privacy officer had come to him admitting that Twitter has deliberately misled regulators who asked about Twitter’s deletion practices.

“I was told straight out by the chief privacy officer that the [Federal Trade Commission] had come and asked, ‘Does Twitter delete users’ information?’,” Zatko said. “He said, ‘I need you to know this because other regulators are asking us, and this ruse is not going to hold up.'”

Twitter has allegedly told regulators that it deactivates user accounts but has been elusive about whether it fully deletes the data. In response to questions from CNN, Twitter has previously said it has workflows in place to “begin a deletion process” but has not said whether it typically completes that process.

Asked by Sen. Mazie Hirono whether Twitter has the capability to delete user data appropriately, Zatko said it would be possible if Twitter had better control of its data, but that it does not, in a “fundamental root problem” for the company.

“They need to know what data they have, where it is, why they got it and who it is attached to,” Zatko said. “At that point, they would be able to delete.”

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Business

Twitter whistleblower reveals employees concerned China agent could collect user data

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Sept 13 (Reuters) – Disclosures from a former Twitter Inc (TWTR.N) executive turned whistleblower show that Twitter was informed of at least one Chinese agent working at the social media company, U.S. Senator Chuck Grassley said in his opening remarks during a Senate hearing on Tuesday featuring testimony from the whistleblower.

Peiter “Mudge” Zatko, a famed hacker who served as Twitter’s head of security until his firing last year, said during the hearing that some Twitter employees were concerned that the Chinese government would be able to collect data on the company’s users.

He referenced a Reuters story on Tuesday that detailed internal clashes between some teams that wanted to maximize the advertising revenue opportunity from Chinese advertisers and others who were concerned about doing business inside China amid rising geopolitical tensions. read more

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“This was a big internal conundrum,” Zatko said, adding the company was reluctant to turn away from China as the fastest- growing overseas market for ad revenue.

“In a nutshell, if we were already in bed, it would be problematic if we lost that revenue stream,” he said.

The whistleblower disclosures had noted that the U.S. Federal Bureau of Investigation had informed Twitter of at least one Chinese agent inside the company, Grassley said in his opening statement.

Zatko said on Tuesday that in the week before he was fired from Twitter, he learned an agent of China’s Ministry of State Security, or MSS, an agency comparable to the U.S. Central Intelligence Agency, was on the payroll at Twitter.

It was not immediately clear if the alleged Chinese agent was still working at the company.

Twitter did not immediately respond to a request for comment on Zatko’s testimony.

In his testimony, Zatko said he recalled a conversation with another Twitter executive about concerns that a foreign agent was inside the company. The executive responded “Well, since we already have one, what does it matter if we have more?”

LITIGATION AGAINST MUSK

Grassley noted that Twitter Chief Executive Parag Agrawal refused to appear at the hearing for fear it could jeopardize the company’s litigation against Elon Musk, who is also the CEO of Tesla Inc (TSLA.O). Twitter and Musk head to trial next month over whether the $44 billion takeover deal should be completed.

Later on Tuesday, Twitter will also announce the results of a shareholder vote on Musk’s takeover of the company. A majority of shareholders have already approved the deal, sources told Reuters. read more

The San Francisco-based company sued Musk for terminating the agreement, while the Tesla chief executive countersued, accusing Twitter of misrepresenting the number of false and spam accounts on its service.

A Delaware judge ruled last week that Musk may include Zatko’s whistleblower claims in his case against Twitter, but denied his request to delay the trial. read more

The Senate Judiciary Committee is questioning Zatko over his claims that Twitter misled regulators about its compliance with a 2011 settlement with the Federal Trade Commission over improper handling of user data.

Since then, Twitter has made “little meaningful progress on basic security, integrity and privacy systems,” Zatko’s complaint filed with regulators in July said.

Twitter has said Zatko was fired for “ineffective leadership and poor performance,” and that his allegations appeared designed to harm Twitter.

Zatko’s whistleblower complaint appeared to contain over two pages of links to supporting documents, such as emails between Zatko and CEO Agrawal and an assessment of misinformation and disinformation on Twitter. The number of documents was limited compared with those provided by Facebook (META.O) whistleblower Frances Haugen, who released thousands of pages of internal material.

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Reporting by Sheila Dang in Dallas; Additional reporting by Richard Cowan and David Shepardson in Washington
Editing by Kenneth Li, Lisa Shumaker and Matthew Lewis

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Business

Wall Street tumbles as inflation data stokes bets of large rate hikes

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  • U.S. consumer prices rise more than expected in August
  • Traders price in a small chance of 100 bps rate hike
  • Indexes down: Dow 1.87%, S&P 2.30%, Nasdaq 3.07%

Sept 13 (Reuters) – U.S. stock indexes fell sharply on Tuesday, snapping a four-day winning streak, after data showed monthly U.S. consumer prices unexpectedly rose in August, cementing bets of a third straight 75-basis-point rate hike from the Federal Reserve next week.

All of the 11 S&P sectors declined in early trading, led by a 3.3% slump in the communication services sector (.SPLRCL). The small cap Russell 2000 index (.RUT) dropped 2.5%.

The S&P 500 growth stocks index (.IGX), which houses rate-sensitive technology and growth stocks, fell 3% as Treasury yields rose, while its value counterpart (.IVX) lost 1.6%.

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Mega-cap technology stocks Apple Inc (AAPL.O) and Microsoft Corp (MSFT.O) fell more than 2.3% each, while Tesla Inc (TSLA.O), Alphabet Inc (GOOGL.O), Amazon.com Inc (AMZN.O) and Meta Platforms Inc (META.O) dropped between 2.7% and 5.6% to weigh the most on the S&P 500 and the Nasdaq.

The Labor Department’s consumer price index (CPI) report showed monthly CPI gained 0.1% in August from July, against expectation of a 0.1% dip. On a year-on-year basis it increased by 8.3%, while economists were anticipating a rise of 8.1%, according to a Reuters poll. read more

Excluding the volatile food and energy components, core CPI increased to 6.3% from 5.9% in July, putting further pressure on the Fed to continue on its rate-hike spree.

“The longer term view is pretty clear here, that monetary policy is a very blunt instrument and anybody that thought inflation would start to roll over just because the Fed hiked a couple times is pretty ignorant to the way economics works,” said Doug Fincher, portfolio manager at Ionic Capital Management.

Policymakers last week emphasized their determination to keep raising rates until there is a sustained drop in inflation, which has been running at 40-year highs and above the Fed’s target of 2%.

Money markets now see an 81% chance of a 75-basis-point increase in rates and 19% chance of a whopping 100 bps hike by the Fed at its Sept. 20-21 meeting, while expecting rates to peak around 4.28% in March 2023.

The dollar , which has risen sharply this year in part due to expectations of aggressive rate hikes by the Fed, erased early morning losses to climb 1%.

The gap between yields on the two- and 10-year notes , often seen as an indicator of a looming recession, inverted further. Rate-sensitive bank stocks (.SPXBK) dropped 2%.

At 9:46 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 606.02 points, or 1.87%, at 31,775.32, the S&P 500 (.SPX) was down 94.40 points, or 2.30%, at 4,016.01, and the Nasdaq Composite (.IXIC) was down 376.36 points, or 3.07%, at 11,890.06.

The three major indexes had rallied recently as investors took advantage of a sharp drop in stock prices since mid-August that was triggered by concerns over soaring inflation and the impact of tighter monetary policy to curb it.

Eastman Chemical (EMN.N) slid 5% after the company forecast a downbeat third-quarter profit, citing demand slowdown in consumer durables market, higher costs and a hit from a stronger dollar.

The CBOE volatility index (.VIX), also known as Wall Street’s fear gauge, rose to 24.97 points.

Declining issues outnumbered advancers for a 11.92-to-1 ratio on the NYSE and a 6.29-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and no new low, while the Nasdaq recorded 9 new highs and 62 new lows.

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Reporting by Devik Jain and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta

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