The Market Today

Inflation Continues to Weigh on Small Business Sentiment


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Inflation Continues to Weigh on Business Sentiment: Small business sentiment declined more than expected in January, down from 98.9 to 97.1 according to the NFIB survey. The percentage of respondents citing inflation as their single biggest problem held steady at 22%, the highest percentage since 1981.  The percentage saying they are raising prices rose another 4% to 61%, the highest since 1974. The number of respondents saying they are trying to hire but have found “no or few applicants” declined from 57% to 55%, now down from 62% in September. According to NFIB Chief Economist Bill Dunkelberg, “More small business owners started the New Year raising prices in an attempt to pass on higher inventory, supplies, and labor costs. … In addition to inflation issues, owners are also raising compensation at record high rates to attract qualified employees to their open positions.”

December Trade Deficit Smaller than Expected: The December trade deficit increased $1.4b to $80.73b as imports rose 1.6% MoM and exports gained 1.5%.  The December deficit was $2.3b smaller than expected. The result should add 0.2% to the first GDP revision for 4Q.


OTHER ECONOMIC NEWS

Consumer Credit Growth Normalized in December after Large November Gain: Consumer credit rose less than expected in December after a steep climb in November. Total credit excluding real estate increased by $18.898b at the end of the year, coming up short of the $21.9b gain expected and less than half of the $38.821 billion jump in November. November’s surge was among the strongest over the last several decades and spurred largely by a big increase in revolving borrowings, which primarily reflect credit card balance changes. December’s gain was more evenly spread between revolving (+2.4% annualized rate) and nonrevolving (+6.0%) balances.


TRADING ACTVITY

Stocks Slipped Late on Tech Turndown As Short Yields Step Back after Big Weekly Gain: The S&P 500 flipped between gains and losses several times Monday before selling off sharply in the final hour of trading to close near session lows. The index ended down 0.4% after pulling back from a 0.5% gain just 45 minutes before the market close. The afternoon weakness appeared to be heavily influenced by a late decline for tech-related companies. The sectors were the clear underperformers within the S&P 500 and included another 5.1% decline in shares of Meta Platforms, the parent company of Facebook. The company’s stock has plunged more than 30% over the last three sessions following its surprisingly weak quarterly earnings announcement. The Nasdaq led losses with a 0.6% drop while the Dow ended the day essentially unchanged. Treasury yields fluctuated very little during U.S. trading, generally holding their overnight changes that steepened the curve. The 2-year yield ended the day 2.0 bps lower at 1.29% after closing Friday at its highest level since February 2020. The 5-year yield was roughly flat from Friday while the 10-year yield rose 0.7 bps to 1.92%, a new high since 2019. Longer European yields rose Monday but closed off their highs following a speech from ECB President Lagarde. She rattled markets last week with a more hawkish tone after the January meeting but told lawmakers Monday that “any adjustment to our policy will be gradual.”

Not surprisingly, global markets are mixed again on Tuesday, caught in a lull between last week’s central bank decisions and U.S. payroll report and the upcoming CPI inflation data on Thursday. Equities in Asia were little changed on the whole and Europe’s Stoxx 600 was flat on a mix of gains and losses in the region. U.S. equity futures were also mixed at 7 a.m. CT. The Dow was 0.1% higher while the Nasdaq slipped a similar amount. Notably, oil prices pulled back from more-than seven-year highs on hopes for some relief in tensions along the Ukraine’s border with Russia after a meeting between the presidents of France and Russia. Despite the weaker-than-anticipated reading on small business confidence, Treasury yields extended their recent trek higher to new cycle-highs across the curve. At 7:30 a.m. CT, the 2-year yield was 2.9 bps higher at 1.32% and the 5-year yield had added 3.3 bps to 1.80%. The 10-year yield rose 3.5 bps to 1.95%, the closest it has been to 2.00% since July 2019.


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