US open: Stocks slide lower following latest inflation report

11 January 2019

(Sharecast News) - US stocks edged lower at the open on Friday as investors thumbed over an in-line reading on inflation.
At 1530 GMT, the Dow Jones Industrial was 0.71% lower at 23,832.64, while the S&P 500 had lost 0.56% to 2,582.09 and the Nasdaq traded 0.50% softer at 6,951.12.

Trade relations between the US and China were still very much in focus after Treasury Secretary Steve Mnuchin said that China's lead trade official, Vice Premier Liu He, would "most likely" head over to the US for further trade talks later this month.

"The current intent is that the Vice Premier Liu He will most likely come and visit us later in the month and I would expect the government shutdown would have no impact," Mnuchin told reporters on Thursday.

"We will continue with those meetings just as we sent a delegation to China."

"That comment appears to have renewed hopes that the recent get-together in Beijing, though not producing any concrete progress just yet, was nevertheless a step towards an eventual trade war resolution," said <em>Spreadex</em> analyst Connor Campbell.

Also on Thursday, Federal Reserve chairman Jerome Powell said at the economic Club of Washington that the Fed was ready to wait before hiking rates again. Powell also said that the US central bank's balance sheet will be "substantially smaller" than it is now, "but nowhere near where it was before".

Russ Mould, investment director at <em>AJ Bell</em>, said: "Although financial markets are breathing a sigh of relief that the US Federal Reserve now seems less aggressive on interest rates, after nine increases since late 2015, they may be less pleased with chair Jay Powell's comments in Washington yesterday that it is still the plan to make the central bank's balance sheet 'substantially smaller' over time.

"This means that the Fed will continue to tighten monetary policy and drain away some of the cheap money which, it could be argued, has done so much to fuel prices across shares, bonds and a range of other asset classes over the last decade."

In corporate news, <strong>Activision Blizzard</strong> was down 10.38% in early trade after the video game company announced late on Thursday that it was transferring publishing rights for its Destiny franchise to Bungie. This will mean that Activision will not include revenue or operating income from the franchise this year.

Elsewhere, <strong>American Airlines</strong> flew 1.53% lower after it downgraded its profit estimate for 2018 on Thursday and cautioned that it will struggle to increase revenues towards the end of the year.

<strong>Apple</strong> inched back 0.46% after the Wall Street Journal said it was planning three new iPhone models this year, including a device to succeed the newly-created XR model.

On the data front, US consumer prices fell back just as expected last month amid a sharp drop in energy costs but, according to analysts, amid broad-based inflationary pressures at the core level.

According to<em> the Bureau of Labor Statistics</em>, the rate of increase in the headline consumer price index slowed from a year-on-year pace of 2.2% for November to 1.9% in December (consensus: 1.9%).

The cost of food picked-up noticeably, rising by 0.4% versus the previous month, but energy costs slid by 3.5%.

At the 'core' level meanwhile, which excludes both food and energy costs, CPI was up by 0.2% on the month and by 2.2% on the previous year (consensus: 2.2%).

Mickey Levy at <em>Berenberg Capital Markets</em> said: "Energy and other commodity prices remain low and the stronger US dollar has lowered prices of non-petroleum imports, offsetting the upward pressure on consumer prices from solid domestic demand and tariffs."

"Measures of inflation expectations remain relatively low. Inflation pressures in the US are well contained."

As of 1530 GMT, the yield on the benchmark 10-year US Treasury note was down by five basis points to 2.69% and that on the two-year note by four to 2.53%.