New York Stock Market Declines Early Amid Oil Price and Inflation Concerns

The three major indices of the U.S. New York stock market are showing a downward trend near the flat line on the 6th (local time). This follows the previous day's decline due to a sharp rise in international oil prices, continuing the downward momentum.

At around 10:11 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, composed of blue-chip stocks, was down 72.15 points (0.21%) from the previous close, trading around the 34,569 level. The S&P 500, focused on large-cap stocks, fell 24.17 points (0.54%) to around 4,472, while the tech-heavy Nasdaq dropped 125.85 points (0.9%) to about 13,895.

Currently, within the S&P 500, stocks related to technology, healthcare, communications, and discretionary consumer goods are declining, while energy, utilities, and industrial stocks are rising. Leading pharmaceutical stocks Merck and Johnson & Johnson each fell about 1.6%, leading the weakness in healthcare-related stocks. Moderna and Pfizer also slipped around 1.5% each. Southwest Airlines dropped over 1% after lowering its Q3 revenue outlook and expressing concerns over rising fuel costs. AMC Entertainment plunged nearly 20% after announcing plans to sell up to 40 million common shares. Due to the European Union (EU)'s big tech regulations, Apple, Amazon, and Google Alphabet are also weak. Tesla fell 3.6%, and Nvidia dropped 3%. On the other hand, Roku rose over 8% after announcing cost-cutting measures including layoffs of about 10% of its workforce.

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Investors are closely watching the flow of international oil prices along with key economic indicators released today and remarks from Federal Reserve (Fed) officials. Saudi Arabia announced it will continue voluntary production cuts through the end of the year, pushing oil prices to their highest levels since November last year. This rise in oil prices not only increases inflationary pressures across the economy but could also dampen expectations for the Fed to end its tightening based on recent soft-landing forecasts. As of this morning, West Texas Intermediate (WTI) crude oil is trading around $86.8 per barrel, and Brent crude is around $90.0 per barrel.

Mohamed El-Erian, chief advisor at Allianz, appeared on CNBC's Squawk Box and said that the rise in oil prices will increase inflationary pressures and, combined with a stronger-than-expected economic situation, will impact the Fed's future rate decisions. He also predicted that the Fed will hold rates steady this month but will leave open the possibility of one more rate hike in the future. Bill Muir, head of capital markets research at U.S. Bank Wealth Management, also said, "Rising oil prices can be reflected in inflation," adding, "This leads to Treasury yields and Fed monetary policy."

In the New York bond market, Treasury yields showed a slight increase. As of this morning, the benchmark 10-year yield is around 4.28%, and the 2-year Treasury yield, sensitive to monetary policy, is around 5.0%. The dollar index, which measures the value of the dollar against six major currencies, rose 0.1% to 104.9 compared to the previous close.

The U.S. ISM August Services Purchasing Managers' Index (PMI) released this morning was 54.4, the highest level since February. This exceeded the market forecast of 52.5. A PMI above 50 indicates economic expansion, while below 50 indicates contraction. CNBC reported that, in contrast to the manufacturing sector which has been contracting for 10 consecutive months, the services sector has expanded for 8 consecutive months. Inventories rose by 7.3 points, and the employment index increased by 4 points. On the same day, S&P Global's August Services PMI was finalized at 50.5, below the previous month's 52.3 but still above the baseline of 50.

The U.S. trade deficit widened for the first time in three months. According to the U.S. Department of Commerce, the July trade deficit was $65 billion, up 2.0% from the previous month. Exports increased by $3.9 billion to $251.7 billion, while imports rose by $5.2 billion to $316.7 billion, leading to a wider deficit. However, the July trade deficit was below the Dow Jones estimate of $68 billion.

The Fed's Beige Book, which contains the Fed's economic assessment, will also be released this afternoon. Fed officials' public remarks are ongoing.

Susan Collins, president of the Boston Federal Reserve Bank, said at an event in Boston today, "We may be close to or even at the peak of the policy rate," but added, "Additional tightening may be necessary depending on incoming data." She emphasized that at this stage of the policy cycle, patience and a comprehensive evaluation of data are essential, highlighting the need for a cautious approach. This aligns with recent remarks by Fed Chair Jerome Powell and Governor Christopher Waller, who said that future rate hikes could proceed "cautiously" amid positive indicators. Collins does not have a voting right on the FOMC this year. In a Q&A, she also said that she still considers an economic slowdown scenario as the baseline forecast.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market this morning reflects over a 91% probability that the Fed will hold rates steady in September. The Fed's June dot plot previously indicated the possibility of one more hike this year. The remaining FOMC meetings this year are in September, November, and December.

European stock markets are also showing declines. Germany's DAX index is down 0.12%, France's CAC index is down 0.69%, and the UK's FTSE index is slightly lower.