Premarket Stocks: What’s Behind the Technical Stock Sell? Inflation!

Inflation expectations: Last week, the Federal Reserve raised its inflation forecasts for 2021, 2022 and 2023. It now expects the core personal consumption expenditure index, the central bank’s preferred measure of price tracking, to rise 3.7% this year, compared to the 3% recorded in June. was forecast, and by 2.3% next year, an increase of 2.1%. Core inflation could remain at 2.2% in 2023, still above the central bank’s 2% target.

The Bank of England also said that while it still believes inflation will pass, it does not think it has peaked. Sky-high energy costs, which could trigger a harsh winter, have become a particularly worrying factor.

These developments make it more likely that central banks are more likely to raise interest rates from historical lows. In its most recent projection, the Fed indicated it could start raising interest rates next year rather than 2023. Rolling back bond-buying programs could also be more aggressive if there are signs that inflation is out. could run the hand.

“[Tuesday’s] The rate-driven sell-off is a reminder of the impact of monetary stimulus, with the Fed signaling that emergency stimulus will soon be lifted,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Bond yields: The most immediate concern, however, is what is happening in bond markets due to inflation fears. In recent days, amid looming action from central banks, investors have sold government bonds, pushing interest rates higher.

That tends to hurt tech stocks. When government bond yields are extremely low, it increases interest in riskier investments that offer better returns. The valuation of technology companies is also tied to future earnings, which look bleaker as inflation and higher interest rates hit the scene.

Today, as technology stocks go, so goes the market. In a note sent Tuesday, Goldman Sachs reminded customers that information technology and communications services now make up 40% of the combined market value of the S&P 500.

There’s more: these aren’t the only headwinds that markets are trying to push through. There are also concerns about the US debt limit (more on that below), economic growth in China and a possible turmoil at the Fed.

“This has created some uncertainty, at least on the margins, and we don’t think it could have come at a worse time for equities given the existing pressures from the bond market and Capitol Hill,” Wells Fargo equity strategist Christopher Harvey said in a press release. . note to clients Wednesday.

Looking ahead: Stocks in Europe are already recovering and US futures indicate that equities could regain some lost ground. But analysts believe that volatility could continue to flow through the system in the coming days.

Evergrande raises $1.5 billion. The troubles aren’t over yet

Evergrande plans to raise much-needed money with Beijing’s help. But the fate of the heavily indebted Chinese real estate developer remains uncertain and poses an ongoing risk to the country’s markets and economy.

The latest: Evergrande has reached a deal to sell part of its stake in Shengjing Bank, a local lender, to the state-owned Shenyang Shengjing Finance Investment Group for nearly 10 billion yuan, or about $1.5 billion. Investors cheered the news, sending shares in Hong Kong up nearly 16%, reports my CNN Business colleague Michelle Toh.

Yet the company is still staring at a mountain of debt of $300 billion. An interest payment of nearly $50 million is due on Wednesday. Investors are waiting to hear if the company will meet its obligations or slip closer to bankruptcy.

Under the terms of the agreement, the proceeds from the Shengjing Bank deal would be used to settle “financial obligations” between the two parties. This means that Evergrande probably won’t be able to use the money to cover his other debts.

Step back: In recent days, the Chinese government has taken measures to preemptively protect markets and consumers, pumping money into the financial system to stabilize the situation and calm nerves.

There has also been speculation that Chinese officials may ask state-owned companies to back Evergrande. Wednesday’s sale backs up this claim, although it’s still not clear exactly how Beijing plans to move forward.

“[Is] that the government is prepared for Evergrande to default on all these bonds? That will create volatility in the market,” said Iris Pang, ING’s chief economist for Greater China. “Or does the government want Evergrande to continue running and operating, building and selling? … We’re still not sure.”

America’s Largest Bank Prepares for a US Default

Dimon said he expects Congress to eventually come to an agreement and avoid a “potentially catastrophic” event. But he is sick of the dysfunction.

“Every time this happens, it gets resolved, but we should never get that close,” Dimon said. “I just think this whole thing is wrong and that one day we should just have a bipartisan law and abolish the debt ceiling. It’s all political.”

“It is uncertain whether we can continue to meet all the country’s obligations after that date,” Yellen wrote in a letter.

The warning came hours after Senate Republicans blocked a bill that would have suspended the debt cap, leaving both parties in a stalemate with no solution in sight. Democrats want Republicans to join them in a bipartisan vote to suspend the debt cap, but Republicans insist they won’t, and have called on Democrats to act alone. Expect the rest of the week to be tense.

Next one

Shares of eyewear brand Warby Parker will trade on the New York Stock Exchange.

Also today: Fed Chair Jerome Powell speaks at the ECB Forum on Central Banks at 11:45 a.m. ET.

Tomorrow: On Thursday, September 30 at noon ET, CNN Business presents “Foreseeable Future: Cryptomania.”