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Recession Fears Weigh on Stocks
Morning Markets
September S&P 500 futures (ESU22) this morning gave up overnight gains and are down by -1.08%. Stocks are weighed down today by mounting concerns that tighter Fed policy will push the U.S. economy into recession. Stocks tied to economic activity, such as automakers and commodity companies, are leading losses in pre-market trading today.
U.S. stock indexes initially moved higher in overnight trade on optimism about U.S.-China talks aimed at tariff reductions. U.S. and Chinese officials discussed U.S. economic sanctions and tariffs today amid reports the Biden administration will soon roll back some of the trade restrictions imposed by President Trump. According to a statement today from China’s Ministry of Commerce, the two sides discussed economic policy and stabilizing global supply chains, and the talks were pragmatic and constructive.
The Reserve Bank of Australia (RBA) today raised its key benchmark interest rate by 50 bp to 1.35%, as expected. The Australian central bank is among more than 80 central banks to have raised interest rates this year.
The Euro Stoxx 50 today dropped to a 1-1/2 year low and is down by -1.96%. Persistent recession fears are weighing on stocks today, led by losses in automakers and consumer stocks. Basic resource companies and mining stocks are also falling today on demand concerns, with the price of copper down more than -3% at a 1-1/2 year low. In addition, EUR/USD tumbled to a 2-year low today on concern the ECB will be slow to tighten monetary policy.
The Eurozone Jun S&P composite PMI was revised upward by +0.1 to 52.0 from the previously reported 51.9.
France May manufacturing production rose +0.8% m/m, stronger than expectations of +0.3% m/m.
Asian markets today settled mixed. China’s Shanghai Composite Index closed down by -0.04%, and Japan’s Nikkei stock index closed up by +1.03%.
China’s Shanghai Composite Index today fell back from a 3-3/4 month high and closed slightly lower. Concern the government could reimpose pandemic lockdown measures undercut Chinese stocks today. China has launched mass testing for nine districts in Shanghai after detecting new Covid infections, and 66 new Covid infections were reported in Jiangsu province Tuesday, the second-biggest province for China's economic output.
Chinese stocks today initially moved higher on reports that senior U.S. and Chinese officials discussed U.S. economic sanctions and tariffs today as the Biden administration is mulling whether to unilaterally cut tariffs imposed by former president Trump. Signs of strength in China’s service sector also briefly gave equities a lift today after China’s June Caixin services PMI rose +13.1 to 54.5, stronger than expectations of 49.6 and the strongest pace of expansion in 11 months.
Japanese stocks pushed higher today on speculation the Biden administration may scrap some tariffs on Chinese consumer goods. Japanese stocks moved higher today despite weaker-than-expected Japanese economic data on wages and activity in the service sector. The weak data may prompt the BOJ to maintain QE and keep interest rates at record lows.
The Japan Jun Jibun Bank services PMI was revised downward by -0.2 to 54.0 from the originally reported 54.2.
Japan May real cash earnings fell -1.8% y/y, weaker than expectations of -1.6% y/y and the biggest decline in 1-3/4 years.
Pre-Market U.S. Stock Movers
Tesla (TSLA) is down more than -1% in pre-market trading after reporting 254,695 vehicle deliveries in Q2, below the consensus of 261,181 vehicles. Also, Tesla announced that several factories in China and Germany would be idled for several weeks for upgrade work.
Netflix (NFLX) slid -1% in pre-market trading after Piper Sandler cut its price target on the stock to $210 from $293.
HP Inc (HPQ) fell -2% in pre-market trading after Evercore ISI downgraded the stock to in-line from outperform, saying that “headwinds could get more severe.”
Aegon NV (AEG) dropped more than -6% in pre-market trading after Exane BNP Paribas cut its recommendation on the stock to underperform from neutral.
Cruise line operators are falling in pre-market trading on recession concerns, with Carnival (CCL) down more than -4% and Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) down more than -3%.
Antero Resources (AR) rose nearly +3% in pre-market trading after Truist Securities raised its recommendation on the stock to buy from hold.
Cowen (COWN) jumped more than +12% in pre-market trading following a report late Friday that Toronto-Dominion was said to be exploring a takeover of the company.
Today’s U.S. Earnings Reports (7/5/2022)
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