June S&P 500 futures (ESM23) are trending down -0.08% this morning after three major U.S. benchmark indices ended the regular session mixed as weaker-than-estimated economic data fueled worries that the Federal Reserve’s rate-hike campaign could push the U.S. economy into a recession, while investor focus shifted to key Friday’s U.S. jobs report.
Investor attention is now squarely on the crucial U.S. March Nonfarm Payrolls report that will be released on Good Friday, a market holiday, and is expected to provide more clues on the health of the U.S. economy.
In Wednesday’s trading session, the tech-heavy Nasdaq 100 underperformed major benchmarks as investors shifted from growth stocks to defensive trades following weak U.S. economic data. Economically sensitive industrial stocks also weighed on the broader market as investors worried about a potential economic downturn. At the same time, a rise in the heavyweight healthcare components of the Dow Jones Industrial helped keep the blue-chip index in positive territory.
The ADP National Employment report showed Wednesday that private payrolls increased by 145K in March, a sharp decline from 261K in February and below economists’ forecast of 200K. Also, U.S. ISM Non-Manufacturing PMI slowed more than expected to 51.2 in March amid weaker new orders growth and softer business activity. In addition, U.S. Trade Balance came in at -$70.50B in February, weaker than expectations of -$69.00B.
“The Fed did what it wanted. The economy is slowing down. It's working. When the Fed raises interest rates, the effects are both cumulative and with a lag. The lag is over, we are seeing broad-based softness,” said Peter Tuz, president of Chase Investment Counsel.
After a batch of weak economic data, U.S. rate futures have priced in a 58.2% chance of no hike and a 41.8% chance of a 25 basis point rate increase at the May meeting.
Cleveland Fed President Loretta Mester said Wednesday that policymakers would need to raise interest rates “a little bit higher” to tame high inflation. “We certainly are focused on inflation and making sure that inflation gets back down to 2% over time,” she said.
Meanwhile, the International Monetary Fund warned Wednesday that global tensions, mainly between the U.S. and China, could damage overseas investment and eventually lead to a long-term loss of 2% of the global output.
Today, all eyes are focused on the U.S. Initial Jobless Claims data in a couple of hours. Economists, on average, forecast that Initial Jobless Claims will come in at 200K, compared to last week’s value of 198K.
U.S. Continuing Jobless Claims data will also be closely watched today. Economists foresee the new figure to be at 1,699K, compared to the previous value of 1,689K.
In addition, investors will likely focus on a speech from St. Louis Fed President James Bullard for further clues on the outlook for rates.
In the bond markets, United States 10-Year rates are at 3.279%, down -0.24%.
The Euro Stoxx 50 futures are up +0.45% this morning as gains in real estate and travel stocks lead the overall market higher. However, those gains are likely to be fragile as cautious sentiment prevails amid investor worries about a global economic slowdown. In corporate news, Shell Plc (SHEL.LN) gained more than +1% after Europe’s biggest oil and gas company said it anticipates higher LNG output and stable earnings from LNG trading in the first quarter.
U.K.’s Halifax House Price Index, Germany’s Industrial Production, and U.K.’s Construction PMI were released today.
U.K. March Halifax House Price Index has been reported at +0.8% m/m and +1.6% y/y, stronger than expectations of -0.3% m/m and +0.3% y/y.
The German February Industrial Production stood at +2.0% m/m, stronger than expectations of +0.1% m/m.
U.K. March Construction PMI came in at 50.7, weaker than expectations of 53.5.
Asian stock markets today settled mixed. China’s Shanghai Composite Index (SHCOMP) closed flat, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.22%.
China’s Shanghai Composite today ended flat as a flare-up in U.S.-China tensions overshadowed fresh evidence of an economic rebound, while a strong rally in artificial intelligence and semiconductor stocks capped losses in China. U.S. House Speaker Kevin McCarthy hosted Taiwanese President Tsai Ing-wen in California on Wednesday and emphasized the need to speed up arms deliveries to Taiwan amid rising threats from China. Meanwhile, Chinese defense stocks also gained ground as maritime authorities in the country’s Fujian province launched a three-day special patrol and inspection operation in the Taiwan Strait. On the economic front, a private-sector survey showed on Thursday that Chinese service sector activity rose at the quickest pace in 2-1/2 years in March, pointing to a continued rebound after the country lifted COVID-19 curbs.
The Chinese March Caixin Services PMI came in at 57.8, stronger than expectations of 54.8.
At the same time, Japan’s Nikkei 225 Stock Index closed sharply lower, hitting more than a one-week low as the strengthening yen weighed on export-oriented stocks, while heavyweight chip-related stocks tracked the tech-heavy Nasdaq weakness. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 6.47% to 17.62.
“Japanese shares will be under pressure from a sign of slowdown of the U.S. economy for a while. But towards the end of the month, there may be some domestic market moving cues as companies start reporting outlook, and the Bank of Japan will have a policy meeting,” said Masahiro Ichikawa, a chief market strategist at Sumitomo Mitsui DS Asset Management.
Pre-Market U.S. Stock Movers
Lumentum Holdings Inc (LITE) tumbled over -10% in pre-market trading after the company cut its Q3 revenue guidance.
Costco Wholesale Corp (COST) fell more than -2% in pre-market trading after the U.S. discount retail giant reported a slight dip in March comparable sales.
Welltower Inc (WELL) rose about +1% in pre-market trading after Citi upgraded the stock to buy from neutral with a price target of $81, up from $70.
AbbVie Inc (ABBV) slid over -1% in pre-market trading after the company cut its Q1 and FY23 EPS guidance amid higher costs.
FedEx Corporation (FDX) gained more than +1% in pre-market trading after Goldman Sachs raised the firm’s price target on the stock to $258 from $250. Also, Citi raised the firm’s price target on the stock to $285 from $275. In addition, Raymond James upgraded the stock to outperform from market perform.
Fluence Energy Inc (FLNC) rose over +2% in pre-market trading after Wolfe Research upgraded the stock to outperform from peer perform.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Thursday - April 6th
Constellation Brands A (STZ), Lamb Weston Holdings (LW), RPM (RPM), Levi Strauss A (LEVI), Ozon (OZON), WD-40 (WDFC), GreenTree Hospitality (GHG), Skillsoft Corp Class A (SKIL), Northern Technologies (NTIC), Cazoo (CZOO).
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