Morning Bid Americas: Stocks in seasonal sneeze as factories flunk
04/09/2024 11:08
A look at the day ahead in U.S. and global markets from Mike
Dolan
Wall Street seems to be making a habit of these early month
stock plunges, with Tuesday's tremor a mild aftershock from the
brief August quake one month ago.
Given that September historically tends to be the worst
month of the year for stock market returns - with August a close
second - then seasonal flurries like this probably should be
treated as such. This too will likely pass.
And yet there's inevitably some anxiety that the sharp
retreat from near record highs is rooted in something more
fundamental. And on that score, this week's critical U.S.
employment report and another dour reading on global
manufacturing for August cranked up the tension again.
While factories in the U.S. and around the world have been
spluttering for the best part of two years, there had been some
sign of a manufacturing upturn earlier this year. But the sector
seems to be suffering a relapse, not least as China's economy
continues to struggle with its property bust and growth there
wanes.
U.S. output contracted again in August, according to
Tuesday's release of the Institute for Supply Management's
latest factory survey, even if some modest improvement in
employment readings may ease fears for this week's big labor
market readouts. The first of those starts today with a report
on July job openings.
But survey signs of a further decline in new orders and
rising inventories suggested a deepening slowdown in
manufacturing is taking hold.
What's more, JPMorgan's global manufacturing index slipped
to its weakest reading of the year and registered its second
month in a row in contractionary territory.
"More concerning are signs that business equipment spending
is losing steam - potentially pointing to a weakening in the
pace of hiring as well," the bank said in a report.
While manufacturing only accounts for about 10% of the U.S.
economy, it's 15% of euro zone GDP, 20% of Germany's output and
26% of China's.
More dominant service sector readings are offsetting the
gloom - with euro zone surveys on Wednesday showing the overall
business activity signal still expanding last month and only
marginally below forecast as the Paris Olympics seemed to lift
the mood.
Still, the factory wobble seems to have been enough to knock
back the stocks again as the S&P500's 2% loss on Tuesday .SPX
clocked its worst day in a month and the VIX volatility gauge
.VIX jumped back above its long-term averages.
Adding to the angst was a near 10% drop in artificial
intelligence bellwether Nvidia NVDA.O , its worst day since
April and marking its biggest ever one-day loss in market value
with a $279 billion wipeout.
The stock lost another 1% out of hours overnight after
Bloomberg reported the U.S. Department of Justice has sent a
subpoena to Nvidia as it deepens its probe into the AI
heavyweight's antitrust practices.
Stocks around the world were caught in the slipstream on
Wednesday, with Japanese .N225 , Taiwanese .TWII and Korean
.KS11 markets all suffering 3-4% swoons.
European stocks .STOXXE lost another 1% and Wall St stock
futures ESc1 NQcv1 remained slightly in the red.
With growth clouds nudging up Federal Reserve easing
expectations, there was some relief for global investors from
the rally in Treasuries - sustaining the newly negative
correlation between stocks and bonds that re-emerged last month.
The chances of a Fed rate cut of as much as 50 basis points
rose to about 40%, with 104bps now priced for the year.
Two-year Treasury yields US2YT=RR plunged to 3.83% - their
lowest since May last year - and 10-year yields ebbed too.
The bond rally was encouraged by a sharp drop in oil prices
- which were hit by worries about global manufacturing, a likely
resumption of Libyan supply after the recent outage and
expectations of an increase in overall OPEC output next month.
U.S. crude prices CLc1 fell below $70 per barrel for the
first time since Jan. 2 and year-on-year price drops are now
running at close to 20%.
The dollar index .DXY , which hit a two-week high on
Tuesday, slipped back again. And there was little sign of a
renewed "safety bid" in the likes of gold XAU= or Bitcoin
BTC= , which both fell today.
Japan's yen JPY= was slightly firmer after this week's
latest reiteration from the Bank of Japan that it plans to
continue tightening.
And the Canadian dollar CAD= found a foothold as it awaits
another Bank of Canada interest rate cut later today - the third
of the year so far even before the Fed gets going.
Key developments that should provide more direction to U.S.
markets later on Wednesday:
* Bank of Canada policy decision, news conference from BOC
governor Tiff Macklem
* US July job openings, July international trade balance, July
factory goods orders; Canada July trade balance,
* Federal Reserve publishes 'Beige Book' on economic conditions;
European Central Bank board member Frank Elderson speaks
* US corporate earnings: Hewlett Packard Enterprise, Dollar
Tree, Hormel Foods, Copart
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
JPMorgan chart on global manufacturing downturn https://tmsnrt.rs/3Ze4Lez
Bank of Canada set to cut interest rates for 3rd time this year
https://reut.rs/46PreAB
ECB all but certain to deliver second rate cut this cycle https://reut.rs/4dQfaS6
Newly negative US stocks-bonds correlation holds https://tmsnrt.rs/4gefD1Y
Nvidia's forward PE https://tmsnrt.rs/3Xr5Cr5
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(By Mike Dolan, editing by Philippa Fletcher
mike.dolan@thomsonreuters.com)
((mike.dolan@thomsonreuters.com https://reut.rs/3xFdLhlhomsonreuters.com
mailto:mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters
Messaging: rm://mike.dolan.reuters.com@thomsonreuters.net/))