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Beyond the Number

Economic Worries May Spark Early Sell-Off On Wall Street
6/30/2022 8:55 AM

The major U.S. index futures are currently pointing to a sharply lower open on Thursday, with stocks likely to come under pressure following the lackluster performance seen in the previous session.

Lingering concerns about the global economic outlook are likely to weigh on the markets amid concerns about a possible recession.

Central bank chiefs have recently reaffirmed their resolve to bring down inflation despite threats to economic growth.

Healthcare stocks may help lead the way lower after Universal Health Services (UHS) lowered its full-year guidance, citing a significant shortfall in operating results experienced during April and May.

Following the sell-off seen during trading on Tuesday, stocks showed a lack of direction over the course of the trading session on Wednesday. The major averages spent the day bouncing back and forth across the unchanged before closing narrowly mixed.

While the Dow rose 82.32 points or 0.3 percent to 31,029.31, the Nasdaq and S&P 500 ended the day slightly lower. The Nasdaq edged down 3.65 points or less than a tenth of a percent to 11,177.89, and the S&P 500 dipped 2.72 points or 0.1 percent to 3,818.83.

The choppy trading on Wall Street came as uncertainty about the near-term outlook for the markets kept some traders on the sidelines following recent volatility.

The sharp pullback on Tuesday came on the heels of the strong upward move seen last week, which in turn reflected a rebound from the sell-off seen earlier this month.

Traders also kept an eye on remarks by Federal Reserve Chair Jerome Powell, who participated in a panel discussion at the European Central Bank Forum on Central Banking alongside ECB President Christine Lagarde and Bank of England Governor Andrew Bailey.

Powell reiterated his previously shared belief that the U.S. economy is "well positioned to withstand tighter monetary policy" but cautioned there's no guarantee the Fed can engineer a "soft landing."

"We think that there are pathways for us to achieve the path back to 2 percent inflation while still retaining a strong labor market. We believe we can do that," Powell said. "It's obviously something that's going to be quite challenging."

The Fed chief once again declared his commitment to fighting inflation, arguing that failing to restore price stability poses a bigger risk to the economy than tightening monetary policy too aggressively.

In U.S. economic news, revised data released by the Commerce Department showed U.S. economic activity shrank by slightly more than previously estimated in the first quarter of 2022.

The report showed the decrease in real gross domestic product in the first quarter was revised to 1.6 percent from the previously reported 1.5 percent. Economists had expected the drop in GDP to be unrevised.

The slightly bigger than previously estimated decline in GDP in the first quarter came on the heels of the 6.9 percent spike in GDP in the fourth quarter of 2021.

Despite the lackluster performance by the broader markets, oil stocks showed a substantial move to the downside, resulting in a 3.7 percent nosedive by the NYSE Arca Oil Index.

The sell-off by oil stocks came amid a sharp drop by the price of crude oil, with crude for August delivery tumbling $1.98 to $109.78 a barrel.

Significant weakness was also visible among semiconductor stocks, as reflected by the 2.2 percent slump by the Philadelphia Semiconductor Index.

Natural gas, tobacco and computer hardware stocks also saw considerable weakness on the day, while pharmaceutical and healthcare stocks moved to the upside.

Commodity, Currency Markets

Crude oil futures are falling $1.10 to $108.68 a barrel after slumping $1.98 to $109.78 a barrel a barrel on Wednesday. Meanwhile, after slipping $3.70 to $1,817.50 an ounce in the previous session, gold futures are sliding $11.80 to $1,805.70 an ounce.

On the currency front, the U.S. dollar is trading at 136.10 yen versus the 136.59 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0395 compared to yesterday’s $1.0442.

Asia

Asian stocks ended mixed on Thursday as investors weighed worries over an economic slowdown against improved Chinese data.

China's Shanghai Composite Index jumped 1.1 percent to 3,398.62 after China's official gauges of factory and services activity returned to expansion in June following three months of contraction. Hong Kong's Hang Seng Index ended 0.6 percent lower at 21,859.79, giving up early gains.

Japanese shares fell sharply and the yen lingered near a 24-year low after data showed Japanese industrial output fell the most in two years, stoking fears of an economic slowdown.

The Nikki 225 Index tumbled 1.5 percent to 26,393.04, while the broader Topix closed 1.2 percent lower at 1,870.82. Energy stocks led losses, with Inpex Corp. and Japan Petroleum falling around 4 percent each.

Tech stocks such as Advantest, Tokyo Electron and Screen Holdings lost 4-5 percent. Toyota Motor declined 1.3 percent after the world's largest car manufacturer missed its May production target.

Seoul stocks lost ground amid recession woes. The Kospi plummeted 1.9 percent to settle at 2,332.64. Samsung Electronics gave up 1.7 percent and SK Hynix shed 3.2 percent as the outlook for chip sales ebbed. Top carmaker Hyundai Motor advanced 2.9 percent.

Australian markets tumbled on fears of rapid monetary policy tightening by major central banks. The benchmark S&P/ASX 200 Index plunged 2 percent to 6,568.10, while the broader All Ordinaries Index closed 1.9 percent lower at 6,746.50.

Weak iron ore prices weighed on the mining sector, with BHP, Rio Tinto and Fortescue Metals Group losing 3-5 percent. The big four banks fell between 2.2 percent 2.8 percent.

Europe

European stocks have fallen sharply on Thursday and are on course for their worst quarter since the pandemic-led carnage in early 2020 amid worries about prolonged inflation leading to a global economic downturn.

The dollar remained on the front foot against major peers after the world's top central bank chiefs warned that the high inflation pressure may last longer than expected.

Cleveland Fed chief Loretta Mester said the U.S. central bank is "just at the beginning of raising rates" and there are "risks of recession." She wants to see the benchmark lending rate hit 3-3.5 percent this year and "a little bit above four percent next year.”

The day's economic data proved to be a mixed bag, with German retail turnover recovering in May, driven by non-food sales, while unemployment unexpectedly rose - snapping 15 straight months of decline.

French inflation accelerated to the fastest since the euro was introduced, raising pressure on President Emmanuel Macron to address high inflation through a package of measures.

The eurozone jobless rate in May fell to 6.6 percent from a revised figure of 6.7 percent in April.

While the U.K.’s FTSE 100 Index has tumbled by 1.9 percent, the French CAC 40 Index and the German DAX Index are down by 2.3 percent and 2.4 percent, respectively.

Economy-linked sectors have led the way lower, with banks, automakers, mining and energy stocks among the worst hit.

Uniper SE shares have plummeted. The German utility withdrew its outlook for the financial year 2022, due to gas supply restrictions by Russia's Gazprom.

Meanwhile, Saab has jumped after the Swedish defense materials group won an order worth around 7.3 billion Swedish crowns from the Swedish government.

BioNTech SE shares have also risen. The German drug maker along with Pfizer Inc. announced a new $3.2 billion vaccine supply deal with the U.S. government.

British business supplies distributor Bunzl has edged up slightly after upgrading its guidance for the year.

Clydesdale Bank parent company Virgin Money UK has rallied after it launched a share buyback program.

U.S. Economic Reports

Personal income in the U.S. increased in line with economist estimates in the month of May, according to a report released by the Commerce Department on Thursday.

The report showed personal spending rose by 0.5 percent in May, matching the revised increase seen in April as well as expectations.

Meanwhile, the Commerce Department said personal spending edged up by 0.2 percent in May after climbing by a downwardly revised 0.6 percent in April.

Economists had expected personal spending to increase by 0.5 percent compared to the 0.9 percent advance originally reported for the previous month.

A reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth slowed to 4.7 percent in May from 4.9 percent in April.

A separate report released by the Labor Department on Thursday showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended June 25th.

The Labor Department said initial jobless claims slipped to 231,000, a decrease of 2,000 from the previous week’s revised level of 233,000.

Economists had expected jobless claims to edge down to 228,000 from the 229,000 originally reported for the previous month.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of June. The Chicago business barometer is expected to dip to 58.0 in June from 60.3 in May, although a reading above 50 would still indicate growth.

Stocks In Focus

Shares of RH (RH) are moving sharply lower in pre-market trading after the luxury home furnishings retailer lowered its full-year guidance, citing the deteriorating macro-economic environment.

Drug store operator Walgreens (WBA) is also seeing pre-market weakness despite reported better than expected fiscal third quarter results.

On the other hand, shares of Constellation Brands (STZ) may move to the upside after the spirits producer reported fiscal first quarter results that exceeded estimates and provided upbeat guidance.
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