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Beyond the Numbers

Chip Stocks May Weigh On Wall Street After Micron Warning
8/9/2022 8:57 AM

The major U.S. index futures are currently pointing to a modestly lower open on Tuesday, with stocks likely to see initial weakness after ending the previous session little changed.

Weakness among semiconductor stocks may continue to weigh on Wall Street following a warning from memory chip maker Micron Technology (MU).

Shares of Micron are slumping by 4.3 percent in pre-market trading after the company warned revenue for the current quarter may come in at or below the low end of its previous guidance, citing “macroeconomic factors and supply chain constraints.”

The news from Micron comes after a warning from graphics chip maker Nvidia (NVDA) contributed to a pullback by the markets on Monday.

Trading activity may remain somewhat subdued, however, as traders look ahead to the release of a highly anticipated reading on U.S. consumer price inflation on Wednesday.

The report is expected to show consumer prices edged up by 0.2 percent in July after jumping by 1.3 percent in June. The annual rate of growth is expected to slow to 8.7 percent from a four-decade high of 9.1 percent.

Core consumer prices, which exclude food and energy prices, are expected to rise by 0.5 percent in July after climbing by 0.7 percent in June. Annual core consumer price growth is expected to accelerate to 6.1 percent from 5.9 percent.

Traders are likely to keep a close eye on the inflation data, as they look for additional clues about the outlook for further interest rate hikes by the Federal Reserve.

After failing to sustain an early move to the upside, stocks gave back ground over the course of the trading session on Monday. The major averages pulled back off their highs of the session and spent the remainder of the day lingering near the unchanged line.

The major averages eventually ended the session narrowly mixed. While the Dow inched up 29.07 points or 0.1 percent to 32,832.54, the Nasdaq slipped 13.10 points or 0.1 percent to 12,644.46 and the S&P 500 edged down 5.13 points or 0.1 percent to 4,140.06.

The early strength on Wall Street extended a recent upward trend on Wall Street, with the major averages continuing to recover from their June lows. The Nasdaq and S&P 500 reached three-month intraday highs before pulling back.

Easing concerns about a potential recession may have contributed to the continued upward move following last week's much stronger than expected jobs data.

Buying interest waned over the course of the session, however, as the strong jobs data has increased the likelihood of another 75 basis point interest rate hike by the Federal Reserve next month.

Traders may also have been reluctant to make significant bets ahead of the release of closely watched U.S. inflation data in the coming days.

Economists have suggested that the inflation data could have an even greater impact on Fed officials' thinking than the jobs data.

The pullback on Wall Street also came following the warning from Nvidia, which tumbled by 6.3 percent following the news.

Nvidia reported preliminary second quarter revenue of $6.70 billion versus its outlook for $8.10 billion, with weaker gaming revenue blamed for the shortfall.

Despite the pullback by the broader markets, gold stocks held on to strong gains amid an increase by the price of the precious metal. The NYSE Arca Gold Bugs Index jumped by 2.6 percent to its best closing level in almost a month.

Airline stocks also turned in a strong performance on the day, driving the NYSE Arca Airline Index up by 2.2 percent to a two-month closing high.

Housing and tobacco stocks also saw notable strength, while the warning from Nvidia weighed on semiconductor stocks, dragging the Philadelphia Semiconductor Index down by 1.6 percent.

Commodity, Currency Markets

Crude oil futures are jumping $1.13 to $91.89 a barrel after surging $1.75 to $90.76 a barrel on Monday. Meanwhile, after climbing $14 to $1,805.20 an ounce in the previous session, gold futures are inching up $2.70 to $1,807.90 an ounce.

On the currency front, the U.S. dollar is trading at 134.93 yen compared to the 134.95 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0235 compared to yesterday’s $1.0197.

Asia

Most Asian markets ended slightly higher on Tuesday, although Japanese stocks fell sharply on disappointing earnings news.

Regional gains were capped ahead of key U.S. inflation data due on Wednesday that will help determine the pace of future interest rate hikes by the Federal Reserve.

Chinese shares eked out modest gains, with the benchmark Shanghai Composite Index closing up 0.3 percent at 3,247.43. Hong Kong's Hang Seng Index finished 0.2 percent lower at 20,003.44, reversing earlier gains.

Japanese stocks declined as investors assessed the latest round of corporate earnings. The Nikkei 225 Index fell 0.9 percent to 27,999.96, snapping a four-day rally, with tech stocks leading losses. The broader Topix closed 0.7 percent lower at 1,937.02.

SoftBank Group shares slumped 7 percent as the tech giant announced job cuts at its Vision Fund investing arm after posting a huge $23.4 billion loss in the April-June quarter.

Japan Steel Works plummeted 9.2 percent and Tokyo Electron declined 8.3 percent after releasing their quarterly earnings on Monday. Sony gave up 2.5 percent after the semiconductor giant warned that shortfalls in its gaming segment revenue would hamper second-quarter results.

Trend Micro surged 13.5 percent after activist investor ValueAct Capital Partners said it has built an 8.7 percent stake in the security software company.

Seoul shares extended their winning streak to a fifth day and hit a two-month high despite inflation and rate-hike uncertainties. The Kospi rose 0.4 percent to 2,503.46, marking the highest level since June 13.

CJ Cheiljedang jumped 8.6 percent and POSCO Chemical surged 5.6 percent after reporting strong earnings. Market heavyweight Samsung Electronics declined 1.3 percent amid a global decline in technology shares.

Australian stocks rose for a third straight session as investors reacted to mixed readings on business and consumer sentiment.

A measure of Australian business confidence rebounded in July despite sharply rising interest rates, while consumer sentiment stayed negative for a ninth consecutive month in August, separate reports showed.

The benchmark S&P ASX 200 Index inched up 0.1 percent to 7,029.80, while the broader All Ordinaries Index closed 0.3 percent higher at 7,278.60.

Europe

European stocks are subdued on Tuesday, as investors keep a wary eye on rising geopolitical tensions and await Wednesday's key U.S. inflation data for clues on the Fed's next move.

The Russian bombardment of a Ukrainian power plant has sparked fears of radioactive fallout in Europe.

Elsewhere, Taiwan's foreign minister said earlier today that China has used the drills in its military playbook to prepare for an invasion of Taiwan.

The French CAC 40 Index is down by 0.3 percent and the German DAX Index is down by 1 percent, while the U.K.’s FTSE 100 Index has inched up by 0.1 percent after data showed retail sales unexpectedly rebounded in July.

Like-for-like sales increased 1.6 percent on a yearly basis in July, in contrast to the expected fall of 1.5 percent, as hot weather boosted demand for summer clothing and electric fans, data compiled by the British Retail Consortium and the advisory services firm KPMG, showed. Sales were down 1.3 percent in June.

InterContinental Hotels has fallen. The hospitality company announced a new $500 million share buyback program and resumed its interim dividend after reporting soaring half-year profits.

Sanofi shares have also moved to the downside. The French drug maker said that it was pausing recruitment globally in studies of its oral drug tolebrutinib following a recommendation by an independent data monitoring committee (iDMC).

German automotive parts manufacturer Continental AG has also moved lower after it swung to a loss in the second quarter.

Wacker Neuson shares have also declined. The maker of construction equipment and machines posted a decline in earnings for the first half amidst persisting supply chain strains and high costs for materials, energy and shipping.

On the other hand, Danish brewer Carlsberg has moved modestly higher after raising its 2022 earnings forecast.

Swiss duty-free retailer Dufry has rallied after reporting strong first-half results.

Munich Re has also moved higher. The reinsurer kept its annual target unchanged after profit and premiums in the second quarter beat expectations.

U.S. Economic Reports

A report released by the Labor Department on Tuesday showed U.S. labor productivity continued to slump in the second quarter, while labor costs continued to soar.

The Labor Department said labor productivity tumbled by 4.6 percent in the second quarter after plummeting by a revised 7.4 percent in the first quarter.

Economists had expected productivity to plunge by 4.7 percent compared to the 7.3 percent nosedive that had been reported for the previous quarter.

Meanwhile, the report showed unit labor costs skyrocketed by 10.8 percent in the second quarter after surging by a revised 12.7 percent in the first quarter.

Unit labor costs were expected to jump by 9.5 percent compared to the 12.6 percent spike that had been reported for the previous quarter.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $42 billion worth of three-year notes.

Stocks In Focus

Shares of Novavax (NVAX) are plummeting in pre-market trading after the drugmaker reported an unexpected second quarter loss and slashed its full-year revenue forecast.

AI lending platform Upstart (UPST) is also likely to come under pressure after reporting second quarter results that missed analyst estimates and providing disappointing guidance.

Shares of Take-Two (TTWO) may also move to the downside after the video game publisher reported weaker than expected fiscal first quarter earnings and forecast full-year results below expectations.

Meanwhile, shares of GoodRx (GDRX) are soaring in pre-market trading after the provider of prescription drug comparison software reported better than expected second quarter results.
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