Market Jitters Ahead of US Payrolls Report Amid Recession Fears and AI Concerns

Payrolls, slumping stocks, Apple, Amazon - what's moving markets By Investing.com

Investing.com -- Wall Street looks set to end the week on a losing note as weak activity data has investors fretting about the possibility of a U.S. recession. Nonfarm payrolls will be studied for growth clues, while results from tech heavyweights Apple and Amazon will also be in the spotlight. Friday's economic highlight will be the release of the closely watched nonfarm payrolls report, as investors seek further clues on the health of the U.S. labor market and the broader economy. Economists are expecting the U.S. economy to have created 177,000 jobs in July, moderating from 206,000 in the prior month. The unemployment rate, which has ticked higher in each of the past three months, is expected to hold steady at 4.1%. The Federal Reserve kept its benchmark overnight interest rate in the 5.25%-5.50% range on Wednesday, where it has been since last July, but also opened the door to reducing borrowing costs as soon as its next meeting in September. In the accompanying statement the Fed softened the description of inflation and said the risks to employment were now on a par with those of rising prices. Data released earlier this week showed that U.S. job openings fell modestly in June, while new applications for unemployment benefits increased to an 11-month high last week. A weak U.S. ISM manufacturing report also added to fears of an economic downturn and led investors to worry that the Federal Reserve may be behind the curve in cutting rates. U.S. stock futures fell Friday, as investors digested some disappointing earnings from the important tech sector while awaiting the release of the widely-watched monthly nonfarm payrolls report. By 04:10 ET (08:10 GMT), the Dow futures contract was 225 points, or 0.5%, lower, S&P 500 futures dropped 48 points, or 0.9%, and Nasdaq 100 futures fell by 295 points, or 1.6%. The Wall Street indices closed sharply lower Thursday after a softer-than-expected ISM report on U.S. manufacturing caused investors to fret about a possible recession. The S&P 500 dropped 1.4%, the Nasdaq Composite fell 2.3% and the Dow Jones Industrial Average slumped almost 500 points, or 1.2%. Investors will be focusing upon the official jobs report [see above] for more clues of the strength of the U.S. labor market, with risk sentiment ending the week on the back foot. Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) released their earnings after the close Thursday [see below] and will be in the spotlight, as will Intel (NASDAQ:INTC) after the chipmaker said it would cut more than 15% of its workforce and suspend its dividend starting in the fourth quarter as it pursues a turnaround. Staying on the earnings front, oil majors Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) will be announcing their quarterly results Friday before the market open. Apple reported Thursday third-quarter results that topped Wall Street estimates, as a jump in services revenue helped offset softer iPhone revenue amid rising competition in China. The tech giant's stock rose 0.6% after hours, adding to gains of nearly 30% in the past three months, resulting in gains of around 13% over the course of this year. Apple said revenue in its fiscal fourth quarter would grow at a level similar to the 4.9% increase it posted in the April-June period, which was better than expectations. Services revenue rose 14% to record high of $24.21 billion, beating Wall Street estimates of $24.01 billion. Sales of iPhone also improved in the third quarter, falling just 0.9% compared with the 2.2% drop analysts expected, although China - Apple's third-largest market - remained a drag as sales there declined 6.5%. Apple has taken to discounting its iPhones in China to compete with the much cheaper alternative smartphones offered by local competitors such as Huawei. Despite these difficulties, things could get better next quarter, as analysts expect a strong upgrade cycle for the iPhone 16 series, likely to be launched in September. The company unveiled a raft of AI products and services it calls Apple Intelligence at its developer conference in June, and to operate Apple Intelligence requires at least an iPhone 15 Pro, which may push consumers to upgrade their devices. Amazon stock slumped after hours after the online retail giant reported slowing online sales growth in the second quarter, adding that price-conscious consumers were acting cautiously. Amazon's online stores sales rose 5% in the second quarter to $55.4 billion, compared with growth of 7% in the first quarter. Additionally, the company offered up third-quarter revenue guidance of $154-158.5 billion, short of expectations of $158.2 billion. CFO Brian Olsavsky told reporters on a call that consumers "are continuing to be cautious with their spending trading down." "They are looking for deals," he added, noting that lower priced products were selling briskly. This news has overshadowed generally positive results, with second-quarter profit and cloud computing sales beating analyst estimates. Amazon stock fell almost 7% after hours, but were still up over 20% year-to-date. Crude prices rose Friday, but were on course for a fourth straight week of losses given mounting concerns over slowing economic growth. By 04:10 ET, the U.S. crude futures (WTI) climbed 1.1% to $77.18 a barrel, while the Brent contract rose 1% to $80.32 a barrel. Both benchmarks have declined around 8% over the last four weeks as disappointing economic data from top oil importer China and surveys showing weaker manufacturing activity across Asia, Europe and the United States raised concerns of weak global economic growth, weighing on oil consumption. The weak economic prints saw markets largely look past heightened tensions in the Middle East after the killing of a Hamas leader in Iran earlier in the week. The Organization of Petroleum Exporting Countries and allies, known as OPEC+, made no changes to its production policies after an online meeting on Thursday, reiterating that it could pause plans to increase output from October.

US recession fears dampen mood ahead of payrolls

(Alliance News) - Stock prices in London at midday on Friday succumbed to the risk-off mood washing across global equity markets, as investors look at weak US economic data with concern. The FTSE 100 index was down 34.90 points, 0.4%, at 8,248.46. The FTSE 250 was 358.17 points, 1.7%, at 21,101.06, and the AIM All-Share was down 5.27 points, 0.7%, at 777.81. The Cboe UK 100 was down 0.4%, the Cboe UK 250 was down 1.2% at 18,461.00, and the Cboe Small Companies was down 0.9% 17,120.68. In European equities, the CAC 40 in Paris was 0.9%, while the DAX 40 in Frankfurt was down 1.6%. "So much for the big equity rally when interest rate cuts take centre stage," said Russ Mould, investment director at AJ Bell. "Investors thought rates cuts - which have just happened in the UK and looked poised to take place next month in the US - would energise stock markets. The opposite has happened with a bad day on Thursday and weakness extending into Friday, meaning August is so far off to a bad start. "Weak economic data from the US spooked the market and reminded investors there are negative reasons why central banks might cut rates, not simply lowering the cost of borrowing because the rate of inflation is easing." The latest tranche of US economic data ignited fears of a potential recession. Thursday's manufacturing PMIs both indicated a contraction in US factories, while the latest initial jobless claims print pointed to a weaker-than-expected labour market. The next key print - the nonfarms payrolls data - comes at 1330 GMT. The NFP data is expected to show the pace of hiring eased to 175,000 in July, from 206,000 in June, according to FXStreet cited consensus. In addition to the economic woes, the latest round of US tech earnings failed to impress. Apple shares were 0.3% lower in pre-market trading. Despite a solid set of numbers, the iPhone maker failed to wow the market. Amazon, meanwhile, fell 8.3% in pre-market trade, with CFO Brian Olsavsky admitting the firm came in "a little short" on North American revenue growth, as consumers opt for cheaper products. "It was [Amazon's] guidance that spooked markets. AI spending is set to ramp up, and the impact on the profit line is starting to make its way into guidance," offered Matt Britzman, senior equity analyst, Hargreaves Lansdown. Intel was down 21% ahead of the New York open, as it suspended its dividend and announced plans to cut 15% of its workforce. Meanwhile, in foreign exchange markets, the Bank of England's latest rate cut was weighing on the pound. The pound was quoted at USD1.2743 early Friday, softening from USD1.2771 at the time of the London equities close Thursday. The BoE enacted its first rate cut in over four years on Thursday, lowering bank rate by a quarter percentage point to 5.00%. However, the central bank warned it would not do "too much too soon" when it comes to further easing. The euro stood at USD1.0819, up from USD1.0787. Against the yen, the dollar was trading at JPY148.77, down from JPY150.09. According to Brown Brothers Harriman, traders are once again getting "carried away" with expectations of easing from the US Federal Reserve. "This is clearly an overreaction to the Fed's dovish hold, coupled with some softness in the economic data," BBH maintained. "Despite growing concerns that the Fed is behind the curve and reacting too slowly to early signs of softer US economic activity, we are more constructive on the outlook. As such, we continue to believe that the Fed will cut in September but will not cut as aggressively as market pricing." In the FTSE 100, GSK rose 2.1%, as the US Food & Drug Administration expanded the approval of its cancer medicine Jemperli, also known as dostarlimab, in endometrial cancer. Meanwhile, there were mixed fortunes for London-listed airlines. British Airways owner IAG was the top performer, climbing 7.2%. It said Thursday it has abandoned plans to buy Spain's Air Europa, citing regulatory concerns. IAG also paid its first dividend since 2019 despite a marginal fall in half-year profit. It had been expected to report results on Friday. IAG will pay Air Europa owner Globalia EUR50 million as a result of the termination. In February 2023, IAG said it will buy the remaining 80% stake in Air Europa for around EUR500 million, after it had secured a 20% stake in August 2022. It will continue to hold the minority interest. Chief Executive Luis Gallego said the decision was in the best interests of shareholders. The Budapest-based carrier said it carried 5.9 million passengers in July, down 1.4% from 6.0 million a year before. Its load factor also slipped, to 93.8% from 94.9%. Capacity was down 0.3%, due to geared turbofan engine-related groundings of A321neo planes, Wizz said. The airline also was hurt by the worldwide IT outage on July 19, which disrupted about 1% of its scheduled flights last month, it said. Dublin-based rival Ryanair fared better last month, as passenger numbers rose 8.0%. Brent oil was quoted at USD79.70 a barrel midday Friday, down from USD80.48 at the time of the closing bell in London on Thursday. Gold rose to USD2,464.36 an ounce, from USD2,448.60. By Elizabeth Winter, Alliance News deputy news editor, Global services Comments and questions to newsroom@alliancenews.com Copyright 2024 Alliance News Ltd. All Rights Reserved.

MORNING BID AMERICAS-Rethinking recession risks and AI, markets take fright

A look at the day ahead in U.S. and global markets from Mike Dolan August looks anxious already - as stock markets take fright at Big Tech earnings and start to reconsider 'hard landing' scenarios for the world economy just as central banks ease and bond yields plummet. It's been a frantic week's trading in all corners of the financial world. Regardless of the recently vaunted rotation of stock sectors, the biggest rotation that's emerging is one from stocks to bonds as 'recession' creeps back into parlance. Five, seven and 10-year Treasury yields have all plunged below 4% since the Federal Reserve signalled on Wednesday that its first interest rate is coming in seven weeks' time - just as manufacturing surveys slip into contraction across the world and the U.S. jobs market cools further. The stakes are higher than ever for Friday's July employment report, with markets watching closely for a possible triggering of the so-called 'Sahm rule' that maps the pace of a rising U.S. jobless rate against the onset of recession. Even though talk of broad recession still seems far-fetched, with real-time U.S. GDP estimates still tracking growth of 2.5%, fears of a negative pulse through the industrial world from a stuttering Chinese economy have been building for weeks. With the Bank of England joining G7 peers in starting its rate cut cycle on Thursday too, markets are starting to price the possibility that a September Fed rate cut could be as much as 50 basis points. Some 32bps of cuts are now priced for that month and 85bps over the remainder of the year. But the surge in market volatility, which saw the VIX 'fear index' top the 20 level on Friday for the first time since April, centred on yet another shakeout in Big Tech as the megacaps and a whole host of high-flying chipmakers reported disappointing earnings. Central to the worry is whether huge spends on artificial intelligence investments are warranted and whether AI will ultimately deliver on its promise in the wider economy. While Apple held the line overnight after its post-bell results beat estimates, Amazon dived more than 8% after its update. And although Meta rallied on Thursday, poor results from Qualcomm and Arm saw their shares and many of the big chipmakers swoon once again. Intel dropped about 20% overnight on its miss, dividend suspension and job cuts in what would be its worst day since the 2000 dot.com bubble burst. Taiwan chip giant TSMC lost almost 6%. After a 7% loss on Thursday, and a wildly volatile week, AI darling Nvidia lost another 2% out of hours on Friday following media reports that the U.S. government is launching an antitrust probe into the company following complaints from rival chipmakers. Another bruising day on Thursday for the S&P500, Nasdaq and Russell 2000 small caps ripped around the world overnight. Irked additionally by the week's Bank of Japan rate rise and yen surge, the Nikkei plunged almost 6% in its worst day since the pandemic hit in 2020. China, at the heart of the brewing global industrial slowdown after news that its factory sector contracted again in July, saw its stocks drop more than 1%. European stocks were also off about 1%. With bond yields racing to their lowest since the feverish Fed easing speculation of early 2024, even Japanese 10-year yields fell back below 1% for the first time in over a month despite the week's BOJ move. The yen held steady at just under 150 per dollar. But in all the stock and bond ructions, currency markets were generally much steadier. The dollar index was only slightly lower, with the Swiss franc outperforming amid all the angst and hitting its strongest since February. The political backdrop this month is another big consideration for U.S. markets. Whatever is driving trading patterns, it's no longer the so-called 'Trump trade'. After a wave of opinion polls showing enthusiasm for Vice President Kamala Harris' bid for the White House, betting markets now put her chances of winning as higher than that of Republican challenger Donald Trump for the first time. Key developments that should provide more direction to U.S. markets later on Friday: * US July employment report, June factory goods orders * Richmond Federal Reserve President Thomas Barkin speaks; Bank of England Chief Economist Huw Pill speaks * US corporate earnings: Exxon Mobil, Chevron, Cboe Global Markets, Coinbase Global, PPL, Linde, Perella Weinberg, Church & Dwight, LyondellBassell Industries etc (By Mike Dolan, editing by Gareth Jones mike.dolan@thomsonreuters.com)