Daily Markets: Investors Fear Possibility of Recession


Today’s Big Picture

Asia-Pacific equity indexes ended today’s session slightly mixed as China’s Shanghai Composite eked out a 0.04% loss and India’s Sensex closed down 0.19% while Hong Kong’s Hang Seng rose 0.10%, Australia’s ASX All Ordinaries advanced gained 0.31%, Taiwan’s TAIEX advanced 0.93% and Japan’s Nikkei was up 1.03%. South Korea’s KOSPI led the way, finishing 1.80% ahead on the day. By mid-day trading, European equity indices are down across the board and US futures point to a weak open later this morning.

We are starting this shortened trading week off with a modest amount of new company news, no earnings reports, and a handful of fresh economic data that shows the services economy outside the US held up better than expected in June. Given the lack of inflation-related data this week, the June jobs data for the US will likely take up a lot of the market conversation this week, particularly around the speed of the economy and prospects for a recession. That will also make tomorrow’s June Services data for the US and Friday’s June Employment Report worth watching.

As those reports are issued, we and others will be looking to see what the data does to the Atlanta Fed’s GDPNow model. Last week’s updates pointed to the likelihood of the US could be in a recession as GDP expectations for 2Q 2022 were slashed to -2.1% vs. the May 17 reading of +2.5%. That sharp revision shows how quickly the economic landscape changes hammered stocks in June. Questions remain as to whether inflationary pressures have indeed peaked, but even so, efforts to reduce consumer pain continue. According to reports, Chinese tariff relief appears to be back on the table at the White House. Similar to the proposed gas tax holiday, there are questions as to how effective such a move would be in reducing pricing pressures.

Beyond the US, readers will want to keep a close watch on covid cases in China. The number has been on the upswing and led the country to double the number of cities, including those around Shanghai, restricting local movement as of earlier today. According to data published by Nomura, this latest measure affects regions that account for approximately 15% of China’s GDP, up from 10% last week. This is likely to have an impact on supply chain woes, and will have a ripple effect on the US economy as well.

Data Download

International Economy

Last night saw the release of Chinese Services PMI for June which at 54.5, surprised 5.5 points to the upside from estimates of 49.0, showed a big improvement from the previously reported 41.4 and, for the first time since the adoption of Zero Covid policies in February , showed growth in the Chinese service sector.

Japan also released Services PMI yesterday at 54.0 which came in higher than estimates of 52.3 and the previously reported 52.6.

Final June Services PMI for the broad Eurozone was announced this morning at 53, slightly higher than initial estimates along with UK Services PMI which was reported at 54.3, almost a full point higher than preliminary figures.

Norwegian offshore oil and gas workers went on strike over pay today, a move that could cut Norway’s oil output by 15% later this week should the strike escalate as expected. Meanwhile, reports also suggest Russia could temporarily shut down the Nord Stream 1 Pipeline, the European Union’s largest piece of gas import infrastructure, for annual maintenance.

Domestic Economy

At 10:00 AM ET, we will see the results of MoM May Factory Orders and MoM Durable Orders, both of which are expected to show a 0.50% rise over the previously reported figures.

Markets

While Friday saw the markets rally heading into the holiday weekend, that move didn’t take the sting out of what was one of the worst half-year starts for stocks in 50 years. The Atlanta Fed updated its estimate for Q2 GDP from roughly -1% to -2.1% on Friday and even though that update, if realized, would put us firmly in recession territory (2 consecutive quarters of GDP contraction) the markets responded positively. This could mean that investors are thinking the slowdown we are seeing in the economy could lead the Fed to not be as aggressive in hiking interest rates later this year as was previously thought.

Here’s how the major market indicators stack up year-to-date:

  • Dow Jones Industrial Average: -14.42%
  • S&P 500: -19.74%
  • Nasdaq Composite: -28.87%
  • Russell 2000: -23.05%
  • Bitcoin (BTC-USD): -58.63%
  • Ether (ETH-USD): -70.12%

Stocks to Watch

Before trading kicks off for US-listed equities, no companies are expected to report their latest quarterly results but given we are in the quiet period for companies, readers should be on watch for earnings pre-announcements.

Ford Motor (F) is expected to report its monthly US sales today, and while some will be eyeing its total data there will be those that focus on how its all-electric F-150 Lightning has performed.

Tesla (TSLA) shared it delivered about 255,000 vehicles in the June quarter, down from about 310,000 in the March quarter but a tad better than the 250,000 consensus estimate. This the company confirmed a new software update that enables its vehicles to scan for rough roads, including potholes, to help avoid them morning damaging the vehicles by adjusting the suspension. Tesla also shared its Model Y has joined the fleet of the Leewood, Kansas police department as a patrol car.

Smart electric scooter company Niu Technologies (NIU) sold 208,857 units in 2Q 2022, including e-motorcycles, e-mopeds, e-bicycles, kick-scooters, and e-bikes, representing a 17.4% YoY drop.

Nokia (NOK) announced it won a five-year deal with the Norwegian mobile operator Ice to upgrade and expand its 5G radio network infrastructure nationwide.

InterDigital (IDCC) announced it signed a multi-year, worldwide, non-exclusive, royalty-bearing license with Zebra Technologies (ZBRA) that covers InterDigital’s standard-essential patents related to 4G and 5G wireless, and WiFi technology.

Rocket Lab USA (RKLB) announced it successfully a pathfinding satellite for NASA, setting it on a course to the Moon.

Healthcare Trust of America (HTA) reported that it has signed its highest level of new leases since going public in 2012

Bloomberg reports a consortium backed by KKR (KKR) is emerging as the frontrunner to buy a controlling stake in the towers unit of Deutsche Telekom (DTEGY).

IPOs

As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

No companies are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Wednesday, July 6

  • Germany: Factory Orders – May
  • Eurozone: Retail Sales – May
  • US: Weekly MBA Mortgage Applications
  • US: S&P Global Services PMI (Final) – June
  • US: ISM Non-Manufacturing Index – June
  • US: JOLTS Report – May
  • US: FOMC Meeting Minutes – June

Thursday, July 7

  • Japan: Leading Indicators – May
  • Germany: Industrial Production – May
  • US: Challenger Job Cuts – June
  • US: Weekly Initial & Continuing Jobless Claims
  • US: Import/Export – May
  • US: Weekly EIA Natural Gas Inventories
  • US: Weekly EIA Crude Oil Inventories

Friday, July 8

  • Japan: Household Spending – May
  • Japan: Economy Watcher Current Index – June
  • China: Inflation Rate and Producer Price Index – June
  • US: Employment Report – June
  • US: Consumer Credit – May

Thought for the Day

“The life of the nation is secure only while the nation is honest, truthful, and virtuous.” ~ Frederick Douglass

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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