Sept 25: Stock futures are little changed as investors prepare for the S&P 500 to test its June low
U.S. equity futures were little changed Sunday evening after surging interest rates and foreign currency turmoil pushed the major averages to near their lows of the year.
Dow Jones Industrial Average futures were down by just 12 points. S&P 500 futures and Nasdaq 100 futures were each lower by 0.1%.
On Friday stocks ended a brutal week with the blue-chip Dow finding a new intraday low for the year and closing lower by 486 points. The broad-market S&P 500 temporarily broke below its June closing low and ended down 1.7%. The tech-heavy Nasdaq Composite lost 1.8%.
Investors were reacting to the Federal Reserve’s commitment to its rate hiking plan to help tame inflation. At the conclusion of the FOMC meeting, chair Jerome Powell said the central bank could raise rates as high as 4.6% before pulling back. The forecast also shows the Fed plans to stay aggressive this year, hiking rates to 4.4% before 2022 ends.
“A lot of traders expected hints of a Fed pivot at Jackson Hole or at the September FOMC policy, but that never happened,” said Edward Moya, senior market analyst at Oanda. “A hard landing is becoming the base case scenario for many and that means more economic pain along with a much weaker stock market is coming.”
Bond yields soared after the Fed enacted another rate hike of 75 basis points. The 2-year and 10-year Treasury rates hit highs not seen in over a decade. On Friday, Goldman Sachs slashed its year-end target for the S&P 500 to 3,600 from 4,300.
“How far we go below the summer lows is anyone’s guess,” said Oanda’s Moya. “It doesn’t seem like any economic data release or Fed speak will convince markets that a downshift from this aggressive tightening campaign will be happening anytime soon.”
Looking ahead, traders are anticipating the release of personal consumption expenditures data, the Fed’s preferred inflation gauge, on Friday. Durable goods and consumer sentiment numbers will also come out this week.
A slew of Fed speakers — including Fed Vice Chair Lael Brainard, St. Louis Fed President James Bullard, San Francisco Fed President Mary Daly and Fed Governor Michelle Bowman — and Chair Powell are also scheduled to speak at various events this week.
3 MIN AGO
Stocks prepare to test their lows in the final week of trading for September
Heading into the final week of trading for September, the Dow and S&P 500 are each down about 6% for the month, while the Nasdaq has lost 8%.
Both the Dow and S&P are now sitting 1.2% and 1.6%, respectively, above their lows from mid-June. The Nasdaq is 2.9% above its low.
(8:30 a.m. ET) Canadian wholesale trade for August.
(8:30 a.m. ET) U.S. Chicago Fed National Activity Index for August.
(10:30 a.m. ET) U.S. Dallas Fed Manufacturing Activity for September.
Earnings include: Dye & Durham Ltd.
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Tuesday September 27
Japan machine tool orders
(7:30 a.m. ET) U.S. Fed Chair Jerome Powell speaks on a panel at a conference on digital currencies.
(8:30 a.m. ET) U.S. durable goods orders for August. The Street is forecasting a decline of 0.1 per cent from July with core orders rising 0.2 per cent.
(8:30 a.m. ET) U.S. S&P CoreLogic Case-Shiller Home Price Index (20 city) for July. Consensus is an increase of 0.2 per cent from June and up 17.5 per cent year-over-year.
(9 a.m. ET) U.S. FHFA House Price Index for July. Consensus is a rise of 0.1 per cent month-over-month and 15.0 per cent year-over-year.
(10 a.m. ET) U.S. new home sales for August. The Street expects an annualized rate decline of 2.2 per cent.
(10 a.m. ET) U.S. Conference Board consumer confidence index for September.
Earnings include: BlackBerry Ltd.
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Wednesday September 28
Germany consumer confidence
(8:30 a.m. ET) U.S. goods trade deficit for August.
(8:30 a.m. ET) U.S. wholesale and retail inventories for August.
(10 a.m. ET) U.S. pending home sales for August. The Street expects a decline of 0.8 per cent from July.
Earnings include: Cintas Corp.; Paychex Inc.
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Thursday September 29
Euro zone economic and consumer confidence
Germany CPI
(8:30 a.m. ET) Canada’s monthly GDP for July. The Street expects a decline of 0.1 per cent from June.
(8:30 a.m. ET) Canada’s Survey of Employment, Payrolls and Hours for July.
(8:30 a.m. ET) U.S. initial jobless claims for week of Sept. 24. Estimate is 220,000, up 7,000 from the previous week.
(8:30 a.m. ET) U.S. real GDP for Q2. Consensus is an annualized rate decline of 0.6 per cent.
(8:30 a.m. ET) U.S. pre-tax corporate profits for Q2.
Earnings include: Micron Technology Inc.; Nike Inc.
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Friday September 30
China PMI
Japan jobless rate, retail sales, industrial production and consumer confidence
Euro zone jobless rate and CPI
Germany unemployment
Canadian National Day for Truth and Reconciliation (stock markets open, bond markets closed)
(8:30 a.m. ET) U.S. personal spending and income for August. The Street is projecting month-over-month rise of 0.2 per cent and 0.3 per cent, respectively.
(8:30 a.m. ET) U.S. core PCE price index for August. The consensus estimate is a rise of 0.5 per cent from July and 4.8 per cent year-over-year.
(9:45 a.m. ET) U.S. Chicago PMI for September.
(10 a.m. ET) U.S. University of Michigan consumer sentiment for September.
The ninth named tropical storm of the 2022 Atlantic hurricane season has formed across the central Caribbean Sea, and is forecast to turn into a hurricane before hitting Florida next week. If it does, it will be the first major hurricane to impact the state since 2018.
Tropical Storm Ian was located about 270 miles south-southeast of Kingston, Jamaica, as of 2 p.m. Saturday and moving west at 16 mph, according to the National Hurricane Center. “Significant strengthening is forecast during the next few days,” the center said.
The forecast shows Ian “as a major hurricane over the eastern Gulf when it is approaching the west coast of Florida,” after briefly passing over Cuba at or near major hurricane strength, the center said Friday. Much of the Gulf Coast of Florida, including the eastern Panhandle, could be at risk.
Forecast models on Saturday afternoon vary on where Ian may make landfall on Florida’s coast. The European model shows landfall near Tampa on Thursday morning, while the American model shows landfall near Pensacola Friday morning.
The official hurricane center track splits the difference between the models, showing landfall north of Tampa on Thursday morning.
Florida Gov. Ron DeSantis on Saturday expanded an emergency order from 24 counties to include the whole state, citing “foregoing conditions, which are projected to constitute a major disaster.”
“The Florida Division of Emergency Management, working together with the National Hurricane Center to evaluate weather predictions, has determined there is a continuing risk of dangerous storm surge, heavy rainfall, flash flooding, strong winds, hazardous seas, and isolated tornadic activity for Florida’s Peninsula and portions of the Florida Big Bend, North Florida, and Northeast Florida,” the order states.
Tropical storm-force winds could begin to affect southwest Florida early Tuesday, with landfall possible on Wednesday or Thursday.
After strengthening overnight, the storm – earlier known as Tropical Depression Nine – has maximum sustained winds of 45 mph (75 km/h) and is forecast to reach hurricane status within the next two days as it approaches the Cayman Islands by early Monday. Further strengthening is anticipated as the system approaches and crosses western Cuba by Monday evening.
“Ian is likely to be near major hurricane intensity when it approaches western Cuba,” the hurricane center said. “Since Ian is not expected to remain over Cuba long, little weakening is expected due to that land interaction.”
Wall St Week Ahead-Investors wonder when vicious sell-off in U.S. stocks will end
A week of heavy selling has rocked U.S. stocks and bonds, and many investors are bracing for more pain ahead.
Wall Street banks are adjusting their forecasts to account for a Federal Reserve that shows no evidence of letting up, signaling more tightening ahead to fight inflation after another market-bruising rate hike this week.
The S&P 500 is down more than 22% this year. On Friday, it briefly dipped below its mid-June closing low of 3,666, erasing a sharp summer rebound in U.S. stocks before paring losses and closing above that level.
With the Fed intent on raising rates higher than expected, “the market right now is going through a crisis of confidence,” said Sam Stovall, chief investment strategist at CFRA Research.
If the S&P 500 closes below the mid-June low in the days ahead, that may ..
Oil falls below $80 en-route to biggest run of weekly losses this year
Synopsis
Oil headed for the longest stretch of weekly losses this year as central banks around the world stepped up their fight against inflation at the cost of growth.
West Texas Intermediate dropped below $80 a barrel on Friday for the first time since January and was set for a fourth week of declines. The Federal Reserve this week gave its clearest signal yet that it’s willing to tolerate a US recession as the trade-off for regaining control of inflation, while the UK, Norway and South Africa ..
Wall Street futures were down early Friday with all three main indexes facing weekly losses as concerns over higher interest rates and a weaker global economy rattle markets. Major European markets were also weaker in morning trading. TSX futures were negative.
In the early premarket period, Dow, S&P and Nasdaq futures were all underwater. All three saw losses during a choppy session Thursday and are now on track for weekly declines. Heading into Friday’s session, the Dow is off more than 2 per cent for the week while the S&P and Nasdaq are both down more than 3 per cent. The S&P/TSX composite index ended down nearly 1 per cent on Thursday, its weakest closing level since July 26.
“The prospect of much more [monetary policy] tightening and a recession weighs on sentiment,” OANDA senior analyst Craig Erlam said.
“The last 48 hours have seen central banks around the world aggressively tightening as they continue their fight against high inflation.”
The Federal Reserve hiked rates by three-quarters of a percentage point this week, as expected, but also struck a more hawkish stand on future moves. Other global central banks, including the Bank of England, followed suit through the week, also raising key policy rates.
In this country, investors will get a fresh reading on Canadian retail sales before the start of trading.
“RBC Economics expects Canadian retail sales to have declined 2 per cent in July, in line with Statcan’s preliminary estimate,” Elsa Lignos, global head of FX strategy for RBC, said in a note.
“That’s due to lower sales at gasoline stations. Sales for other goods have stayed mostly flat through the month, according to our own tracking of RBC spending data.”
On Wall Street, shares of retailer Costco were down more than 1 per cent in premarket trading after the company topped analysts’ estimates in the latest quarter but also reported gross margins were hit by higher freight and labour costs. Excluding one-time items, Costco earned US$4.20 per share, beating estimates of US$4.17 per share. The company’s gross margin on a reported basis came in at 10.18 per cent, compared to 10.92 per cent, a year earlier.
Overseas, the pan-European STOXX 600 was down 0.91 per cent. Britain’s FTSE 100 fell 0.87 per cent. Early Friday, Britain’s finance minister Kwasi Kwarteng delivered a mini-budget with the aim of cutting taxes and energy bills for households and businesses to try to drive economic growth.
Germany’s DAX fell 0.87 per cent. France’s CAC 40 was off 0.97 per cent.
In Asia, Hong Kong’s Hang Seng lost 1.18 per cent. Markets in Japan were closed.
Commodities
Crude prices were on track for weekly losses as recession fears and a strong U.S. dollar continue to weigh on sentiment.
The day range on Brent was US$88.51 to US$90.84 in the early premarket period. The range on West Texas Intermediate was US$81.51 to US$83.92.
Brent is down more than 1 per cent for the week so far. WTI is off more than 2 per cent.
“The threat of a global recession continues to weigh on oil prices, with widespread monetary tightening over the last couple of days fueling fears of a significant hit to growth,” OANDA’s Craig Erlam said in an early note.
“Central banks now appear to accept that a recession is the price to pay for getting a grip on inflation, which could weigh on demand next year.”
Still, he said, markets remain tight and OPEC+ is ready to restrict supply further to shore up prices even as it fails to deliver on quotas it has set for itself so far.
“What’s more, a nuclear deal between the U.S. and Iran looks no closer and Russia’s mobilization could pose a risk to its supply,” Mr. Erlam said.
In other commodities, gold prices slid.
Spot gold was down 0.4 per cent at US$1,664.39 per ounce by early Friday morning and was heading for its second straight weekly decline, down 0.6 per cent. U.S. gold futures fell 0.5 per cent to US$1,672.10.
Currencies
The Canadian dollar was down, dipping below 74 US cents in the early hours, amid weak risk sentiment and falling crude prices.
The day range on the loonie is 73.86 US cents to 74.26 US cents. On Thursday, the loonie hit its lowest level in two years against the U.S. dollar.
“The CAD is weaker but it is holding up relatively well against the USD amid sharper G10/commodity FX losses elsewhere,” Shaun Osborne, chief FX strategist with Scotiabank, said, also noting “it will be the risk backdrop, not domestic fundamentals, that drive the CAD.”
On world markets, the U.S. dollar index rose 0.16 per cent to 111.40, hovering near a two-decade high of 111.81 hit in the previous session, and is on track for a weekly gain of 1.5 per cent, according to figures from Reuters.
The euro fell 0.11 per cent to US$0.9823, close to a 20-year low of $0.9807 hit overnight.
Japan’s yen, meanwhile, was on track for its first weekly gain against the U.S. dollar after officials intervened in the markets this week to shore up Japan’s currency.
The yen was up about 0.1 per cent at 142.22 per U.S. dollar in Asia, after a more than 1 per cent rally in the previous session, Reuters reported.
In bonds, the yield on the U.S. 10-year note was higher at 3.748 per cent in the predawn period.
Economic news
(8:30 a.m. ET) Canadian retail sales for July.
(8:30 a.m. ET) Canadian manufacturing sales for August.
(2 p.m. ET) U.S. Fed chair Jerome Powell delivers opening remarks at a Fed Listens webinar.
Canada to face a moderate recession in last quarter of 2022, economic model predicts
A Canadian recession model constructed by Oxford Economics shows the country’s economy has crossed a critical thresholdindicating a recession is “imminent,” with the firm’s director of Canada economics, Tony Stillo, warning in a report this week a moderate downturn will start in the next quarter and last until the middle of 2023
The model, which tracks five macroeconomic and financial indicators, including the spread between the yields on Government of Canada 10-year and three-month debt, Canadian stock prices and energy’s share of the Bank of Canada commodity price index, has predicted four of the past six downturns in Canada.
The two exceptions, Mr. Stillo says, followed the 2014 collapse in oil prices and the onset of the pandemic in 2020, two episodes triggered entirely by external factors.
In its forecast Oxford predicts the Canadian economy will shrink 1.8 per cent over three quarters, a slowdown which would be similar in length but shallower than the “typical” Canadian recession over the past 50 years.
And while Mr. Stillo believes the chance of a recession turning into a deeper financial crisis remains low, he warned heavily indebted Canadian households and the housing market will feel the brunt of the pain.
As of August, house prices had fallen 16 per cent from their February peak, and Oxford predicts the correction won’t end until prices are down 30 per cent from their peak. That would still leave prices 7 per cent above their prepandemic level, meaning those most at risk are homebuyers who rushed into the market over the past two years.
Even so, with rising interest rates, high inflation and an unemployment rate that’s predicted to rise to 8 per cent from 5.4 per cent in August, Oxford warns consumers will be squeezed into slashing spending and reining in their debts.
U.S. weekly unemployment claims rise moderately as labour market remains resilient
The number of Americans filing new claims for unemployment benefits increased moderately last week, indicating the labour market remains tight despite the Federal Reserve’s attempt to cool demand with aggressive interest rate increases.
The weekly unemployment claims report from the Labor Department on Thursday, the most timely data on the economy’s health, suggested that job growth remained solid this month. The U.S. central bank delivered a 75-basis-point rate hike on Wednesday, its third straight increase of that magnitude. It signalled more large increases to come this year.
“Fed officials are hitting the brakes hard, but so far employers are just giving this policy a great, big yawn and holding on tight to their workers,” said Christopher Rupkey, chief economist at FWDBONDS. “It’s either that or there is some sort of stealth job losses where those made redundant are not getting unemployment benefits.”
Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 213,000 for the week ended Sept. 17, the Labor Department said on Thursday. Data for the prior week was revised to show 5,000 fewer applications filed than previously reported. Economists polled by Reuters had forecast 218,000 applications for the latest week.
Fed Chair Jerome Powell told reporters on Wednesday that “there’s only modest evidence that the labour market is cooling off,” describing it as continuing “to be out of balance.”
Since March, the Fed has raised its policy rate by three percentage points to the current range of 3.00 per cent to 3.25 per cent.
Unadjusted claims rose 19,385 to a still-low 171,562 last week. There was a surge in applications in Michigan and notable increases in California, Georgia, Massachusetts and New York. Only Indiana reported a significant decrease in filings.
Economists say companies are hoarding workers after experiencing difficulties hiring in the past year as the COVID-19 pandemic forced some people out of the work force, in part because of prolonged illness caused by the virus.
There were 11.2 million job openings at the end of July, with two jobs for every unemployed person.
U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
The claims report covered the period during which the government surveyed businesses for the nonfarm payrolls portion of September’s employment report.
Applications fell 32,000 between the August and September survey periods. Payrolls increased by 315,000 jobs in August. Employment is now 240,000 jobs above its pre-pandemic level.
“There are no signs here of a change in labour market fundamentals,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.
The number of people receiving benefits after an initial week of aid decreased 22,000 to 1.379 million in the week ending Sept. 10. Data next week on the so-called continuing claims, a proxy for hiring, will shed more light on September’s employment picture.
The Fed on Wednesday raised its median forecast for the unemployment rate this year to 3.8 per cent from its previous forecast of 3.7 per cent in June. It boosted its estimate for 2023 to 4.4 per cent from the 3.9 per cent projected in June, a move that economists viewed as recessionary. The jobless rate rose to 3.7 per cent in August from 3.5 per cent in July.
“Historically, an increase in the unemployment rate of this magnitude over a year has been followed by a recession,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The jury is still out on whether the Fed can pull off a soft landing.”
