Global Markets Struggle, Oil Falls On Rate-hike and China Worries

Barry Adams
01 Sep, 2022
New York City

Benchmark indexes closed mixed in volatile trading on Wall Street and bond yields continued to rise. 

Tech-heavy Nasdaq fell for the fifth day in a row and bond yields rose to a 10-week highs not seen since 2007. 

Market worries were also compounded by another lockdown in China and factory activities declined for the first time in three months in August. 

Chengdu announced a lockdown for its 21 million residents to prevent the Covid-19 virus variant from spreading. 

In the northeast, Dalian with a population of 5.7 million and in the south Shenzhen with a population of 12.6 million have implemented stricter restrictions on mobility and social gathering.   

Benchmark index extended losses ahead of the jobs report on Friday and on the ongoing worries of the future rate hikes. 

Investors are looking for clues on the health of the jobs market, consumer spending and energy prices. 

So far, consumer spending has remained stable but the spending pattern is shifting and amid high energy and food price inflation many are limiting purchases to basic and necessary items. 

However, if interest rates continue to rise and energy prices remain elevated, job market conditions are likely to turn unfavorable and economic growth will slow down further. 

Weekly initial jobless claims declined to 232,000 for the week ending on August 27 and continuing claims increased 26,000 from the previous week to 1,44 million, the Labor Department reported Thursday.  

 A separate report from the labor department showed that unit labor costs rose 10.2% in the second quarter from the previous three-month period. 

On an annual basis, unit labor cost rose 9.3% at the end of the second quarter. 

The S&P 500 index increased 0.3% to 3,966.85 and the Nasdaq Composite fell 0.9% to 11,785.13. 

Futures of crude oil prices declined $3.26 to $86.27 and natural gas rose 6 cents to $9.19 a thermal unit.

Bond yields rose to a two-month high ahead of highly anticipated jobs report on Friday 

The yield on 10-year Treasury notes rose to 3.26% and on 2-year Treasury notes inched up to 3.51%. 

Ciena Corp declined 10.4% to $45.47 after the networking equipment maker reported weaker-than-expected quarterly results.

In addition, the company said parts shortages are preventing the company from meeting its customer demands. 

Lands' End, Inc declined 15.3% to $11.70 after the apparel retailer said quarterly loss narrowed but expenses and inventories rose.   

For the second quarter, net revenue fell 8.6% to $351.2 million from $384.1 million a year ago. 

The company swung to a net loss of $2.2 million or 7 cents a diluted share compared to net income of $16.2 million or 48 cents a diluted share last year. 

For fiscal 2022, the apparel retailer guided revenue to be between $1.60 billion and $1.64 billion and net income between $16.5 million and $23.5 million, and diluted earnings per share between $0.49 and $0.70.

Signet Jewelers Ltd dropped 12.2% to $57.20 despite the retailer reaffirming its full-year outlook and exceeding quarterly earnings estimates. 

Total sales declined 1.9% to $1.8 billion and same store sales fell 8.2% from a year ago. 

Diluted earnings per share declined to $2.58 from $3.60 a year ago. 

Signet lowered its full-year fiscal 2023 annual revenues to between $7.6 billion and $7.7 billion and diluted earnings per share between $10.98 and $11.57. 

 

European Stock Indexes at 6-week Low, Yields at 8-year High 

European markets declined on the first day of September and all major indexes in the region fell as investors debated the direction of interest rates and health of the economy. 

Moreover, market sentiment was dented by additional lockdown and a contraction in Chinese factory activities. 

After a sustained campaign by central bankers in the last five days, investors are betting that the next rate hike at the policymakers' meeting on Sept 8 could be as large as 75 basis points.

Bond yield across the euro zone rose ahead of the rate setting committee's meeting next week. 

The German Bund yields rose to 1.57%, the U.K. bonds inched closer to 2.9%, and Italian bonds nearly touched 3.94%. 

The bond yields in the euro zone rose to the levels last seen in 2014. 

Commodities and energy prices inched lower on the worries that the demand from China may remain soft on the ongoing lockdown and weakening factory activities. 

Brent crude oil declined $3.43 to $92.21 a barrel and natural gas futures increased 1.3% to 243.0 euros per megawatt hour. 

The DAX index fell 1.6% to 12,160.23, the CAC-40 index dropped 1.5% to 6,034.12, and the FTSE 100 index fell 1.9% to 7,148.50. 

Mining companies led the decliners in London trading after gold, silver and copper fell between 1% and 3% after weak Chinese data. 

Anglo American, Antofagasta, and Glencore declined between 4% and 6%. 

Rio Tinto plc declined 3.6% to 4,600 pence in London trading after it agreed to acquire Turquoise Hill Resources for $3.3 billion. 

Reckitt Benckiser Group declined 4.9% to 6,323.55 pence after the company said its chief executive officer Laxman Narasimhan has decided to leave the company for personal reasons. 

Later in the day, Starbucks announced the appointment of Narasimhan as its new chief executive from April 1, 2023. 

Deutsche Lufthansa AG declined 3.2% to 5.75 euros after the pilots union announced a one-day strike on September 2 following a ground staff strike in July. 

Pernod Ricard increased 0.5% to 184.40 euros after the spirits group reported its annual results. 

Organic sales in the fiscal year fourth quarter ending in June increased 14% to 2.3 billion euros and fiscal year 2022 sales rose 17% to 10.7 billion euros. 

The company proposed to increase dividend 32% to 4.12 euros in the fiscal year 2022. 

The spirit group also guided  capital expenditure to increase 7% in the fiscal 2023 and proposed to buyback between 500 million and 750 million of its stocks. 

Hermes declined 2.5% to 1,250 euros and LVMH dropped 2.3% to 632.80 euros on the worries of a slowdown in China. 

 

Asian markets declined on the worries that the newly imposed restrictions on gathering and traveling may slowdown the economic activities further. 

Hong Kong's Hang Seng Index dropped 1.8% to 19,597.31 and Shanghai Composite Index declined 0.5% to 3,184.98. 

Stock indexes fell to a one-month low in Tokyo after manufacturing activities rose at the slowest pace in a year in August. 

The Nikkei 225 Index plunged 1.5% to 27,661.47 and the broader Topix declined 1.4% to 1,935.49.

Tokyo Electron and Advantest declined between 3% and 4% after the U.S. more restrictions in selling advanced chips to China. 

Stocks turned lower on Dalal Street after economy expanded at a slower-than-expected pace in June quarter. 

Gross domestic product in the fiscal first quarter 2023 shot up 13.5% from a year ago but below the 16% estimate from the Reserve Bank of India. 

The robust rebound was driven by the rise in consumer activities but the international trade deficit weighed on the growth. 

Australian market indexes fell 2% on the commodities demand worries after China imposed more lockdowns and restrictions impacting as many as 30 million people.