Rate and Earnings Worries Drag U.S. Indexes Lower, European Markets Rebound

Barry Adams
19 Dec, 2022
New York City

Market indexes on Wall Street closed sharply lower as hopes Santa rally faded amid growing worries of 2023 recession and earnings revisions.

U.S. stocks attempted to rebound after two weeks of decline amid growing worries of slowing economic activities and earnings downgrade in the upcoming year. 

Markets are also shifting away from the economic soft landing scenario after the Federal Reserve's commitment in fighting high inflation and admission that it will take a while before price stability returns. 

Investors are increasingly worried that the Fed's plan of more rate increases in 2023 may dip the slowing economy into a recession and also negatively impact labor market expansion. 

Markets are awaiting the data on PCE Price Index, personal income and spending, durable goods report and consumer confidence. 

The S&P 500 index declined 0.9% to 3,840.47 and the Nasdaq Composite index dropped 1.5% to 10,546.03. 

 

Energy Markets Advance 

Natural gas prices extended losses in the third week and dropped near a 5-month low of $5.55 a thermal unit on the expectations of milder weather and lower demand of heating energy. 

Moreover, markets are awaiting the restarting of Freeport LNG terminal near Houston, Texas towards the year-end after six months of outage and resume exports to Europe. 

Crude oil futures increased $1.54 to $75.85 a barrel and natural gas futures fell 77 cents to $5.82 a thermal unit. 

 

Bond Yields Inched Higher 

Treasury yields inched higher as investors worried that the inflationary forces are stronger than anticipated despite the ongoing fall in energy prices. 

Markets also focused on the broadening of inflation from goods to services sector and noted the Fed's commitment in continuing its campaign of raising rates in early 2023. 

The yield on 2-year Treasury notes edged up to 4.26%, 10-year Treasury notes inched higher 3.58% and 30-year bonds increased to 3.64%. 

 

U.S. Stock Movers 

Aerojet Rocketdyne Holdings Inc increased 1.6% to $55.77 after the company agreed to be acquired by rival L3 Harris Technologies for $58 a share. 

L3Harris decreased 3.5% to $205.76. 

Sinclair Broadcast Group Inc declined 2.8% to $15.43 on a report from the New Yoro Post that the company's, Diamond Sports Group, regional sports network of 21 channels is likely to initiate bankruptcy proceedings. 

Tesla Inc dropped as much as 4% in pre-market trading to $146.45 on the worries that chief executive Elon Musk may be distracted from running the electric vehicle maker and distracted by his recent purchase of Twitter Inc. 

Mesa Air Group Inc increased 12.8% to $1.32 after the company said it is close to finalizing its deal with United Airlines.

American Airlines is said to terminate its relationship with Mesa for its regional flights on the worries that Mesa may not have operational and financial resources to run the regional network.  

Mesa said in a statement that the airline is looking to sell more planes and parts to raise capital but the regional carrier is struggling with nationwide pilot shortage after the sharp rebound in travel demand after two years of pandemic. 

Investors are awaiting earnings results from 107 companies including the list of following companies. 

BHP Group, Carnival Corporation, Cintas, FactSet Research, FedEx, General Mills, Micron Technology, Nike, Steelcase and Titan Pharma.  

 

European Markets Attempt to Rebound After 3% Weekly Sell-0ff 

Benchmark indexes in Europe gained following a brutal market selloff in the previous week after the European Central Bank lifted ley rates and signaled more rate hikes in 2023. 

Market indexes rebounded after the German business confidence index advanced for the third week in a row. 

Germany's Ifo Business Climate Index in December increased to 88.6 from the revised 86.4 in November.  

Moreover, market sentiment was bolstered after policymakers in China pledged to relax and improve coronavirus controls and consider additional support for the property market. 

The DX index advanced 0.4% to 13,942.87, the CAC-40 index rose 0.3% to 6,473.29 and the FTSE 100 index added 0.4% to 7,361.31. 

 

Labor Market Slack Remained Stable

The employment rate in the European Union was stable in the third quarter at 74.7% compared to the second quarter, according to the data released today by Eurostat. 

The labor market slack also remained stable at 11.5% of the extended labor force aged between 20 and 64 years, the statistical office also noted today. 

 

Euro Area Wage Growth Slows to one-Year Low 

Wages and salaries in the Euro Area rose at the slowest pace in a year of 2.1% in the third quarter, Eurostat reported Monday. 

The second quarter wage growth was downwardly revised to 3.2% from the preliminary estimate. 

The non-wage component of total wage and salaries rose 5.3% in the third quarter from a year ago. 

Wages rose for the fifth quarter in a row but at the slowest pace since the second quarter 2021. 

Among large economies in the region, wages rose at the fastest pace in the third quarter among large economies in the region in France at 4.4% followed by 2.5% in Spain and 1.9% in Italy.

However in the European Union, wages rose the fastest in Hungary 16.6 % and Bulgaria 16.3 %. 

Four more EU Member States recorded an increase above 10 %: Lithuania (13.9%), Poland (13.3%), Greece (11.6%) and Romania (10.9%).

While wages in Germany declined 1.5% after rising 3% in the second quarter. 

 

Natural Gas Price Eases, EU Approves Price Cap 

Oil prices advanced after Chinese policymakers vowed to boost consumption at a key meeting on Monday, lifting hopes of higher demand for energy from the second largest economy. 

Moreover, U.S. President Biden's administration is also looking to replenish crude oil reserves starting with 3 million barrels. 

After a year of unprecedented oil depletion, the U.S. government is looking to rebuild its oil 

The U.S. has been depleting the reserve to fight high energy prices for about a year and the White House had estimated to release in total 180 barrels of oil. 

Brent crude oil increased $1.05 to $80.04 a barrel and Dutch TTF natural gas inched fell 6% to