S&P 500 and Nasdaq Drop 1% On Inflation Jitters, Natural Gas in Europe Soar 40%

Boris Petrov
09 Aug, 2023
New York City

Market averages failed to rebound a day after regional banks dropped more than 3% after Moody's downgraded several banks. 

The S&P 500 index and the Nasdaq Composite traded down in a choppy session ahead of inflation data tomorrow and traders feared that despite the weakening overall inflation core inflation may stay elevated. 

Investors are anticipating that the recent cooling trend will continue in July but core inflation may stay around 4.8% and overall inflation may dip to 3.3%. 

Consumer prices have cooled following a decline in energy prices but service costs are still rising at elevated pace and core inflation is significantly above the 2% target set by the Federal Reserve. 

Market participants are worried that the Federal Reserve may abandon its target rate of 2% after the stubborn core inflation staying near 3% for the next several months. 

Moreover, the recent pick up in crude oil prices has stoked fears of a rebound in inflation and natural gas prices soared 40% in Europe after workers in Australia voted to strike at natural gas fields. 

In overseas news, China reported deflation in July after consumer prices fell 0.3% from flat in June, the National Bureau of Statistics reported Wednesday. 

Commodities prices traded volatile after the China inflation report but traders held out for an announcement of stimulus measures. 

Closer to home, regional banks are expected to remain in focus after Moody's downgraded 10 banks and placed 11 other banks on its negative watch list. 

Several analysts said rating agency's action may be too late and markets have already discounted reasons for downgrade. 

 

U.S. Indexes & Yields 

The S&P 500 index traded down 0.7% to 4,467.71 and the Nasdaq Composite declined 1.2% to 13,722.02. 

The yield on 2-year Treasury notes decreased to 4.71%, 10-year Treasury notes inched lower to 4.01% and 30-year Treasury bonds edged down to 4.19%. 

Crude oil decreased $1.17 to $84.07 a barrel and natural gas prices increased 18 cents to $2.96 a thermal unit. 

 

U.S. Stock Movers 

Lyft Inc declined 6.9% to $10.76 after the ride-hailing company released its quarterly results. 

Stock jumped after the company reported adjusted earnings per share of 16 cents and revenue of $1.02 billion, meeting estimates set by some analysts. 

But the stock turned lower after investors reassessed the company's fiscal fourth quarter revenue outlook which fell short of some analysts' estimates. 

Rivian Automotive Inc was nearly unchanged at $24.80 after the maker of electric vehicles narrowed its quarterly loss and revised higher its production target. 

Rivian said second quarter revenue jumped to $1.1 billion from $364 million and net loss shrank to $1.2 billion from $1.7 billion and diluted pre share declined to $1.27 from $1.89 a year ago. 

The company forecasted 2023 production target of 52,000 from the previous estimate of 50,000 and higher than 25,000 from a year ago. 

The company delivered 12,640 vehicles in the second quarter, sharply higher than 4,467 vehicles a year ago. 

WeWork Inc plunged 9.9% to 19 cents after the company said in an SEC filing that it may consider restructuring its debt including bankruptcy amid weak membership rates. 

PENN Entertainment Inc jumped 19% to $29.64 after the company signed a 10-year deal with ESPN to create ESPN Bet, a sports betting site. 

As a part of the deal, Penn agreed to pay ESPN $1.85billion in cash. 

 

European Markets Trim Day's Losses, Banks Rebound 

European markets traded higher after banks rebounded and investors reviewed China inflation data. 

Market averages jumped more than 1% and banks across the region advanced after Italy's finance minister clarified that the windfall tax will not exceed 0.1% of bank assets. 

The government was forced to clarify its intent of levying 40% tax on excess profit linked to higher interest rates with a cap of 0.1% on assets with the intention of raising Є3 billion. 

Intesa Sanpaolo, UniCredit, Banco BPM and Monte Dei Paschi di Siena jumped between 2% and 4%. 

Banks in France, Germany and Spain also recovered losses in the previous session. 

In Asia, China reported its first deflation over two years in July after consumer prices declined 0.3% from flat in June, the National Bureau of Statistics reported Wednesday. 

Prices fell in July because of higher base previous year 

China's consumer price inflation data followed weak international trade data a day ago that showed exports and imports fell in double digits in July, indicating weakening demand. 

Investors are also awaiting U.S. inflation data Thursday and economists are estimating that the recent cooling of inflation will continue in July. 

 

Europe Indexes & Yields

The DAX index increased 0.5% to 15,852.58, the CAC-40 index rose 0.7% to 7,322.04 and the FTSE 100 index added 0.8% to 7,587.30.  

The yield on 10-year German bonds increased to 2.46%, French bonds traded higher to 3.03%, the UK gilts edged up to 4.39% and Italian bonds decreased to 4.13%.

The euro edged lower to $1.092, the British pound to $1.270 and the U.S. dollar fetched 87.66 Swiss cents.

 

Natural Gas Prices Soar 40% 

Natural gas prices jumped to a two-week high and soared above €40 per megawatt-hour for the first time since June after workers at Woodside Energy Group and Chevron coted to strike. 

The potential strike could disrupt global natural gas supplies and cause prices to surge as high as 60 per megawatt-hour if the strike continues longer than a month. 

Moreover, LNG flows to terminals in the U.S. eased and traders are forecasting supplies from the U.S. are likely to be diverted to Asia in the next three months because of higher prices. 

The U.S. exports about 11% of its natural gas production and Asian buyers are most likely to bid at higher prices for that supply. 

Moreover, Norway is also undergoing its seasonal maintenance at several natural production location and potential delays could further spike prices. 

Despite the recent surge in prices, natural gas storage across the European Union is near a record 87% level and regulators are aiming for 90% level before the end of November to meet demand in next winter. 

Germany, Italy and Spain are at or near levels set by the EU authorities and France is expected to catch up in the next few weeks. 

Brent crude decreased $1.17 to $87.33 a barrel and the Dutch TTF natural gas increased €8.78 to €39.82 per MWh.

 

Europe Stock Movers

ABN Amro Bank NV decreased 2.8% to €14.31 after the Dutch lender postponed its plan to buy back shares to the fourth quarter. 

Mining companies rebounded on the hopes that the latest China deflation data may spur policymakers in providing additional stimulus to the property sector. 

Glencore, Antofagasta, and Angle American jumped between 1% and 2%. 

Continental AG edged up 0.8% to €70.50 despite the tire maker lowering its annual outlook. 

Delivery Hero SE soared 7.2% to €39.94 after the food delivery services platform revised higher its revenue outlook. 

Vestas Wind Systems AS increased 1.8% to Kr 182.82 after the wind turbine company reported a narrower second quarter loss and maintained its full-year 2023 outlook. 

Hill & Smith PLC jumped 6.2% to 1,670.0 pence after the infrastructure company reported record first-half results. 

Coca Cola HBC jumped 2.1% to €26.45 after the soft drinks beverage maker revised higher its organic growth estimate for the fiscal year 2023 and reiterated its operating earnings forecast.