Global Markets Extended Losses and Investors Adjust to Higher Rates for Longer Scenario

Barry Adams
07 Sep, 2023
New York City

Fears of higher interest rates and the resurgence of inflation kept investors on edge and tech stocks led decliners. 

Resurgent inflation worries dominated market sentiment after the latest data pointed to a resilient U.S. economy and the labor market. 

Tech heavy Nasdaq Composite index dropped more than 1% on the worries that the Fed may  raise rates at the next policy meeting and higher rates are likely to stay longer.

Initial jobless claims declined 13,000 from the previous week to 216,000 at the end of September 2, the U.S. Department of Labor reported in its weekly report on Thursday. 

The jobless claims dropped near a 7-month low, and continuing claims fell 40,000 to 1.679 million in the previous week, and fell to a six-month low. 

What is good news for the job market is bad news for investors, because investors interpreted the strength in the job market could spur the Federal Reserve to consider raising rates at its next meeting. 

A separate report from the U.S. Bureau of Labor Statistics revised higher its estimate of the unit labor costs. 

Unit labor costs in the nonfarm business sector rose 2.2% from a year ago in the second quarter, higher than 1.6% in the preliminary estimate. 

The increase was still lower than 3.3% gain in the first quarter.  

The unit costs increase reflects a 5.7% rise in hourly compensation compared to a 5.5% rise and a 3.5% increase in productivity compared to a 3.7% increase in the preliminary estimate respectively. 

Unit labor costs in the manufacturing sector increased 4.9% compared to 3.6% and for business rose 1.9% compared to 1.3% in the previous estimate respectively. 

The dollar index, which tracks the price of the U.S. dollar against major currencies, increased for the fifth day in a row and extended weekly gains to the eight week in a row and rose to a six-month high on the expectations of higher interest rates. 

The dollar index jumped above 105 mark and extended gains from the low of 99.85 reached on July 13. 

 

U.S. Indexes & Yields 

The S&P 500 index traded down 0.3% to 4,451.14 and the Nasdaq Composite fell 0.9% to 13,748.83. 

The yield on 2-year Treasury notes increased to 5.03%, 10-year Treasury notes inched higher to 4.29% and 30-year Treasury bonds edged down to 4.36%. 

Crude oil increased $0.45 to $86.27 a barrel and natural gas prices decreased 5 cents to $2.53 a thermal unit. 

The dollar index, which tracks the price of the U.S. dollar against major currencies, increased for the fifth day in a row and extended weekly gains to the eight week in a row and rose to a six-month high on the expectations of higher interest rates. 

The dollar index jumped above 105 mark and extended gains from the low of 99.85 reached on July 13. 

 

U.S. Stock Movers 

Dutch Bros Inc declined 6.9% to $26.12 after the company announced its plan to raise $300 million through the public offering of Class A common stock. 

WestRock Company increased 5.8% to $26.12 on a report that the company is nearing a merger with the UK-based paper and packaging company Smurfit Kappa. 

The expected merger news was reported by The Wall Street Journal.  

ChargePoint Holdings Inc plunged 27.5% to $5.08 after the company reported second quarter revenue jumped 39% to $150.5 million from $108.3 million and gross margin plunged to 1% from 17% a year ago. 

Net loss in the quarter increased to $125.3 million from $92.7 million and diluted loss per share rose to 35 cents from 28 cents a year ago. 

Dave & Buster's Inc dropped 3.9% to $36.0 after the restaurant and entertainment company reported quarterly results that missed some investors expectations. 

Second quarter revenue increased 15.7% to $542.1 million and net income declined to $25.9 million from $29.1 million and diluted earnings per share was 60 cents compared to 59 cents a year ago.  

 

European Markets Declined Seventh Day In a Row 

European markets turned slightly higher after investors returned for bargain hunting. 

Market indexes in London, Paris and Frankfurt attempted to rebound after six days of losses in a row amid worries of looming global economic slowdown and rate hikes. 

China's exports and imports shrank and trade surplus declined in August after exports to the European Union, ASEAN region and the U.S. fell in double digits. 

 

Euro Area First Quarter GDP Growth Revised Lower

The Euro Area GDP growth in the second quarter was revised lower to 0.1% from the previous quarter, Eurostat reported Thursday. 

The economic growth was downwardly revised from the initial estimate of 0.3%. 

On an annual basis, the GDP growth was revised lower to 0.5% from the initial estimate of 0.6% and slower than 1.1% in the first quarter ending in March. 

From the previous quarter GDP stalled in Germany, expanded 0.5% in France, rose 0.4% in Spain but contracted 0.4% in Italy.  

The currency bloc's economy is likely to dip into a recession with the weak outlook for the German economy. 

German industrial production declined 0.8% from the previous month in July following a downwardly revised 1.4% fall in June, the Federal Statistics Office or DeStatis reported Thursday. 

Industrial production declined after output for capital goods fell 2.9%, consumer goods eased 1% and industrial goods decreased 0.7%. 

On an annual basis, production fell 2.2% after falling 1.5% in June.  

 

Europe Indexes & Yields

European markets have been on the decline for the last five weeks on the worries of economic slowdown and higher interest rates that could dip the economy into a deeper recession. 

The DAX index increased 0.05% to 15,718.66, the CAC-40 index increased 0.02% to 7,196.10 and the FTSE 100 index inched up 0.2% to 7,441.21.

The yield on 10-year German bonds increased to 2.63%, French bonds traded higher to 3.16%, the UK gilts edged up to 4.47% and Italian bonds rose to 4.36%.

The euro edged lower to $1.076, the British pound to $1.246 and the U.S. dollar fetched 89.23 Swiss cents.

Brent crude decreased $0.83 to $89.76 a barrel and the Dutch TTF natural gas increased €1.98  to €32.05 per MWh.

 

Europe Stock Movers

Resource companies traded volatile with a downward bias after China's exports and imports declined in August. 

Glencore, Antofagasta and Anglo America declined between 1% and 2%. 

Nestle SA increased 0.5% to CHF 104.76 and the company agreed to acquire Brazilian chocolate brand Kopenhagen. 

Direct Line Insurance Group Plc soared 16% to 174.15 pence after the home and automobile insurance company posted an operating loss in the first-half but forecasted improved earnings in 2024. 

Deutsche Telekom AG declined 0.3% to €19.87 after its subsidiary T-Mobile U.S. announced a stock repurchase plan of up to $19 billion between the fourth quarter 2023 and the end of 2024. 

Smurfit Kappa Group Plc decreased 1.6% to 3,168.0 pence after the UK-based packaging company is in potential merger discussion with the U.S. rival WestRock. 

The news was first reported by the Wall Street Journal. 

SAP SE jumped 0.7% to €129.88 after the German software company said it acquired software management company LeanIX without disclosing terms.

ThyssenKrupp AG decreased 1.8% to €7.08 after the company said chief financial officer Klaus Keysberg will step down from management duties next year.  

 

Japanese Yen Traded Down, China Exports Declined 8.8% 

Market indexes in Asia traded down after the U.S. Treasury yields advanced and on going property woes in China. 

The yen traded above 147 against the U.S. dollar for the second day in a row after the short term U.S. Treasury yields advanced following the worries of a rebound in inflation. 

A private survey showed that prices are still accelerating in the service sector in August and the recent rebound in crude oil prices fed the fears of a rebound in overall inflation. 

The widening yield gap between the U.S. Treasury bonds and the Japanese government bonds dragged the market indexes lower, halting the market advance in previous eight sessions in a row. 

Market indexes in China declined on the ongoing worries of the property sector woes and contagion fears to banks and steel and cement producers. 

 

China Exports Fall 4th Consecutive Month In August 

China's exports declined for the fourth month in a row by 8.8% in August and imports declined 7.3%. General Administration of Customs reported Thursday.  

Trade surplus declined to$68.4 billion from $80.6 billion in July after exports declined 8.8% to $284.9 billion and imports decreased 7.3% to $216.5 billion. 

Exports fell at a slower pace in August after a 14.5% decline in July and imports declined 7.3% following the decrease of 12.4% in the previous month. 

Exports to three largest trading partners declined in the month.

Shipments to ASEAN or Association of Southeast Nations, China's largest trading partner, declined 13.3, to European Union dropped 19.6% and to the United States decreased 9.5%. 

Export growth to Russia increased 16% in August after rising 52% in July and 91% in June.

Rare earth metals exports surged 30% to 4,775 metric tons on the rising global demand and weakening yuan against the U.S. dollar. 

Despite the month-to-month international trade volatility, exports for the first eight months to August declined 5.6% to $2.2 trillion. 

 

Asia Market Indexes 

In Thursday's trading, the Nikkei index decreased 0.8% to 32,991.08, the Shanghai SSE Composite index dropped 1.1% to 3,122.07, the Hang Seng index declined 1.3% to 18,207.17 and the KOSPI index decreased 2,544.40.

India stocks struggled in Mumbai after foreign institutional investors were net sellers of stocks in August. The yield on Indian government bonds edged higher and silver and gold traded volatile with a downward bias. 

Market indexes in Mumbai lacked direction and investors reviewed rising global bond yields and resurgent dollar. 

The Sensex and the Nifty indexes edged slightly higher in cautious trading but new 52-week highs remained above 200 for the third day in a row.  

The Sensex index increased 4.69 points to 65,885.21 and the Nifty index rose 4.61 points to 19,615.20. 

Despite the weak international market sentiment, domestic retail investors continue to pour money into large and mid cap stocks. 

In August, the Nikkei index fell 0.6%, the SSE Composite index declined 5.2%, the Hang Seng index fell 8.2% and the KOSPI index decreased 4.2%.