U.S. and World Markets Remain Unsettled Ahead of Key Economic Reports

Alexander Garcia
12 Aug, 2024
Miami

Market indexes in New York struggled to extend gains after a week of wild gyration and heightened volatility. 

Earlier in previous the week, benchmark indexes extended the previous week's losses to 10%, but they recovered and reversed all losses as market sentiment stabilized. 

Last week's global market rout was rooted in worries about the U.S. economic slowdown after nonfarm payrolls in July rose at a slower than expected pace and the tightening of labor market conditions. 

However, market sentiment recovered after initial jobless claims fell more than expected, suggesting the labor market is still healthier than previously estimated. 

This week, investors are looking forward to the release of producer price inflation on Tuesday, consumer price inflation on Wednesday, and retail sales on Thursday. 

Investors are hoping that the Federal Reserve is set to start the rate-cut cycle with the first cut after the September meeting; however, those hopes may be dashed if inflation stays near or above 3%, as it has for several months now. 

Federal Reserve Chair Jerome Powell has confirmed after the latest policy meeting that policymakers are open to trimming interest rates if inflation continues to follow a downward path to its target rate of 2%. 

However, despite multiple rate hikes over 2022 and 2023, inflation has slowed from as high as nearly 9% to 3%. 

July’s consumer price inflation is estimated at 2.9%, and core inflation is estimated to stay near 3.2%, higher than the Fed’s target rate of 2%.

Retail sales, unadjusted for inflation but adjusted for calendar and seasonal factors, in July are likely to expand by 0.3%.

 

U.S. Indexes and Treasury Yields

The S&P 500 index gained 0.2% to 5,354.41, the Nasdaq Composite advanced 0.5% to 16,829.33, and the Russell 2000 index declined 1.0% to 2,059.10. 

The yield on 2-year Treasury notes edged higher to 4.08%, 10-year Treasury notes increased to 3.96%, and 30-year Treasury bonds inched lower to 4.24%.

WTI crude oil increased $2.31 to $79.15 a barrel, and natural gas prices edged up 4 cents to $2.18 a thermal unit.

Gold increased by $33.84 to $2,464.44 an ounce, and silver increased by $0.48 to $27.93. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 103.16.

 

U.S. Stock Movers 

Starbucks increased 2.3% to $76.82 after The Wall Street Journal reported that activist investor Starboard Value acquired a stake in a coffee retail store chain to seek a higher stock price. 

JetBlue Airways dropped 10.8% to $5.41, and the regional airline said it plans to issue $400 million of convertible senior notes in 2029. 

KeyCorp jumped 16.6% to $17.04, and The Bank of Nova Scotia acquired a 14.9% stake in the Cleveland-based bank for $2.8 billion in cash. 

 

European Indexes Trim Early Gains Amid Rate Path Anxieties  

European markets attempted to shake off economic growth anxieties after a week of wild gyrations. 

Benchmark indexes in London, Paris, and Frankfurt traded around flatline as investors looked forward to the release of key economic data in the U.S. and Europe later in the week. 

The Euro Area’s second-quarter GDP is expected to grow by 0.3%, as confirmed by the second estimate scheduled to be released next week, and the international trade balance in the Eurozone is expected to show a modest increase in its surplus.

In the UK, investors are looking forward to the release of second-quarter GDP growth of 0.6%, and the jobless rate is estimated at 4.5%.

In the U.S., consumer price and producer price inflation reports and retail sales updates are expected to shed more light on the future interest rate course. 

July’s consumer price inflation is estimated at 2.9%, and core inflation is estimated to stay near 3.2%, higher than the Fed’s target rate of 2%.

Retail sales, unadjusted for inflation but adjusted for calendar and seasonal factors, in July are likely to expand by 0.3%.

In the absence of economic data, investors reacted to the latest corporate earnings announcements from Hanover Re, Munich Re, L'Occitane, Remy Cointreau, British Land Company, and Severn Trent. 

 

Europe Indexes and Yields

The DAX index increased by 0.02% to 17,726.47; the CAC-40 index fell by 0.3% to 7,250.67; and the FTSE 100 index advanced by 0.5% to 8,210.25. 

The yield on 10-year German bonds edged higher to 2.24%, French bonds inched higher to 2.99%, the UK gilts inched higher to 3.96%, and Italian bonds inched up to 3.66%.

The euro edged down to $1.09; the British pound inched lower to $1.272; and the U.S. dollar weakened to 86.92 Swiss cents.

Brent crude increased $1.59 to $81.55 a barrel, and the Dutch TTF natural gas fell by €0.15 to €39.91 per MWh.

 

Europe Stock Movers

Hanover Re rose 4.7% to €226.30, and the reinsurance company reported higher sales and earnings and confirmed its annual outlook. 

Munich Re gained 1.2% to €440.0, and the German reinsurance company reported better-than-expected second quarter sales and earnings. 

Revenue increased 12% to €15.4 billion, and net income soared 41% to €1.62 billion, driven by a higher profit margin of 11% compared to 8.4% a year ago. 

China-linked luxury stocks traded down amid ongoing economic slowdown worries and a protracted property market slump. 

Kering SA dropped 1.4% to €250.90, LVMH decreased 0.01% to €636.10, and Remy Cointreau fell 1% to €70.45. 

Land Securities Group decreased 0.3% to 618.50 pence, and British Land Company declined 0.6% to 395.0 pence. 

 

Investors Brace for Volatile Yen Amid BoJ's Reluctance to Lift Rates 

Benchmark indexes in Japan rebounded in Friday's trading as market sentiment stabilized after a week of wild swings, sharp declines, and rebounds. 

Financial markets are closed on Monday to celebrate the Mountain Day holiday. 

In Friday's trading, the Nikkei 225 stock average gained 0.6% and the Topix index jumped close to 1% as investors reassessed the future rate path and its implications for the yen. 

The yen traded at 147.23 against the U.S. dollar after the Bank of Japan's unexpected rate increase lifted the currency to an eight-month high last week. 

Despite the two-day rebound in stock market indexes, investors are expecting the yen to resume its slide toward the 160 level because of the yawning gap between Japan and U.S. government bond yields. 

Moreover, corporate earnings have been in focus as investors look forward to the release of quarterly results from leading industrial and financial companies later this week. 

On the economic front, investors are looking ahead to the release of Japan’s second quarter GDP to show a slight pick-up from the first quarter, driven by an increase in exports and higher domestic demand for industrial goods. 

 

Japan Stock Movers 

The Nikkei 225 stock average increased 0.6% to 35,025.0, and the Topix index gained 0.9% to 2,483.30. 

Technology and chip-related stocks led the gainers in Monday's trading as investors returned to increase exposure to advanced semiconductor equipment makers. 

Advantest, Screen Holdings, and Lasertec fell between 0.5% and 0.9%, but Tokyo Electron advanced 0.7%. 

Toyota Motor and Nissan Motor declined 0.5%, and Honda Motor advanced 0.3% in muted trading on Friday. 

 

China Stocks Resume Downward Slide

Stocks in Hong Kong and Shanghai struggled to advance in Monday's trading as investors awaited key economic data later in the week. 

The Hang Seng index and the CSI 300 index traded around the flatline amid hopes of more policy support from the People's Bank of China. 

Retail sales in July are expected to show an increase of 2.5%, and industrial output is likely to increase more than 5%, according to an informal survey of nine economists in Shanghai and Hong Kong conducted by Ticker.com. 

Chinese stocks have been under pressure, and benchmark indexes have erased this year's gains amid persistent worries about weak consumer demand growth, the protracted real estate market crisis, and the uneven and fragile economic recovery. 

The People's Bank of China is expected to cut its reserve ratio for banks by 25 basis points to facilitate the sale of long-term bonds by the Chinese government. 

Corporate earnings so far in the quarter have lagged market expectations amid weak domestic demand growth and falling investment in property-related industry sectors. 

China's current account surplus narrowed to $54.9 billion in the second quarter from $59.3 billion in the corresponding quarter in the previous year, according to data released by the China's State Administration of Foreign Exchange. 

The international goods surplus widened to $167.1 billion from $160.3 billion, but service deficit widened to $61.7 billion from $49.2 billion in the period a year ago.  

 

China Stock Movers 

The Hang Seng index edged up 0.01% to 17,095.06, and the CSI 300 index decreased 0.1% to 3,327.74. 

Guangzhou R&F Properties was nearly unchanged at HK 79 cents, and the real estate development company said in a filing with an exchange that its unit missed interest payments of $147 million. 

The company said it is in negotiations with its lender to find a workable solution and may revise its future payment plans. 

Galaxy Entertainment Group decreased 4.9% to HK$29.30 after local authorities planned to crackdown on unlicensed money exchange service providers for gambling. 

Technology stocks traded volatile in Hong Kong following a muted rebound in Friday's trading in New York. 

Alibaba Group jumped 0.8% to HK $78.45, Baidu decreased 1% to HK $82.35, and Meituan dropped 2.7% to $103.30.