North American News
US stocks close with large losses on recession worries
- Closing changes for the main US equity markets
Closing changes for the main North American markets:
- S&P 500 -1.0%
- Nasdaq -2.0%
- DJIA -0.4%
- Russell 2000 -1.8%
- Toronto S&P/TSX Comp -0.6%
On the week:
- S&P 500 +2.6%
- Nasdaq +3.3%
- DJIA +2.0%
- Toronto S&P/TSX Comp +3.1%
US S&P Global July flash services PMI 47.0 vs 52.6 expected
- US PMIs from S&P Global
- Prior was 52.7
- Manufacturing 52.3 vs 52.0 expected
- Prior manufacturing was 52.7
- Composite 47.5 vs 52.3 prior
Most global PMIs have been on the soft side in today’s slate but this is particularly bad. We’d seen some poor manufacturing PMIs so that’s where you would expect the weakness to be concentrated but the services PMI is dreadful, it fell off a cliff.
Details:
- Services below 50 for the first time since June 2020
- Manufacturing new orders at the lowest since May 2020
- Services sector prices charged index falls to lowest since Mach 2021
- Composite new orders returned to expansionary following June contraction
- Composite input costs was softest in six months
- Composite business confidence slipped to lowest since Sept 2020
This is the kind of thing that will give the Fed pause regarding hiking above 3%. The odds of 100 bps fell to pretty much nil from 10% before the data. The Dec contract is now the high at 3.28% from 3.38% earlier.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“The preliminary PMI data for July point to a worrying deterioration in the economy. Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis, with the survey data indicative of GDP falling at an annualised rate of approximately 1%. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook.
“An increased rate of order book deterioration, with backlogs of work dropping sharply in July, reflects an excess of operating capacity relative to demand growth and points to output across both manufacturing and services being cut back further in coming months unless demand revives. However, with companies’ expectations of future growth slumping to the lowest since the early days of the pandemic, any such revival is not being anticipated. Instead, firms are already reassessing their production and workforce needs, resulting in slower employment growth.
“Although supply constraints remained problematic, constraining economic activity, the weakening demand environment has helped to alleviate inflationary pressures. Average prices charged for goods and services consequently rose at a much reduced rate in July, the rate of inflation still running high by historical standards but now down to a 16-month low to provide some much needed good news amid the ongoing cost of living crisis.”
Commodities
Gold recovers from multi-month lows, reclaims $1700 on dismal US PMIs
- Gold Price is set to finish the week up by almost 1%, snapping five weeks of losses.
- Investors’ recession fears re-emerged on weak EU and US PMI data.
- The US 2s-10s yield curve inversion extended for 14 straight days.
Gold Price rises for the second consecutive day after tumbling to a fresh multi-month year low on Thursday, at around $1681, rebounding sharply and hitting a weekly high at $1720.24. Nevertheless, gold extended its gains on Friday and reached a fresh weekly high at $1739.27, but faltered to reclaim the crucial $1750 figure, opening the door for a fall to current price levels. At the time of writing, XAUUSD is trading at $1723.62
Investors’ mood shifted sour on companies’ earnings and recession worries
Sentiment turned negative just two hours after the NY ringing bell. US companies missing earnings and weaker than estimated US PMIs data reignited investors’ recession fears. The greenback rose, bonds jumped, and yields fell, led by the 10-year benchmark note yielding 2.792%, down eight basis points.
On Friday, S&P Global reported worldwide PMIs, with readings showing the global economy is slowing down. Particularly the Euro area and US readings were dismal, increasing the likelihood of a recession. The EU S&P Global Manufacturing and Composite PMIs for July dropped 49.6 and 49.4, respectively. In the case of the US, the Services and Composite Indices were the main drivers leading to the downside, falling to 47 and 47.6, respectively. That said, traders seeking safety sent gold prices towards their weekly high, around $1740.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said about US data, “The preliminary PMI data for July point to a worrying deterioration in the economy. Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis, with the survey data indicative of GDP falling at an annualised rate of approximately 1%.”
Consequently, the yield curve inversion in the US 2s-10s persists negative for 14 consecutive days and sits at -0.211%, while the US 3-month to 10-year spread flattened to 0.337%.
In the week ahead, the US Federal Reserve is expected to hike rates by 75 bps, lifting the Federal funds rate (FFR) to 2.50%. Gold traders should be aware that there will be no economic projections in the July meeting, which will be revealed in the September reunion.
EU News
European stocks finish a great week strong as bond yields tumble
- Closing changes for the main European bourses
The Nasdaq is tumbling at the moment but European stock markets posted a solid day:
- Stoxx 600 +0.4%
- FTSE 100 +0.2%
- German DAX +0.2%
- French CAC +0.3%
- Italy MIB +0.4%
- Spain IBEX +0.5%
On the week:
- FTSE 100 +1.8%
- German DAX +3.3%
- French CAC +3.0%
- Spain IBEX +1.5
Other News
Oil flat as new questions about Saudi spare capacity vie with demand worries
- WSJ report says Saudi Arabia can’t pump much more
The terrible US service sector PMI is raising questions about the strength of the economy but oil is near unchanged on the day on a WSJ report saying Saudi Arabia might not have much spare capacity.
“Saudi Arabia is now also close to the limit of what it can pump comfortably and for a sustained period, according to people familiar with Saudi oil operations,” the report says.
“People familiar with the operations say Riyadh would struggle to produce 11 million barrels a day for more than a few months at a stretch and 12 million barrels a day for more than a few weeks,” the report says.
If we get July/August data and Saudi Arabia continues to miss quotas, the market may have a big rethink on oil prices.
Cryptocurrency News
Shiba Inu price remains optimistic with eyes set on $0.0000140 and higher levels