Recession Worries Dent Stocks, Weigh on US Futures

25/07/2022 Asian Stocks slipped and US equity futures are lower this morning, sapped by a dimming economic outlook that’s also cooling expectations for peak interest rates and supporting sovereign bonds. Declines in Japan as well as in Chinese technology shares dragged down Asian equities. S&P 500 and Nasdaq 100 futures struggled to stay out of the red, while European contracts shed more than 0.5%. China’s property shares bucked the prevailing trend, pushing higher amid a report that officials plan a fund to support struggling developers. The nation’s real-estate crisis is among the major fault-lines for the world economy.

Locally, the rand firmed the most in more than a month on Friday, reaching the strongest level in three weeks as it continued to find support from the SA Reserve Bank’s aggressive interest rate hike. The local currency, which has been trading around 23-month lows for the past few days, found support after the SARB raised its benchmark rate by 75 basis points to 5.5% in a move to curb accelerating inflation, which remained above the central bank’s target range of 3%-6%. The JSE All Share closed up 0.24% and the TOP40 up 0.19%. Platinum names led the gainers with NPH, IMP and AMS gaining 9.93, 8.40 and 5.02 percent on the day. We in for a tough start to the week as Asia trades lower, US Futures are softer and Tencent is down 3.07%. IG Top 40 index is down 439 points.

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European markets are set to open lower as investors brace for a big week of corporate earnings and a key monetary policy decision from the U.S. Federal Reserve. Much of this week’s focus will center around the U.S. Federal Reserve’s two-day policy meeting, concluding on Wednesday, with economists broadly expecting a 75 basis point hike to interest rates by the central bank. The European Central Bank last week kick-started its own hiking cycle with a 50 basis point increase, larger than previously suggested.

Corporate earnings will also be a key driver of stock market movement in Europe, with UBSUnilever, LVMHCredit SuisseDeutsche BankDaimlerShellBarclaysNestle and Renault among the major players reporting throughout the week. Notable earnings due before the bell on Monday include RyanairVodafonePhilipsFaurecia and Julius Baer. On the data front, German retail sales and the Ifo business climate index for July are expected mid-morning.

In the U.S the major averages fell on the back of weaker-than-expected earnings from Snap that sent tech shares tumbling. The Dow lost 137.61 points, or 0.43%. The S&P 500 declined 0.93% to 3961.63, while the Nasdaq Composite traded 1.87% lower at 11834.11. Still, all three benchmarks closed the week higher, with the Dow up 2%. The S&P 500 advanced about 2.6%, and the Nasdaq capped the week up 3.3%. Investors shifted into risk assets last week after absorbing some strong corporate results that had Wall Street deliberating whether the bear market has found a bottom.

Gold is lower as an elevated dollar and prospects of an aggressive interest rate hike by the U.S. Federal Reserve this week dented demand for non-yielding bullion. Gold Spot is down 0.18% at $ 1724. Platinum down 0.10% at $ 877 and Palladium down 2.95 % at  $ 1973

Oil is lower this morning, reversing earlier gains but continuing a recent losing streak, on concerns that an expected increase in interest rates in the U.S., the world’s biggest oil user, may limit fuel demand growth. Brent down 0.78% $ 102.00 and WTi down 0.84% at $ 93.93.

The Week ahead :

  • Alphabet, Apple, Amazon, Microsoft, Meta earnings due this week
  • Bank of Japan minutes, Tuesday
  • IMF’s world economic outlook update, Tuesday
  • EU energy ministers emergency meeting, Tuesday
  • Fed policy decision, briefing, Wednesday
  • Australia CPI, Wednesday
  • US GDP, Thursday
  • Euro-area CPI, Friday
  • US consumer income, University of Michigan consumer sentiment, Friday
  • Some of the main moves in markets: