Stocks slipped to start August trading with the economic outlook—and risk of recession—in focus alongside corporate earnings in the week ahead.
Futures for the Dow Jones Industrial Average retreated 70 points, or 0.2%, after the index rallied 315 points last Friday to close at 32,845. S&P 500 futures signaled a start 0.3% into the red, with the tech-stock-heavy Nasdaq poised to fall 0.3%.
Overseas, the pan-European Stoxx 600 was 0.3% higher, while Hong Kong’s Hang Seng Index ended just above flat, underperforming other Asian indexes. Chinese stocks were weighed down after government data revealed the manufacturing purchasing managers index unexpectedly fell to 49 in July from 50.2 in June, missing expectations for month-over-month growth.
The economic outlook remains at the center of attention in the U.S., where investors are closely monitoring data for signs of a slowdown in the wake of the Federal Reserve’s aggressive shift in monetary policy this year.
Facing the highest inflation in decades, the Fed has moved swiftly in tightening policy to tame higher prices, raising interest rates four times this year, including mega-sized, 75 basis-point rate hikes in June and July. With the central bank expected to keep increasing borrowing costs to dent economic demand, the risk remains that the U.S. will be pushed into recession.
“It’s a complicated outlook at the moment as we don’t think the U.S. is in a typical recession yet but will almost certainly be within a few quarters. That delay is supportive for markets relative to what was priced a few weeks ago but it’s hard to say the outlook is positive,” said Jim Reid, a strategist at Deutsche Bank.
The week ahead holds data including JOLTs job openings on Tuesday, factory orders and the ISM services index on Wednesday, jobless claims and the trade deficit on Thursday, before the headline U.S. jobs report with nonfarm payrolls on Friday. Corporate earnings this week include results from Activision Blizzard (ticker: ATVI) on Monday, before BP ( BP ), Caterpillar (CAT), Advanced Micro Devices (AMD), PayPal (PYPL), Moderna (MRNA), ConocoPhillips (COP), and others in the coming days.
“Markets haven’t had a chance to wind down for summer yet and maybe they won’t get the chance with U.S. payrolls on Friday, followed by [consumer price index data] on Wednesday [August 10],” Reid added. “If nothing out of the ordinary occurs in these two prints though maybe we can have a quiet two or three weeks.”
In the commodity space, oil prices were falling in the wake of the weak manufacturing PMI data out of China, which revealed the sharp effects of recent Covid-19 lockdowns on the world’s second-largest economy. Futures for U.S. benchmark West Texas Intermediate crude fell 2% to below $97 a barrel.
“The biggest contributor to this recent shift is without a doubt the news that factory activity in the world’s largest oil importer, China, has fallen unexpectedly,” said Sophie Lund-Yates, an analyst at broker Hargreaves Lansdown. “This latest data set does very little to offset concerns around darkening global economic output.”
Here are two stocks on the move Monday:
Alibaba (BABA) gained 2% in U.S. premarket trading following an 11% plunge last Friday. The Chinese tech giant said that it will work to maintain its listings in both New York and Hong Kong, after it was added to a Securities and Exchange Commission list of Chinese companies that could be delisted if they don’t meet auditing requirements.
Boeing (BA) rose 2.5% in the premarket, after the aircraft maker temporarily avoided a strike at three plants that make military gear and the U.S. regulators approved the company’s plan for validating repairs to the 787.
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