Editorial StaffStock futures slump as global stocks retreat; Bank of England expands emergency bond buying; Amazon slips lower as two-day ‘Prime Event’ kicks off; Rail union rejects proposed contract, raising strike action risk and Marvell shares get bump from Wells Fargo upgrade.
1. — Stock Futures Slump As Global Stocks Retreat
U.S. equity futures slumped lower again Tuesday, pulling tech stocks deeper into a two-year trough, as investors extend their retreat from risk markets amid concern that aggressive central bank rate hikes will tip the global economy into recession.
That risk was articulated yesterday by JPMorgan Chase (JPM) CEO Jamie Dimon, who told CNBC in London that a U.S. recession was possible “six to nine months from now” as a result of the generational surge in inflation, central bank tightening and the spillover impact of Russia’s war on Ukraine.
Dimon’s warning, a further escalation of Russia’s military assault on Ukraine and a further extension of China’s ‘zero Covid’ policies following the country’s week long October holidays pushed investors back into the U.S. dollar, which gained another 0.1% against its global peers, and added downward pressure on world stock indices, which collectively slumped back to the lowest levels in more than two years in overnight trading.
Oil markets were also in retreat, with WTI futures falling $2.54 in overnight trading to $88.59 per barrel after China accelerated its Covid testing programs in Shanghai and elsewhere, suggesting a further pullback in demand from the world’s biggest energy importer.
On Wall Street, futures tied to the S&P 500 are indicating a 33 point opening bell decline, while those linked to the Dow Jones Industrial Average are priced for a 233 point pullback. Contracts tied to the tech-focused Nasdaq, which closed at a July 2020 low last night, are indicating another 93 point decline.
Overnight in Asia, tech stocks once again lead regional declines following last week’s move by the Biden administration to tighten rules on semiconductor technology exports.
The region-wide MSCI ex-Japan benchmark fell 2.1% into the final hours of trading, while the Nikkei 225 was marked 2.65% lower on the session in Tokyo.
In Europe, the region-wide Stoxx 500 index was down 1.14% with Britain’s FTSE 100 down1.3% following a step-up in overnight bond buying from the Bank of England
2. — Bank of England Expands Emergency Bond Buying
The Bank of England accelerated its emergency bond-buying effort again Tuesday, citing a “material risks” in the $2.1 trillion market triggered in part by the government’s since-abandoned plans to slash taxes and boost borrowing in order to kick-start growth in the broader U.K. economy.
The central bank said it would buy an additional $5.5 billion of inflation-linked government bonds each day, alongside its already-increased purchases of $5 billion in conventional government debt — known in the U.K. as gilts — as part of its financial stability mandate.
“The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts,” the BoE said in a statement. “Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”
The pound was holding firm at 1.1066 against the U.S. dollar following the BoE’s Tuesday intervention, while benchmark 10-year gilt yields fell 47 basis points to 4.435%.
3. — Amazon Slips Lower As Two-Day ‘Prime Event’ Kicks Off
Amazon (AMZN) shares moved lower in pre-market trading ahead of the online retail giant’s two-day “Prime Early Access Sale” that effectively fires the starting gun on an early U.S. holiday shopping season.
Following moves by Target (TGT) , Walmart (WMT) and Best Buy (BBY) to entice value-focused consumers — many of which are close to running down their pandemic-era savings — Amazon’s two-day event has been touted as an “exclusive opportunity for (Prime) members to get deep discounts on top brands we know they are looking for this time of year.”
Deloitte’s holiday retail sales forecast, published earlier this month, indicates overall holiday purchases will rise between 4% and 6% from last year to around $1.46 trillion, a marked slowdown from the 15% gains recorded over the same period in 2021.
Amazon shares were marked 0.7% lower in pre-market trading to indicate an opening bell price of $112.88 each.
4. — Rail Union Rejects Proposed Contract, Raising Strike Action Risk
A major union representing freight rail workers rejected a labor contract proposed last month to avoid a crippling strike, setting up the possibility of industrial action across the U.S. network in the coming weeks.
Members of the Brotherhood of Maintenance of Way Employees Division voted against the proposed contract — which has been accepted by four other rail unions but must be unanimously agreed in order to come into effect — that includes by steep pay increases and $5,000 in bonuses.
The Brotherhood union said it would delay strike action until Congress reconvenes next month, as it hopes to entice lawmakers into negotiating better pay and working conditions for its members.
President Joe Biden’s last-minute entry into rail union talks last month resulted in a tentative agreement that avoided a mid-September strike that could have cost the U.S. economy around $2 billion a day, shutdown around 30% of the country’s freight traffic, disrupted passenger rail networks and added to inflationary pressures by delaying the delivery of key energy, food and consumer goods.
5. — Marvell Shares Get Bump From Wells Fargo Upgrade
Marvell Technology (MRVL) shares edged higher in pre-market trading after analysts at Wells Fargo boosted their rating on the the chipmaker, citing its insulation from macro trends that are hitting the broader semiconductor sector.
Wells Fargo analyst Gary Mobley lifted his rating to ‘overweight’ from ‘equal weight’, while keeping his $58 price target in place, noting that the group’s fundamentals, as well as its focus on 5G and cloud-focused chips, will allow it to outperform peers when the global economy “finds more sure footing”.
Marvell said in late August that supply chain disruptions would continue to pressure near-term sales after posting stronger-than-expected second quarter earnings on record revenues of $1.52 billion.
Marvell shares were marked 0.5% higher in pre-market trading to indicate an opening bell price of $40.50 each.
Source: The Street
