Wall Street looks to enter September, the market’s toughest month, much as it exited August: worried about inflation and closely-tracking Fed rate bets.
Updated at 8:39 am EST
U.S. equity futures moved lower again Thursday, while Treasury bond yields jumped amid bets on aggressive Fed rate hikes, as investors kicked-off the market’s toughest month in a pessimistic mood.
Weakening growth in Asia, where PMI data Thursday indicates slowing in the region’s three major economies, alongside Europe’s Russia-linked energy crisis and record high inflation, has investors leaking confidence heading into the start of September, which is traditionally the month that offers the least in terms of historic returns for U.S. investors.
A further concern was added to the September list through a move by the U.S. government to ban the sale of crucial semiconductor components to China in the latest escalation of tensions between Washington and Beijing.
Nvidia (NVDA) – Get NVIDIA Corporation Report said in Securities and Exchange Commission filing late Wednesday that the government has imposed new restrictions on the sale of its A100 and forthcoming H100 chips, which are also incorporated in other Nvidia-designed products.
Stocks are also facing headwinds linked to the Fed’s inflation fight, with bets on a third consecutive 75 basis point rate hike rising to 72% in overnight trading, pulling benchmark 2-year Treasury note yields north of 3.5% for the first time since 2007. Benchmark 10-year notes, meanwhile, jumped 4 basis points to 3.247%.
Those bets were cemented by overnight comments from Cleveland Fed President Loretta Mester, who told an event in Dayton, Ohio that the Fed Funds rate is likely to rise “somewhat” above the 4% level, adding it was “wishful thinking” to assume that inflation has peaked.
Jobs data Thursday provided more evidence for the inflation bulls, with weekly unemployment claims falling to 232,000, with third quarter unit labor costs rising by 10.2%, even as productivity contracts by -7.4%
Growth concerns remain, however, and oil prices extended declines in overnight trading amid reports of further Covid lockdowns in China that will accelerate the slump in demand from the world’s biggest energy importer.
WTI futures contracts for October delivery were marked $.01lower overnight to trade at $88.54 per barrel while Brent contacts for the same month, the global pricing benchmark, jumped $1.20 to trade at $94.44per barrel.
Overnight in Asia, hopes of a fresh round of stimulus from Beijing helped China stocks to a modest Thursday gain, although weakness around the region pulled the MSCI ex-Japan index 1.85% lower on the session.
In Europe, stocks were 1.17% lower in mid-day Frankfurt trading as expectations for a 75 basis point rate hike from the European Central Bank, which meets on September 8 in Frankfurt, are now fully-priced into regional interest rate markets.
On Wall Street, futures tied to the S&P 500, which fell 4.24% last month, are indicating a 24 point opening bell decline while those liked to the Dow Jones Industrial Average are priced for a 125 point move to the downside. Futures linked to the tech-focused Nasdaq are indicating a 105 point retreat.
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In terms of individual stocks, Nvidia shares were marked 4.1% lower after the U.S. government ordered the chipmaker to stop exporting artificial intelligence components to clients in China.
Tesla (TSLA) – Get Tesla Inc. Report shares fell 1% following data from China indicating a solid improvement in August sales and exports as production at its key Shanghai factory accelerated from its summer lull.
Walt Disney (DIS) – Get The Walt Disney Company Report shares edged higher following a report from the Wall Street Journal that the media and entertainment group is planning an ‘Amazon-like” membership program.
Apple (AAPL) – Get Apple Inc. Report shares slipped 0.4% after report from analysts at International Data Corporation forecast weaker-than-expected global smartphone shipments between now and the end of the year.