Five things you need to know before the market opens on Tuesday June 20:
1. — Stock Futures Lower As China Rate Cut Adds To Global Market Worries
U.S. equity futures moved lower Monday, while the dollar held firm against its global peers and Treasury yields steadied, as investors retreated from global risk markets amid a cautious interest rate cut from China and persistent concerns over a near-term domestic recession.
China’s central bank followed last week’s targeted banking sector rate cut with a move to lower two main benchmarks — a one year and a five year prime loan rate — as part of a broader effort to support the economy’s uneven post-pandemic recovery on Tuesday.
However, the 10 basis point reduction was smaller than markets had expected and suggest a reluctance from Beijing to add further liquidity into a lending sector already awash with trillions in commercial debt.
The rate cuts sparked an extended decline in China-based stocks overnight, with the weakness spilling over into European markets ahead of the U.S. open.
Stateside, investors are likely to focus on housing starts and building permits data for the month of May, which are due at 8:30 am Eastern time, as well as demand for the $173 billion in three-month and six-month Treasury bills on offer today as part of the Treasury Department‘s post-debt ceiling funding effort.
Benchmark 2-year Treasury note yields were holding at 4.717% in thin overnight trading and were marked some 94 basis points over 10-year notes, indicating a steepening yield curve that continues to suggest near-term recession risk.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.08% lower at 102.442.
Heading into the start of the Juneteenth holiday shortened trading week on Wall Street, futures contracts tied to the S&P 500 suggest a 20 point opening bell decline for the benchmark, which is up 5.5% for the month and just under 15% for the year.
Futures tied to the Dow Jones Industrial Average, meanwhile, suggest a 125 point opening bell slide and those linked to the tech-focused Nasdaq are priced for an 85 point pullback.
Overnight in Asia, the region-wide MSCI ex-Japan benchmark slipped 0.79% into the close of trading, while news of an additional investment into Japan’s powerful trading houses by billionaire investor Warren Buffett helped the Nikkei 225 close 0.55% higher in Tokyo.
European stocks were marked 0.26% lower in early Frankfurt trading while London’s FTSE 100 gained 0.02% amid a sharp move higher in the pound, and the highest short-term gilt rates in 15 years, ahead of Thursday’s Bank of England rate decision in London.
2. — Week Ahead: Housing Data, Earnings Wrap-Up
A series of housing sector updates and the first look at economic activity for the month of June will highlight a muted week for earnings and data releases as investors look to test the resilience of a broader market rally that has lifted the S&P 500 to a year-to-date gain of around 15%.
Housing starts for the month o May, expected before the market opens on Tuesday, will provide a glimpse into homebuilder sentiment amid elevated mortgage rates and fading consumer strength, with existing home sales figures on Thursday underscoring the lack of transaction pace heading into the summer months even as talk of a broader housing recovery takes hold.
Mortgage application data from the Mortgage Bankers Association will split the two housing sector reading at 7:00 am eastern time on Wednesday.
S&P Global will also publish a comprehensive outline of economic activity over the month of June, with PMI data covering the manufacturing and services sector amid growing concerns for a near-term U.S. recession.
The Atlanta Fed’s GDPNow forecasting tool, however, still suggests a growth rate of around 1.8% over the current quarter and nearly 340,000 new jobs were added over the month of May, taking the year-to-date total to around 1.2 million.
On the earnings front, updates from FedEx and KB Home will cap the final throes of the first quarter reporting season, with collective S&P 500 profits set to rise 0.03% from last year to a share-weighted $441.2 billion.
Profits for the second quarter, however, are forecast to fall 5.6%, also to a share-weighted total of $441.2 billion.
3. — Alibaba Slides As CEO Steps Down To Run Separated Cloud Business
Alibaba Group’s (BABAF) U.S.-listed shares moved lower in pre-market trading after the China-based e-commerce giant said chairman and CEO Daniel Zhang would step down from his dual role to focus on the group’s cloud division.
Alibaba’s cloud unit, Asia’s largest, is likely the most-valuable of the six divisions that currently comprise the internet giant. Earlier this year, Alibaba unveiled plans to split each division into a separate company, with plans to pursue individual IPOs “when they are ready”.
Zhang will be replaced at the head of the group by Taobao and Tmall Group chairman Eddie Yongming Wu.
“From a corporate governance perspective, we also need clear separation between the board and management team as the Cloud Intelligence Group proceeds down the path to becoming an independent public company,” Zhang told Alibaba employees in a memo reported by Reuters. “It would be inappropriate for me to continue serving as chairman and CEO of both companies at the same time during the spin-off process.”
Alibaba shares were lmarked 3.4% lower in pre-market trading to indicate a Tuesday opening bell price of $89.89 each.
4. — Intel Unveils Biggest-Ever Foreign Investment in Germany With $33 Billion Plant
Intel Corp. (INTC) – Get Free Report shares nudged lower in pre-market trading after the chipmaker unveiled plans for a $33 billion investment that will see it build two manufacturing facilities in the east German city of Magdeburg.
Intel, which last week announced plans for a new production facility in Poland as it looks to take advantage of European Union subsidies amid the region’s broader push to lessen its reliance on China supply chains, will use around €10 billion in taxpayer support from Berlin in what Chancellor Olaf Scholz called the country’s biggest-ever foreign investment.
Intel also finalized plans to build a $25 billion factory in Israel on Sunday.
Intel expects sales of around $12 billion over the three months ending in June with modestly softer gross margins of around 33.2% That figure is set to improve to around 40%, over the second half of the year, however, amid a broader chip sector recovery.
Intel shares were marked 0.1% lower in pre-market trading to indicate an opening bell price of $36.34 each.
5. — FedEx Earnings On Deck With Cost Cuts, Demand Forecast In Focus
Analysts expect Fed to post an adjusted bottom line of $4.89 per share, down 28.8% from last year, on revenues of $22.72 billion. FedEx itself said it sees adjusted earnings in the region of $14.60 to $15.20 per share, up from its prior forecast of between $13 and $14 per share, for the full year, amid what the group called a ‘challenged demand environment’.
Crucial to the update, however, will be both the progress that new CEO Raj Subramaniam is making on the group’s efficiency drive, which aims to take some $4 billion out of its cost base over the next three years, as well as its outlook for global demand amid concerns that a potential U.S. recession, as well as broader weakness in China, will dampen growth prospects.
FedEx shares closed at 233.46 each on Friday after falling 1.26% on the session trim the stock’s year-to-date gain to around 31.7%.