Stock Markets Sliding On Hawkish Fed Comments And US Data/Earnings Weakness

Risk sentiment was seen deteriorating markedly yesterday as traders reacted to weaker- than-forecast US data and further mixed US earnings reports. On the data front, unemployment claims were seen rising to their highest level since August 2022 while the Philly fed manufacturing index dropped to its lowest levels since May 2020. Alongside the data, Fed’s Mester and Harker voiced their support for continued tightening in the face of still-elevated inflation. Near-term Fed tightening expectations look to be feeding into increased recessionary fears over the back end of the year, leaning on stock market sentiment. Today, attention will be on the latest round of PMI readings out of the UK, eurozone and US.

Key Factors for Today

- Hawkish fed comments & weak US data/earnings weigh on stocks
- PMIs due for eurozone, UK and us,
- Gold and silver falling further
- Risk currencies reversing lower as safe-havens rise

Market Movers

- Gold drops to $1985
- S&P hits $4130
- AUDUSD back under $.67
- Bitcoin futures fall to $27,925

Econ Calendar

- Eurozone PMIs (8.15 am, 8.30 am, 9 am)
- UK PMIs (9.30 am)
- US PMIs (2.45 pm)

Earnings

- L’oreal
- China Mobile
- Procter & Gamble

Earnings Performance Weakening As More Big Names Miss Targets

Following a bright start to the US earnings season last week, performance has started to trail off with several big names seen undershooting forecasts this week. On the back of disappointing results from Goldman and Tesla earlier in the week, AT&T undershot revenues forecasts yesterday while American Express was seen missing its profit target. Stock indices have been lower across the board with the Nasdaq and the S&P both pulling further away from highs. Tesla shares fell further yesterday on the back of the prior day’s weak earnings report. With sentiment weakening, tech stocks look vulnerable to steeper losses near-term, particularly as traders brace for further Fed tightening in the coming weeks.

Gold and silver are both moving back from recent highs, down around 3% and 4.2% respectively. Hawkish fed commentary over the week has blunted demand for metals currently. However, should the sell-off in stocks deepen, safe-haven demand is likely to see metals underpinned.

In FX, JPY has swung back into demand as safe-haven flows return amidst a weaker risk-backdrop. The Swiss Franc has also benefited from this dynamic. Risk currencies have taken the hit today with AUD, CAD and NZD among the weakest performers over late Asian and early European trading on Friday. Today’s slew of PMI readings will be closely watched and have the potential to cause volatility given the re-emergence of recession risks. If business activity looks to have slowed last month, risk currencies are likely to fall further into the weekend.