Growing concerns for a global recession, and a surprise profit warning from FedEx, has stocks firmly in the red Friday.
Updated at 8:45 am EST
U.S. equity futures moved lower Friday, while the dollar resumed its climb on foreign exchange markets and Treasury yields tested new highs, as investors navigate an increasingly narrow path between slowing global growth and hawkish central bank signaling.
Solid data from China Friday, which reported better-than-expected gains for retail sales and industrial output over the month of August, failed to offset global recession concerns expressed yesterday by the World Bank, which said its seeing the steepest slowdown since the early 1970s, adding that a “moderate hit to the global economy over the next year could tip it into recession”.
“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production,” said World Bank President David Malpass. “Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”
The International Monetary Fund wasn’t quite as gloomy, noting it’s too early to make a call on a 2023 recession, but nonetheless trimmed its growth forecasts for this year and next ahead of its more detailed autumn report slated for next month.
Near-term warnings on extended supply chain disruptions from General Electric, meanwhile, as well as a dire near-term outlook from FedEx only echo the concerns underpinning recession forecasts.
At the same time, rate hike signaling from the Federal Reserve, Bank of England and the European Central Bank has investors worried that weakening fundamentals will be made worse by higher borrowing costs, driving them into safe-haven assets such as the U.S. dollar.
The dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.33% higher in the overnight session to 110.098, pushing the pound to its lowest levels since March of 1985.
The odds of a 100 basis point move from the Fed next week, which would be the biggest since 1984, are holding firm at around 20%, based on data reflected in the CME Group’s FedWatch, with bets on follow-on hikes likely to lift the Fed Funds rate to between 4.25% and 4.5% by the end of February.
Bond markets are warning of recession, as well, with 2-year note yields rising to 3.903% in overnight trading, pegging the difference over 10-year note at 43.4 basis points.
A key reading of consumer sentiment, due today at 10:00 am Eastern time, could provide further details as to whether the largest portion of the domestic economy is prepared to contribute to growth prospects over the coming months.
With gas prices tumbling and stock prices still north of their early June lows, economists expect to see a solid jump in the headline portion of the University of Michigan’s benchmark which was pegged at 58.2 last month but was measured as high as 70.6 prior to Russia’s invasion of Ukraine earlier this year.
The survey’s look at inflation expectations is also crucial, given the headwinds seen in U.S. retail sales — despite the decline in gas prices — and the surprisingly quick rates of both headline and core readings for the month of August.
On Wall Street, futures contracts tied to the S&P 500 are indicating a 43 point opening bell slump while those linked to the Dow Jones Industrial Average are priced for a 308 point decline. Futures linked to the tech-focused Nasdaq are indicating a 130 point move to the downside.
European stocks were marked 1.06% lower in early Frankfurt trading, following on from a 1.4% decline for the region-wide MSCI ex-Japan index in Asia.
FedEx (FDX) – Get FedEx Corporation Report shares were the key pre-market mover, falling nearly 20% after the world’s biggest package delivery group pulled its full-year earnings guidance following a surprise first quarter update after the close of trading on Thursday.
General Electric (GE) – Get General Electric Company Report shares slumped 4% after the industrial group cautioned that ongoing supply chain disruptions could trim its closely-tracked cashflow forecasts.
Uber Technologies (UBER) – Get Uber Technologies Inc. Report fell 6.1% after it confirmed a New York Times report of a cybersecurity breach into the ride-sharing group’s internal IT systems.
