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U.S. equity futures extended their heavy declines in early Friday trading as investors retreated from stocks in major markets all over the world amid a shift in risk sentiment from inflation concerns to worries over a near-term recession.
Stocks ended sharply lower last night following a muted reading for manufacturing activity in the world’s biggest economy, which fell to an 8-month low in July, and concern that the Federal Reserve’s reluctance to lower interest rates may have harmed growth prospects and raised recession risks.
“Investors had difficulty digesting the manufacturing data – is this a one-off, or is this the slow roll toward the recession that never happened?”, asked Jamie Cox, managing partner for Harris Group Financial in Richmond, Va..
“Markets are now thinking maybe the Federal Reserve should have cut this week,” he added.
Related: The Fed’s biggest problem isn’t inflation anymore
Deteriorating employment data was also added to the mix, with softer-than-expected tallies for weekly jobless claims and and closely-tracked report on corporate layoffs showing the weakest hiring intentions since 2012.
Treasury bond yields, which have normally been supportive for stocks, plunged sharply lower as a result, but with the moves based on flight-to-safely rather than rate cut projections, markets reacted negatively.
Bond markets are rallying hard on the back of weaker-than-expected economic data that could trigger a larger autumn rate cut from the Federal Reserve
Benchmark 10-year notes yields, which fell below the 4% level for the first time since February last night, were last marked at January levels of 3.942% in early New York trading.
At the same time, 2-year note yields, which are the most sensitive to projections in interest rate changes, fell to 4.115%, the lowest since May of last year, as bets on a larger 50 basis point Fed rate cut in September jumped to 29.5%, according to the CME Group’s FedWatch.
Markets will be keenly focused on today’s July employment report, which is expected to show another slowdown in hiring and muted wage growth.
Original estimates were for a headline increase of 177,000 new jobs, but weaker data earlier this has widened the forecast to between 140,000 and 180,000 heading into the release at 8:30 am Eastern time.
On Wall Street, stocks are looking at a sharply lower open following last night’s selloff, with futures contracts tied to the S&P 500 indicating at 69 point decline at the start of trading.
The Dow Jones Industrial Average, meanwhile, is called 425 points lower with the tech-focused Nasdaq priced for a 350 point pullback.
Apple (AAPL) shares were a notable premarket mover, rising 0.4% after the iPhone maker posted better-than-expected third quarter earnings and said sales and margins would likely improve over the coming months.
Related: Apple earnings top forecasts, iPhone sales slip ahead of AI launch
Amazon (AMZN) was marked 8.5% lower after it posted a mixed set of second quarter earnings that included a modest miss on the revenue side that was accentuated by the group’s plans to ramp up capital spending on AI projects over the second half of the year.
Intel (INTC) shares, meanwhile, collapsed more than 20% in premarket, taking the stock back to levels since the mid-1990s, after the chipmaker issued a muted near-term sales forecast, unveiled plans for a 15% reduction in headcount and suspended its quarter dividend.
More Wall Street Analysts:
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In overseas markets, Europe’s regional Stoxx 600 benchmark fell 1.67% in Frankfurt, with Britain’s FTSE 100 down 0.52% in London.
Overnight in Asia, Japan’s Nikkei 225 fell 5.08% for its biggest single-day decline since the pandemic, with the broader Topix index, which includes domestic-focused stocks, suffering the worst day since 2016.
The region-wide MSCI ex-Japan benchmark fell 2.44% into the close of trading.
Related: Veteran fund manager sees world of pain coming for stocks
