Stock futures slump as rate hike ‘pain’ tames bulls; PCE inflation easing may come with a price; RH shares tumble after cutting 2022 sales forecast; Xerox CEO John Visentin dies at 59 and Grayscale sues SEC after bitcoin ETF rejection.
Here are five things you must know for Thursday, June 30:
1. — Stock Futures Slump As Rate Hike ‘Pain’ Tames Bulls
U.S. equity futures slumped lower Thursday as global stocks look set to close out their worst first half start on record amid concerns that central bank rate hikes, aimed at taming inflation, will instead tip major world economies into recession.
That view was largely underscored by comments from Federal Reserve Chairman Jerome Powell, who told a conference of central bankers in Portugal that failing to restore price stability would be a bigger risk to the global economy than a recession triggered by rate hikes.
“The process is highly likely to involve some pain but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” Powell told the European Central Bank’s annual policy forum in Sintra.
The prospect of slower growth, which is now evident in data from a host of economic sectors, as well as the increasingly gloomy outlook from corporate America, has pulled U.S. stocks into a tailspin: the S&P 500, on pace for its worst start to any year since 1970, is trading firmly in bear market territory while interest-rate sensitive tech stocks are down more than 30% from their late November peak.
And still, the rate hikes keep coming. Sweden’s Riksbank boosted its key lending rate by 50 basis points this morning, taking it to 0.75%, and bets on a similar-sized hike by the ECB next month are beginning to rise.
Cleveland Federal Reserve Bank President Loretta Mester told CNBC Wednesday that she would back a 75 basis point rate increase next month if economic conditions remain the same. The CME Group’s FedWatch puts that chances of a move that size at 82%.
Heading into the final trading session of the first half, European stocks are down the most in more than two weeks, with the Stoxx 600 falling 1.53% in early Frankfurt trading.
Overnight in Asia, the region-wide MSCI ex-Japan index slumped 1.07%, while Japan’s Nikkei 225 fell 1.54%, with each benchmark pulling global stocks into a bear market and their worst first half start on record.
In the U.S., benchmark 10-year note yields fell to 3.057% in overnight trading, while 2-year notes hovered at around 3%.
On Wall Street, futures tied to the S&P 500, which is down 19.88% for the year, are indicating a 50 point opening bell slide while those liked to the Dow Jones Industrial Average are priced for a 315 point retreat. Futures linked to the tech-focused Nasdaq are indicating a 190 point slide.
2. — PCE Inflation Easing May Come With A Price
Federal Reserve Chairman Jerome’s Powell’s assertion that taming inflation will likely bring “pain” to the U.S. economy will likely be evident in data from his preferred inflation metric.
The core PCE Price index, a gauge of consumer price pressures published by the Bureau of Economic Analysis, is likely to show a modest deceleration in May as rate hikes squeeze corporate profit margins and pass-through costs slow.
The report’s tally on consumer spending, however, is also likely to echo Commerce Department data on retail sales and indicate a pullback in discretionary spending, a key component of growth in the services-driven U.S. economy.
“If a modest increase in the core PCE deflator is the good news in the report today, the bad news will be the weakness of real consumption spending,” said Ian Shepherdson of Pantheon Macroeconomics. “
Analysts are looking for the PCE deflator to rise 0.4% on the month, with personal spending rising 0.4% against a 0.5% gain in personal income.
3. — RH Shares Tumble After Cutting 2022 Sales Forecast
RH (RH) – Get RH Report shares slumped lower in pre-market trading after the high-end furniture chain slashed its full-year sales forecast amid what it called a “deteriorating macro-economic environment.”
RH, previously Restoration Hardware, said full-year sales would likely fall between 2% and 5% from 2021 levels, down from its prior forecast of a gain as high as 2%. Profit margins will likely narrow as well, the group said, thanks in part to higher input and labor costs.
“With mortgage rates double last year’s levels, luxury home sales down 18% in the first quarter, and the Federal Reserve’s forecast for another 175 basis point increase to the Fed Funds Rate by year end, our expectation is that demand will continue to slow throughout the year,” said CEO Gary Friedman.
RH shares were marked 4.85% lower in pre-market trading to indicate an opening bell price of $225.80 each, a move that would extend the stock’s year-to-date decline to around 57.8%.
4. — Xerox CEO John Visentin Dies At 59
Xerox Holding XRX said late Wednesday that its CEO, John Visentin, passed away this week following complications from an undisclosed illness.
Visentin, 59, had served as group CEO since 2018 following his nomination by activist investor Carl Icahn and marshalled the group’s failed takeover attempt of HP Inc HPQ two years later. He will be replaced on an interim basis by COO Steve Bandrowczak.
“Since joining the company in May 2018, John drove Xerox forward,” said Xerox chairman James Nelson. “As a champion for innovation, he embraced and enhanced Xerox’s legacy as a print and services provider and embarked on a transformative journey that broadened the company’s expertise and offerings to digital and IT services, financial services and disruptive technologies.
“John’s drive, energy and commitment to the business and its customers, partners and employees will be greatly missed,” Nelson added.
Xerox shares were marked 0.2% higher in pre-market trading to indicate an opening bell price of $15.10 each.
5. — Grayscale Sues SEC After Bitcoin ETF Rejection
The U.S. Securities and Exchange Commission rejected a proposal from Grayscale to list a spot bitcoin ETF on the NYSE Arca exchange, setting up a potential legal battle with the country’s biggest digital asset manager.
The SEC said Grayscale’s request for an ETF listing, which it proposed as a conversion of its popular Grayscale Bitcoin Trust (GBTC) – Get Grayscale Bitcoin Trust Report, didn’t meet the regulator’s standard of being “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest.”
Grayscale said it would challenge the SEC’s decision in court, arguing that its approval of ETF’s that hold bitcoin futures should “logically (make it) comfortable with ETFs that hold that same asset.”
Bitcoin prices were last seen 4.75% lower on the session at $19,177 each, a move that would cap the worst month on record for the world’s biggest digital currency and mark a 72% plunge from the all-time hits it recorded in late November.
