Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Euro Low, Recession Fears, Citi Warns on Oil - What's Moving Markets

Published 05/07/2022, 09:00 pm
Updated 05/07/2022, 09:00 pm
© Reuters

© Reuters

By Geoffrey Smith 

Investing.com -- Freedom from British tyranny, maybe. But freedom from the fear of recession isn't as easy to come by. U.S. stocks and bond yields are set to open lower, while the euro falls to its lowest in two decades against the dollar after the latest round of business surveys show growth stalling. U.S. factory goods orders are expected to have picked up in May, nonetheless. Tesla (NASDAQ:TSLA) is pausing its factories in Shanghai in Berlin for reasons that aren't entirely clear but appear linked to planned capacity increases. And Citigroup forecasts that oil could fall to $65 a barrel by the end of the year in the worst-case scenario. Here's what you need to know in financial markets on Tuesday, 5th July.

1. Recession fears dominate as Euro hits 20-year low on PMI

The euro fell to a new 20-year low against the dollar as market participants pared their bets on rate hikes from the European Central Bank in response to signs of a looming recession.

S&P Global’s composite purchasing managers index for the single currency bloc fell to a 16-month low, implying growth of around only 0.2% in the quarter. Weakness in new orders and confidence suggests worse to come in the current quarter.

Major European stock markets fell over 1% and bond yields tumbled in response to the survey, while recession fears were also evident in commodity markets, where copper futures fell to their lowest in 16 months. However, analogous surveys from S&P Global showed a sharp rebound in China’s services sector after the relaxation of lockdown restrictions in Shanghai and elsewhere, while India’s services sector grew at its fastest pace in over a decade.  

2. U.S. factory orders due; Chinese tariff cut eyed

The rebound in China is one possible reason why the U.S. may yet avoid a recession too, as the normalization of supply chains eases inflation pressures and reduces the pressure on the Federal Reserve to act.  

That thesis will be put to the test later with new figures for factory orders and durable goods data for May. The Institute of Supply Management’s surveys have suggested that demand for U.S. factory goods is slackening a little, but the hard data will show whether that is actually happening.

Orders growth is expected to have picked up a little to 0.5% from April’s 0.3%. In the meantime, sentiment is being supported a little by hopes that President Joe Biden will announce the lifting of import tariffs on some Chinese goods this week – something that ought to reduce inflation pressures – if only marginally.

3. Stocks set to open lower; Tesla factory pause in focus

U.S. stocks are set to open lower though, with recession fears still leading investors to take money off the table ahead of an earnings season that could bring another slew of downgraded forecasts, especially for those companies whose foreign earnings will be hit by the strong dollar.

By 6 AM ET (1100 GMT), Dow Jones futures were down 170 points, or 0.6%, while S&P 500 futures were down 0.5% and Nasdaq 100 futures were down 0.7%

The earnings slate is pretty bare but stocks likely to be in focus include Tesla, which is reportedly set to pause output at its plants in Shanghai and Berlin for a couple of weeks, with a view to raising output at the latter in particular. CEO Elon Musk recently dubbed the Berlin factory a “money furnace”, amid reports of problems ramping up output volumes both there and in Austin.

4. U.S. airlines negotiate tricky holiday weekend; Europe's struggle

Other stocks likely to be in focus will be airlines, after a July 4th weekend that started on a bad note but improved as it went on. Flight cancellations ran into the thousands on Friday and Saturday, hindered by bad weather, but data from FlightAware suggest that that had dropped to only 235 on Monday.

Airlines around the world continue to struggle with the resurgence of tourism this year, having lost key personnel both in cabin crew and on the ground during the pandemic. Scandinavian airline SAS filed for chapter 11 bankruptcy protection for the second time in two years on Monday, while the chief operating officer of EasyJet, Europe’s second-largest discount flyer, resigned after failing to get on top of the airline’s operational problems.

Bottlenecks are also holding up the delivery of new planes. Bloomberg estimated that Airbus's (OTC:EADSY) delivery numbers for June leave it on course to miss its full-year target.

5. Oil weakens on Citi warning; Norwegian strike hits European gas

Crude oil prices weakened in line with much of the rest of the commodities complex as the gloomy outlook for the global economy dominated. In addition to the European news, there was a reminder of ongoing problems in China, where the city of Xi’an announced seven days of mobility restrictions due to Covid-19.

Citigroup (NYSE:C) analysts warned that crude prices may fall to as low as $65 a barrel by the end of the year as global growth slows.

By 6:15 AM ET, Brent crude was down 1.2% at $112.16 a barrel, while U.S. futures were at $108.44, flat from Friday’s close.

U.S. natural gas prices also eased 2.8%, despite a fresh tightening of the European market as Norwegian oil and gas workers forced more North Sea fields to shut down with their ongoing strike.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.