US open: Stocks fall ahead of ISM manufacturing data

US futures

Dow futures -0.4% at 30695

S&P futures -0.5% at 3775

Nasdaq futures -0.6% at 11511

In Europe

FTSE -0.25% at 7167

Dax -2% at 13034

Euro Stoxx -2.22% at 3518

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A weak start to the new quarter

US stocks are pointing to a weaker start on the first day of trading in the new quarter and adding to losses from earlier in the week.

Hot inflation has fueled aggressive rate hike and recession fears hurting demand for stocks across the quarter and across the first half.

The SP&P500 fell 20% across the first half of the year in its worst start to a year since 1970 whilst the Nasdaq plunged 30% in its worst H1 performance since 2002.

The Federal Reserve is widely expected to hike interest rates by 75 basis points in its July meeting to tame inflation.

What we are starting to see is that the 10-year treasury yield is edging lower, as recession fears rise. This could help stem the selloff in equities going forwards.

Looking ahead, attention is turning to ISM manufacturing PMI, which is expected to fall to 55 in June down from 56 in May. The tick lower represents the slowing growth and deteriorating industry expectations. However, the PMI is set to remain well above 50, which separates expansion from contraction.

In corporate news:

Micron Technologies is falling after disappointing with quarterly guidance. The chip maker expects slower sales as the boom for chips could be coming to an end.

Where next for the Nasdaq?

The Nasdaq failed to retake the multi-month falling trendline resistance and rebounded lower. The fall below the 20 sma and support at 11700 keeps the bears hopeful of further downside, as does the RSI below 50. Sellers are testing support at 11490, the May low, with a break below here opening the door to 11035 the 2022 low. Buyers will look for a move over 12225, the weekly high, to create a higher high and expose the 50 sma at 12315. A move above here opens the door to 12630, the mid-June high.

FX markets – USD rises, EUR falls.

USD is rising after losses in the previous session. The USD is set to gain across the week as aggressive Fed bets have ramped up sand on safe-haven flows as fears of slower global growth pick up.

EURUSD is falling towards 1.04, despite rising inflation. Eurozone inflation rose to 8.6% YoY, a record high, although core inflation fell. Energy and food price spikes were the main contributors. Given that energy prices could continue rising and that PPPI remains elevated, EZ inflation is unlikely to fall anytime soon. The data piles pressure on the ECB to raise interest rates at a faster pace in order to tame price rises.  The ECB’s July interest rate announcement could see the central bank opt for a 50-basis point rate hike. However, they would be doing so as economic growth slows considerably and risk tipping the eurozone into recession. 

GBP/USD is falling again, after weaker than expected UK manufacturing PMI data. Manufacturing activity fell to 52.8 in June, down from 54.6 in May. Rising inflation dampened new orders which doesn’t bode well for the outlook.

GBP/USD  -1.2% at 1.2030

EUR/USD  -0.57% at 1.0574

Oil rises on tight supply

Oil prices heading high, recapturing losses from the previous session, owing to outages in Libya and shutdowns in Norway, which overshadowed recession fears hurting the demand outlook.

Oil prices are not set to end the week higher, after two straight weeks of declines.

WTI crude trades +2.4% at $108.67

Brent trades +2.3% at $110.72

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Looking ahead

15:00 ISM manufacturing PMI