A look at the day ahead in U.S. and global markets from Mike Dolan
August looks anxious already - as stock markets take fright at Big Tech earnings and start to reconsider 'hard landing' scenarios for the world economy just as central banks ease and bond yields plummet.
It's been a frantic week's trading in all corners of the financial world. Regardless of the recently vaunted rotation of stock sectors, the biggest rotation that's emerging is one from stocks to bonds as 'recession' creeps back into parlance.
Five, seven and 10-year Treasury yields have all plunged below 4% since the Federal Reserve signalled on Wednesday that its first interest rate is coming in seven weeks' time - just as manufacturing surveys slip into contraction across the world and the U.S. jobs market cools further.
The stakes are higher than ever for Friday's July employment report, with markets watching closely for a possible triggering of the so-called 'Sahm rule' that maps the pace of a rising U.S. jobless rate against the onset of recession.
Even though talk of broad recession still seems far-fetched, with real-time U.S. GDP estimates still tracking growth of 2.5%, fears of a negative pulse through the industrial world from a stuttering Chinese economy have been building for weeks.
With the Bank of England joining G7 peers in starting its rate cut cycle on Thursday too, markets are starting to price the possibility that a September Fed rate cut could be as much as 50 basis points. Some 32bps of cuts are now priced for that month and 85bps over the remainder of the year.
But the surge in market volatility, which saw the VIX 'fear index' top the 20 level on Friday for the first time since April, centred on yet another shakeout in Big Tech as the megacaps and a whole host of high-flying chipmakers reported disappointing earnings.
Central to the worry is whether huge spends on artificial intelligence investments are warranted and whether AI will ultimately deliver on its promise in the wider economy.
While Apple held the line overnight after its post-bell results beat estimates, Amazon dived more than 8% after its update.
And although Meta rallied on Thursday, poor results from Qualcomm and Arm saw their shares and many of the big chipmakers swoon once again.
Intel dropped about 20% overnight on its miss, dividend suspension and job cuts in what would be its worst day since the 2000 dot.com bubble burst. Taiwan chip giant TSMC lost almost 6%.
After a 7% loss on Thursday, and a wildly volatile week, AI darling Nvidia lost another 2% out of hours on Friday following media reports that the U.S. government is launching an antitrust probe into the company following complaints from rival chipmakers.
Another bruising day on Thursday for the S&P500, Nasdaq and Russell 2000 small caps ripped around the world overnight.
Irked additionally by the week's Bank of Japan rate rise and yen surge, the Nikkei plunged almost 6% in its worst day since the pandemic hit in 2020.
China, at the heart of the brewing global industrial slowdown after news that its factory sector contracted again in July, saw its stocks drop more than 1%. European stocks were also off about 1%.
With bond yields racing to their lowest since the feverish Fed easing speculation of early 2024, even Japanese 10-year yields fell back below 1% for the first time in over a month despite the week's BOJ move. The yen held steady at just under 150 per dollar.
But in all the stock and bond ructions, currency markets were generally much steadier. The dollar index was only slightly lower, with the Swiss franc outperforming amid all the angst and hitting its strongest since February.
The political backdrop this month is another big consideration for U.S. markets.
Whatever is driving trading patterns, it's no longer the so-called 'Trump trade'.
After a wave of opinion polls showing enthusiasm for Vice President Kamala Harris' bid for the White House, betting markets now put her chances of winning as higher than that of Republican challenger Donald Trump for the first time.
Key developments that should provide more direction to U.S. markets later on Friday:
* US July employment report, June factory goods orders
* Richmond Federal Reserve President Thomas Barkin speaks; Bank of England Chief Economist Huw Pill speaks
* US corporate earnings: Exxon Mobil, Chevron, Cboe Global Markets, Coinbase Global, PPL, Linde, Perella Weinberg, Church & Dwight, LyondellBassell Industries etc
(By Mike Dolan, editing by Gareth Jones; mike.dolan@thomsonreuters.com)
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