Breaking news: Beijing lockdown drags global markets down
One of China’s largest cities has gone into lockdown due to the COVID-19 outbreak, sending commodities and stocks around the world plummeting. The US stock market will decline for the fifth time in a row ahead of the release of new data from the labor market and the ISM survey in the manufacturing sector. Last month, China’s private sector production fell again. NVIDIA has added to the list of struggling chip makers, and Broadcom will report earnings after the close of trading. Here’s what you need to know about the financial market on Thursday, September 1st.
1. Quarantine in China slows down the growth of prices for raw materials and stocks
Beijing’s zero-tolerance policy on COVID-19 began to haunt the commodities market again yesterday as the city of Chengdu, the capital of Sichuan Province, which has a population of 21 million, was quarantined
The news hit non-ferrous prices particularly hard, with copper, nickel and aluminum down over 2% and zinc futures down over 6%. Shares in mining companies such as BHP Group Ltd (ASX:BHP) and Rio Tinto PLC (LON:RIO) also fell sharply on the London exchange.
Although Chengdu is not as directly important to the world market as Shanghai is, it is nonetheless an important industrial center. Volvo Cars (ST:VOLCARb) has announced that its plant will temporarily close. Probably others will follow.
2. US Jobless Claims Data and ISM Survey
U.S. economic data continues to flow, with Challenger’s August job cuts survey due at 07:30 AM ET (11:30 GMT), weekly jobless claims data at 08:30 ET (12:20 GMT) and finally the ISM (Institute of Supply Management) PMI at 10:00 ET (14:00 GMT).
The data will be published in a market whose hopes for a quick end to the monetary tightening cycle have taken a number of blows last week, most recently in comments by Cleveland Fed Chair Loretta Mester on Wednesday. Mester took a bucket of cold water on the idea of the first rate cut until 2024.
The Challenger poll is likely to confirm an increase in the rate of layoffs, but recent data on jobless claims – and a JOLTS survey from the US Department of Labor on Tuesday – showed that there are still many jobs. The number of initial applications is expected to rise to 248,000.
The ISM PMI could get more interesting as it shows progress in overcoming supply chain disruptions. However, the ADP payroll report on Wednesday confirmed that net hiring in manufacturing has stalled.
3. US market opens lower as Fed policy turnaround hope fades
US equities won’t even attempt their usual premarket bounce today as news from China has dealt another blow to economic sentiment without offering any reduction in inflationary pressures to compensate.
By 6:20 AM ET (1020 GMT), Dow Jones futures were down 161 points, or 0.5%, S&P 500 futures were down 0.7%, and Nasdaq 100 futures were down 1. one%. Major money indices fell for the fourth day in a row, dropping from 0.6% to 0.9% on Wednesday.
Stocks likely to take center stage a bit later are Bed Bath & Beyond Inc (NASDAQ:BBBY), whose latest drastic cost-cutting measures did little to stop the stock sell-off even after trading closed on Wednesday, and the Walt Disney Company ( NYSE:DIS, which the Wall Street Journal reports plans to introduce a membership scheme similar to Amazon (NASDAQ:AMZN) Prime.
Hormel Foods Corporation (NYSE:HRL) and Campbell Soup Company (NYSE:CPB) will report before the open, while Lululemon shares will report after the close.
4. NVIDIA warned of a new blow to sales in China; Broadcom earnings report to be released
The semiconductor industry is also likely to come under the spotlight after NVIDIA Corporation (NASDAQ:NVDA) warned of another revenue hit due to US restrictions on the sale of its artificial intelligence chips to China.
NVIDIA said it would lose $400 million in sales each quarter due to a new export license requirement for some of its products.
The news comes in the middle of a tough week for chipmakers, with Korean chipmakers reporting a 3-year first quarterly drop in shipments, with unsold chip inventories up 80% year-over-year.
All this creates an interesting backdrop for Broadcom Inc (NASDAQ:AVGO) quarterly earnings after the close of trading.
5. Oil fell due to quarantine, PMI news from Caixin
Crude oil prices also fell to a 2-week low due to bad news from China, which was not limited to carotene in Chengdu. Caixin’s manufacturing PMI, a measure of private sector manufacturing activity, fell to 49.5 last month, worse than expected.
This outweighs any short-term support from the unexpected 3.3 million barrel drop in U.S. crude inventories last week.
By 6:30 am ET, futures for WTI crude fell 2.3% to $87.52 a barrel, while Brent crude fell 2.4% to $93.39 a barrel.