Market losing long-term momentum, Wolfe says
Seasonal factors aside, there’s another reason why Wolfe Research’s Rob Ginsberg is treading carefully to start September.
“It’s the fact that the major indices continue to bleed longer-term momentum beneath resistance that keeps gnawing at us,” Ginsberg wrote.
The S&P 500 fell slightly on Thursday, snapping a four-day winning streak. The benchmark also remains below 4,600 after the August drop, a key level Ginsberg is watching.
— Fred Imbert, Michael Bloom
Treasury yields edge higher as investors await key jobs data
U.S. Treasury yields ticked higher Friday as investors awaited a key jobs report that could provide clues about whether the labor market is cooling and inform the Federal Reserve’s monetary policy decisions ahead.
At 4:24 a.m. ET, the yield on the 10-year Treasury was up by over two basis points to 4.1142%. The 2-year Treasury yield was last trading less than one basis point higher at 4.8681%.
Yields and prices have an inverted relationship. One basis point equals 0.01%.
The jobs report is due to be released at 8.30 a.m. ET.
China’s major banks slash rates on yuan deposits
Five of China’s largest banks have cut interest rates on yuan deposits, Reuters reported. They include the Industrial and Commercial Bank of China, China Construction Bank Corp and Agricultural Bank of China.
It comes on the same day the People’s Bank of China said it will reduce the foreign exchange reserve requirement ratio for financial institutions by 200 basis points from Sept. 15.
ICBC cut its one-year yuan deposit rate by 10 basis points to 1.55% and its two-year yuan deposit rate by 20 basis points to 1.85% with immediate effect. Three- and five-year deposit rates were cut by 25 basis points.
Reuters reported BOC cut rates by the same amount as ICBC, adding that the Agricultural Bank of China “made similar reductions.”
— Reuters, Lim Hui Jie
South Korea’s factory activity contracts at faster pace in August
South Korea’s factory activity contracted at a faster pace in August, according to private surveys by S&P Global.
The country’s manufacturing purchasing managers index fell to 48.9 from 49.4, marking the 14th straight month where the PMI has remained below the break even level of 50.
A PMI reading above 50 represents an expansion, while a reading under 50 represents a contraction in the sector.
— Lim Hui Jie
Japan factory activity in contraction territory for third straight month in July
Japan’s factory activity contracted for a third straight month in August, according to private surveys by the au Jibun bank.
The country’s manufacturing purchasing index came in at 49.6, slightly lower than the 49.7 in the flash estimates last week and unchanged from the July figure.
“Weak client confidence and subdued economic conditions reportedly weighed on new orders, though some firms mentioned that new product launches had partially offset the decline,” the bank said in a report.
— Lim Hui Jie
China’s central bank cuts reserve ratio by 200 basis points
The People’s Bank of China announced Friday that starting from Sept. 15, it would reduce the foreign exchange reserve requirement ratio for financial institutions to 4%, from 6%.
The cut follows a number of reductions to various interest rates in the last several weeks in an effort to shore up the economy.
The PBOC on Friday set the midpoint of the yuan against the U.S. dollar at 7.1788, a touch stronger than the 7.1811 on Thursday, according to Wind Information.
The offshore-traded yuan weakened past 7.24 yuan versus the greenback, according to Wind.
— Evelyn Cheng
Russell Investments strategist says investors should remain wary of a potential recession
Russell Investments investment strategy analyst BeiChen Lin expects interest rates to likely remain steady in September, absent a significant reacceleration in the labor market or inflation rates.
“By our estimates, U.S. interest rates are already in deeply restrictive territory,” Lin wrote in a note, adding that the risk of a mild-to-moderate recession in the U.S. within the next year remains more likely than not. “Leaving interest rates steady at these elevated levels just means the Fed isn’t pressing the brake further into the floor, not that the Fed has lifted its foot off the brake.”
Investors should refrain chasing near-term rallies in the market and instead favor defensive stocks of companies that have strong balance sheets, the strategist advised.
“After a long wait at a transit stop, it’s understandable that people get excited when a bus finally appears to be approaching,” he said. “But this is a bus without an LED destination sign, and it could turn out to be an out-of-town express that takes you past soft landing village and into recessionland.”
— Pia Singh
Opportunities await in muni bond space, Manulife Investment Management’s Weigold says
Municipal bonds look promising as yields rise and recession fears heat up, and discerning investors may be able to pick up a few attractive plays within the space, says Manulife Investment Management’s Adam Weigold.
Outside of general obligation bonds, which give state and local governments a way to raise money, investors may consider revenue bonds, said Weigold, head of municipal strategies at the firm. “We like airports,” he told CNBC in a phone interview. “Airport usage has come way back … They have a lot of cash on hand and do OK during recessions.”
He also highlighted hospitals and health care for investors who have a longer-term outlook.
In an economic downturn, a countercyclical play may emerge, Weigold said: tobacco bonds, a high yield corner of the muni market.
Tobacco bonds date back to 1998, when states had reached a landmark settlement with tobacco manufacturers to cover health-care costs related to smoking. These manufacturers now make payments to these settling states, some of which have securitized the payment streams and now issue bonds. Ultimately, the payments are backed by the tobacco producers.
“People smoke more during recessions,” Weigold added. “There are parts of the market that can get interesting when you have a recession.”
Stocks making the biggest moves after hours
Check out the companies making headlines after hours.
- MongoDB — Shares of the database software maker gained 4.4% in extended trading. MongoDB reported earnings of 93 cents per share, excluding items, on revenue totaling $423.8 million in the second quarter. That came in ahead of the earnings per share of 46 cents and $393 million in revenue expected by analysts polled by Refinitiv.
- Dell Technologies — Dell popped 7.5% after reporting second-quarter earnings that surpassed Wall Street’s expectations. The technology company reported earnings per share of $1.74, excluding items, and $22.93 billion in revenue, while analysts polled by Refinitiv expected earnings per share of $1.14 and $20.85 billion.
- Broadcom — Shares of the semiconductor manufacturing company fell 4.7% after the company posted soft fiscal fourth-quarter guidance. The semiconductor company called for fourth-quarter revenue of $9.27 billion, while analysts polled by Refinitiv anticipated $9.275 billion.
Check out the full list here.
— Pia Singh
Stock futures open little changed Thursday night
Stock futures opened little changed Thursday night as investors look ahead to August’s payrolls report.
Futures linked to the S&P 500 and the Nasdaq 100 opened 0.02% and 0.08% lower, respectively. Dow futures ticked up by 10 points, or 0.03%.