Monday’s solid opening-week rally has given way to caution Tuesday as growth and inflation concerns pull investors away from global risk markets.
U.S. equity futures slumped lower Tuesday, potentially erasing most of yesterday solid opening-week rally, as investors quickly retreated from risk markets amid concerns over the impact of surging inflation on both consumer demand and global economic growth.
JPMorgan, which cut its China growth forecast to suggest a contraction of as much as 5.4% for the world’s second largest economy, sees global growth advancing at its slowest pace in two years this quarter and, with just a 0.6% forecast, the second-slowest since the global financial crisis of 2008.
Drilling deeper, social media group Snap (SNAP) – Get Snap, Inc. Class A Report rattled tech sentiment with a surprise warning on profits and sales as global companies pull back on ad spending in the group’s popular messaging app.
Snap, which relies on ad spending for the vast majority of its revenues, said that the “macroeconomic environment has deteriorated further and faster than anticipated”, causing companies to pull back on ad spending as they reevaluate priorities in a weakening economy.
Still, economic activity data from Europe over the month of May was reasonably solid, with the S&P Global PMI index slipping to 54.9 points amid record inflation in the single currency area, but still holding well above the 50 point mark that separates growth from contraction.
Citing a memo from CEO Evan Spiegel, Reuters reported that Snap, which makes the Snapchat messaging app, told employees to expect cost cuts and a hiring freeze, while a late Monday Securities and Exchange Commission filing noted the group is likely to report “revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range”.
Snap shares were marked 29% lower in pre-market trading to indicate an opening bell price of $15.95 each. Meta Platforms (FB) – Get Meta Platforms Inc. Class A Report, the parent of Facebook, was marked 6.75% lower at $182.99 each while Google parent Alphabet (GOOGL) – Get Alphabet Inc. Class A Report slumped 4% to $2,140.10 each.
China’s Covid lockdown, however, a warning on supply chain disruptions from Toyota, the world’s biggest carmaker, on chip supplies that will slash its monthly production rate by 100,000 units and the lingering impact on sentiment — and demand — from Russia’s war on Ukraine are once again combining to tip stocks into the red, with Europe’s Stoxx 600 down 0.48% in mid-day Frankfurt trading and Asia’s MSCI ex-Japan benchmark falling 1.39% by the close of the session.
In the U.S., benchmark 10-year Treasury bond yields — which move inversely to prices — rallied 6 basis points to 2.805% in overnight trading as investors looked for risk-free assets to park cash, while the U.S. dollar index was little-changed against a basket of six global currency peers at 102.045 in early European trading.
On Wall Street, futures tied to the Dow Jones Industrial Average indicating a 175 point opening bell slide while those linked the S&P 500, which is down 16.63% for the year, are priced for a 47 point move to the downside Futures linked to the Nasdaq are looking at 170 point opening bell slump.
Zoom Video Communications (ZM) – Get Zoom Video Communications, Inc. Class A Report shares surged 6.5% after the video conferencing specialists posted better-than-expected first quarter earnings, while boosting their full-year profit forecast, citing robust demand from businesses looking to extend hybrid work models.
Best Buy (BBY) – Get Best Buy Co., Inc. Report was also trading sharply higher, even after the electronics retailer posted weaker-than-expected first quarter earnings, while slashing its full-year sales outlook amid what CEO Corie Barry called “worsening” economic trends that have extended into the current quarter.