With inflation still sticky, and global headwinds accelerating, JPMorgan CEO Jamie Dimon now sees a greater chance of a U.S. recession.
U.S. equity futures nudged lower Tuesday, while the dollar gave back gains against its global peers and Treasury yields stabilized, as investors continue to worry that inflation risks remain imbedded in the domestic economy.
Monday’s stronger-than-expected reading of the ISM non-manufacturing index for November, a benchmark of activity in the biggest and most important driver of growth in the U.S. economy, surprised markets and triggered the biggest rally in the dollar in more than two weeks as traders bet the data may induce a longer, and more hawkish stance on rate hikes from the Federal Reserve.
The CME Group’s FedWatch still suggests a 79.4% chance of a 50 basis point rate hike from the Fed next week, but bets on follow-on moves of similar size are starting to take shape, testing the market’s theory that the terminal Fed Funds rate will be pegged at around 5% to 5.25% in the early spring.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.37% lower in early New York trading at 104.917, following on from yesterday’s sharp rally triggered by the ISM data. There moves were tempered, however, by another overnight rate hike by the Reserve Bank of Australia — its eighth of the year — which lifted its benchmark cash rate to 3.1%.
Benchmark 10-year Treasury note yields slipped to 3.559% in New York trading, consolidating yesterday’s gains, while 2-year notes were pegged at 4.368%.
JPMorgan CEO Jamie Dimon told CNBC at the Business Roundtable event in New York Tuesday that the Fed is likely to hold its terminal rate at 5% for between three to six months, but noted that it might not be long enough to tame inflation.
He also noted that a ‘mild to hard” recession could hit the U.S. economy next year, even as he touted the strength of consumer spending, warning that “inflation could erode all that.”
Further Covid easing in China, including moves to eliminate negative testing requirements to travel on public transport in the capital city of Beijing, failed to support stocks in the Asia session as markets reacted to last night’s slump on Wall Street.
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The region-wide MSCI ex-Japan index was marked 1.17% lower heading into the close of trading, its biggest decline in nearly two weeks, while Europe’s Stoxx 600 fell 0.23% in mid-day trading in Frankfurt.
On Wall Street, futures contracts tied to the S&P 500 are priced for a 7 point opening bell dip while those linked to the Dow Jones Industrial Average are indicating a 66 point decline. Futures tied to the tech-heavy Nasdaq are priced for a 10 point dip.
Chip stocks were active in early Tuesday trading as reports suggest Taiwan Semiconductor, the world’s biggest contract chipmaker, is set to unveil plans for a second manufacturing site in Arizona Tuesday, taking its overall U.S. investment to more than $40 billion.
TSMC, as it is often known, will host President Joe Biden at its plant in Phoenix later today as moves towards making the $12 billion facility fully operational by 2024.
The company is also set to unveil plans for a second plant, which will begin producing higher-end chips in 2026, at today’s event. Nvidia (NVDA) – Get Free Report CEO Jensen Huang, who will attend the event along with Apple’s AAPL Tim Cook and Micron’s (MU) – Get Free Report Sanjay Mehrotra, called TSMC’s investment a “game-changing development for the industry”.
Nvidia shares were marked 0.3% higher in pre-market trading at $166.62 each while Micron nudged 0.35% higher to $54.23 each.
Markets will also be tracking exit polls from the run off Senate race in Georgia, where Democrat Raphael Warnock holds a narrow lead over his Republican rival Herschel Walker.
A Democratic win would boost the party’s control of the Senate to two seats, eliminating at least in part the need to tweak legislation in order to placate conservative Senators such as Joe Manchin of West Virginia and Kyrsten Sinema of Arizona.