There seems to be broad agreement that Fitch’s U.S. credit rating downgrade will have little impact on the real value of U.S. Treasuries, but the move has left markets feeling fragile and nervy ahead of tech giants Apple and Amazon reporting.
U.S. Treasury yields and the dollar are clinging to nine-month peaks, while the VIX is headed for its biggest week-on-week gain since March. The Nasdaq tumbled by 2.2% on Wednesday – reversing more than half of July’s gains in one fell swoop – and futures point to more pain ahead, with questions about whether the big tech rally – the tide that floated most equity markets’ boats – can be sustained.
The logos of mobile apps, Google, Amazon, Facebook, Apple and Netflix, are displayed on a screen in this illustration picture taken December 3, 2019. REUTERS/Regis Duvignau
Apple is likely to report a dip in iPhone sales in its April-June quarter, as shoppers held out for a new model in a slow economy. This will shift investors’ focus to the use of artificial intelligence to augment Apple’s growth.
Meanwhile, Amazon.com is expected to deliver a more than 8% rise in second-quarter revenue, aided by a recovery in the advertising and e-commerce businesses and offset by weakness in its Amazon Web Services cloud unit.
Both will also give a fresh sense of how retail demand is shaping up – tying in closely with a raft of labour market data due out today, including jobless claims, second-quarter productivity and unit labour costs, which all pave the way for Friday’s big non-farm payroll release. Plus – there are PMIs, and final durable goods orders to round off the day.
Back to Europe, where the Bank of England is facing a knife-edge decision on whether to hike UK rates by 25 basis points or 50 basis points in what would be the 14th increase in a row. Policy makers are attempting a balancing act; trying to fight inflation without fanning recession risk. The pound traded around its lowest in a month on Thursday, and the FTSE 100 share index fell to two-week lows, both weighed down by nervousness ahead of the BoE decision.
Data from the euro zone showed the downturn in business activity worsened more than initially thought in July as the slump in manufacturing was accompanied by a further slowing of growth in the bloc’s dominant services industry.
Key developments that should provide more direction to U.S. markets later on Thursday:
Initial claims for state unemployment benefits, Labor Department preliminary unit labour costs, Commerce Department factory orders & durable goods, ISM non-manufacturing PMI, S&P Global’s final reading of composite and services PMI
The Federal Reserve Bank of Richmond President Thomas Barkin scheduled to speak on “Recession Revisited”
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