4:15pm: St. Louis Fed president says US not in a recession
The Dow Jones Industrial Average closed Wednesday up 416 points, 1.3%, at 32,813, the Nasdaq Composite added 319 points, 2.6%, to 12,668, and the S&P 500 improved 64 points, 1.6%, to 4,155.
Markets reversed a two-day slide to start the week. Traders shook off some of the concerns involving Nancy Pelosi's visit to Taiwan, which China had urged her not to make, after she landed Tuesday night.
Additionally, comments from St. Louis Federal Reserve President James Bullard were encouraging.
The regional president told CNBC in an interview that he doesn’t believe the US is in a recession and that interest rate increases should be expected to continue.
“As the chair said, we’re not in recession right now,” he said. “With all the job growth in the first half of the year, it’s hard to say that there was a recession.”
12.05pm: Focus shifts to stronger economic data
The major US indices were up around midday, as investors reviewed stronger data from the Institute for Supply Management (ISM) Services’ report.
The Dow Jones Industrial Average was up 1% at 32,371 points, the S&P 500 rose 1.3% at 4,142 and the Nasdaq Composite was up 2.1% at 12,612.
Michael Hewson, chief market analyst at CMC Markets UK, noted that attention had shifted back to the possibility the US Federal Reserve could pivot on its interest rate policy but was countered by better news from the ISM non-manufacturing purchasing managers index.
“We’ve continued to see pushback on that line of thinking from a succession of Fed speakers, with the latest, St. Louis Fed president James Bullard, who pushed the idea of a Fed funds rate of 3.75% to 4% by the end of this year, and that current Fed policy was far from being restrictive. He also expressed optimism that the US would see positive GDP growth in the second half, and that he wants to see convincing evidence of inflation easing,” Hewson said.
“If Bullard truly believes that we’ll see an H2 rebound, he won’t have been encouraged by today’s July services PMI (purchasing managers’ index) which was confirmed at 47.3. On the other hand, the latest ISM Services report saw an improvement from 55.3 to 56.7, while prices paid fell from 80.1 to 72.3. June factory orders also rose by a better-than-expected 2%.
“This divergence on the ISM relative to PMI rather muddies the waters as to how the US economy is performing, however, one thing that isn’t in doubt is that prices paid are falling. They fell sharply in manufacturing, and have fallen in services, although that hasn’t been enough to take the edge off today’s uptick in yields,” Hewson added.
At midday, the major movers included Starbucks, higher after above-forecast 3Q results on demand for cold drinks. Moderna shares were up over 15% after it also beat analyst expectations. On the other hand, shares of Solaredge Technologies were down over 18%, and Tinder operator Match Group shares were down 17%, both on disappointing 2Q earnings results.
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9.35am: Rollercoaster ride continues
US stocks opened higher on Wednesday with concerns around US-China relations over Nancy Pelosi’s Taiwan visit waning as earnings seasons continues.
Just after the open, the Dow Jones Industrial Average had added 168 points at 32,564 points, while the S&P 500 was up 23 points at 4,114 points and the Nasdaq Composite was up 116 points at 12,465 points.
Shares of drugstore chain CVS Health Corporation and coffee giant Starbucks Corporation were up about 5% and 1% respectively at the open after both companies posted quarterly earnings that beat analyst expectations.
OANDA senior market analyst Craig Erlam said this week had already been shaping up to be a rollercoaster ride and Pelosi’s trip had added just another layer of event risk for the markets.
“There will be hope following the initial response from Beijing that any escalation won't be too severe, although relations between the world's largest economies are clearly hugely strained and deteriorating,” he said.
6.30am: A little bit of calm
US stocks were expected to open slightly higher on Wednesday with China’s muted reaction so far to US House Speaker Nancy Pelosi's visit to Taiwan calming overall sentiment.
Investors are also looking to key US PMI services sector data for direction amid prevailing fears that the world’s biggest economy will slide into a recession.
Futures for the Dow Jones Industrial Average were trading 0.4% higher pre-market, while those for the broader S&P 500 index gained 0.4%, and contracts for the tech-laden Nasdaq-100 rose 0.5%.
“Interestingly, the US and European futures are trading higher as investors are feeling relieved that the response from China over Pelosi’s visit to Taiwan was rather a muted one,” said Naeem Aslam, chief market analyst at avatrade.com. “Traders feared for a lot worse situation but in reality, what we had was just a military drill and some supply chain disruption.”
Still, the relief may be misplaced, he warned, noting that investors in Taiwan appear more pessimistic and that there may yet be a stronger response from China.
“In all of this, the country which is going to gain or lose the most is Taiwan, and if we look at the local stock market, there is a lack of optimism there, and this means that international markets aren’t pricing in the risk correctly yet,” Aslam said.
Direction for the day’s trading may well come from the ISM services sector PMI data for July, especially given fears over a weakening economy. Consensus estimates point to slower growth and stocks could come in for a rough ride if the data, due at 10.00am ET, comes in weaker than predicted.
Oil markets too are in focus ahead of OPEC’s meeting and as investors balance the prospect of supply constraints with the possibility of a steep drop in demand as global economic growth falters.
“There are jitters flowing through the oil market today, ahead of an OPEC+ meeting which is expected to bear little fruit when it comes to changing current output mandates. This feeds into anxieties about constrained supply which consumers and wholesalers are very well-versed in at this point,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“The interesting flipside is that anxieties about a petering of demand seem to be winning in the battle of sentiment. Very real questions about the health of the global economy mean demand for oil and gas could be in for a contraction that’s so sharp, the supply concerns are void,” she noted.
Against this backdrop, WTI oil futures were 1.1% down at $93.40 a barrel while Brent crude futures were 1.2% lower at $99.32.
Contact the author at jon.hopkins@proactiveinvestors.com