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Euro Low, Recession Fears, Citi Warns on Oil - What's Moving Markets

Economy Jul 05, 2022 06:29AM ET
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© Reuters

By Geoffrey Smith 

Investing.com -- Freedom from British tyranny, maybe. But freedom from the fear of recession isn't as easy to come by. U.S. stocks and bond yields are set to open lower, while the euro falls to its lowest in two decades against the dollar after the latest round of business surveys show growth stalling. U.S. factory goods orders are expected to have picked up in May, nonetheless. Tesla (NASDAQ:TSLA) is pausing its factories in Shanghai in Berlin for reasons that aren't entirely clear but appear linked to planned capacity increases. And Citigroup forecasts that oil could fall to $65 a barrel by the end of the year in the worst-case scenario. Here's what you need to know in financial markets on Tuesday, 5th July.

1. Recession fears dominate as Euro hits 20-year low on PMI

The euro fell to a new 20-year low against the dollar as market participants pared their bets on rate hikes from the European Central Bank in response to signs of a looming recession.

S&P Global’s composite purchasing managers index for the single currency bloc fell to a 16-month low, implying growth of around only 0.2% in the quarter. Weakness in new orders and confidence suggests worse to come in the current quarter.

Major European stock markets fell over 1% and bond yields tumbled in response to the survey, while recession fears were also evident in commodity markets, where copper futures fell to their lowest in 16 months. However, analogous surveys from S&P Global showed a sharp rebound in China’s services sector after the relaxation of lockdown restrictions in Shanghai and elsewhere, while India’s services sector grew at its fastest pace in over a decade.  

2. U.S. factory orders due; Chinese tariff cut eyed

The rebound in China is one possible reason why the U.S. may yet avoid a recession too, as the normalization of supply chains eases inflation pressures and reduces the pressure on the Federal Reserve to act.  

That thesis will be put to the test later with new figures for factory orders and durable goods data for May. The Institute of Supply Management’s surveys have suggested that demand for U.S. factory goods is slackening a little, but the hard data will show whether that is actually happening.

Orders growth is expected to have picked up a little to 0.5% from April’s 0.3%. In the meantime, sentiment is being supported a little by hopes that President Joe Biden will announce the lifting of import tariffs on some Chinese goods this week – something that ought to reduce inflation pressures – if only marginally.

3. Stocks set to open lower; Tesla factory pause in focus

U.S. stocks are set to open lower though, with recession fears still leading investors to take money off the table ahead of an earnings season that could bring another slew of downgraded forecasts, especially for those companies whose foreign earnings will be hit by the strong dollar.

By 6 AM ET (1100 GMT), Dow Jones futures were down 170 points, or 0.6%, while S&P 500 futures were down 0.5% and Nasdaq 100 futures were down 0.7%

The earnings slate is pretty bare but stocks likely to be in focus include Tesla, which is reportedly set to pause output at its plants in Shanghai and Berlin for a couple of weeks, with a view to raising output at the latter in particular. CEO Elon Musk recently dubbed the Berlin factory a “money furnace”, amid reports of problems ramping up output volumes both there and in Austin.

4. U.S. airlines negotiate tricky holiday weekend; Europe's struggle

Other stocks likely to be in focus will be airlines, after a July 4th weekend that started on a bad note but improved as it went on. Flight cancellations ran into the thousands on Friday and Saturday, hindered by bad weather, but data from FlightAware suggest that that had dropped to only 235 on Monday.

Airlines around the world continue to struggle with the resurgence of tourism this year, having lost key personnel both in cabin crew and on the ground during the pandemic. Scandinavian airline SAS filed for chapter 11 bankruptcy protection for the second time in two years on Monday, while the chief operating officer of EasyJet, Europe’s second-largest discount flyer, resigned after failing to get on top of the airline’s operational problems.

Bottlenecks are also holding up the delivery of new planes. Bloomberg estimated that Airbus's (OTC:EADSY) delivery numbers for June leave it on course to miss its full-year target.

5. Oil weakens on Citi warning; Norwegian strike hits European gas

Crude oil prices weakened in line with much of the rest of the commodities complex as the gloomy outlook for the global economy dominated. In addition to the European news, there was a reminder of ongoing problems in China, where the city of Xi’an announced seven days of mobility restrictions due to Covid-19.

Citigroup analysts warned that crude prices may fall to as low as $65 a barrel by the end of the year as global growth slows.

By 6:15 AM ET, Brent crude was down 1.2% at $112.16 a barrel, while U.S. futures were at $108.44, flat from Friday’s close.

U.S. natural gas prices also eased 2.8%, despite a fresh tightening of the European market as Norwegian oil and gas workers forced more North Sea fields to shut down with their ongoing strike.

Euro Low, Recession Fears, Citi Warns on Oil - What's Moving Markets
 

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Comments (10)
Dimitar Dimitrov
Dimitar Dimitrov Jul 06, 2022 10:15AM ET
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Bet 50% of your portfolio on a bear market for oil and 50% on a bull market for oil. There is no way to win from both animals. But he will win anyway. Which will still be in your favor. Well, hopefully the gain outweighs the loss, if you get my drift…
ZS Beck
ZS Beck Jul 05, 2022 10:30PM ET
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I heard from JP M, 380$ last week, today 65$ from the city... Let's divide the difference.
Jayme Oliveira Jr
JJ__ Jul 05, 2022 9:48PM ET
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Citigroup analysts warned that crude prices may fall to as low as $65 a barrel by the end of the year as global growth slow.... $65????? Really???
Marco cuevas
Marco cuevas Jul 05, 2022 9:06AM ET
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When fake media gets together they can drop the market in a drop of a dime yesterday fits were up...once their overlords say the word articles with "recession fears" are circulated so that the algos pick it up.
Brad Albright
Brad Albright Jul 05, 2022 9:06AM ET
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You are exactly right. I was on the fake media zoom call last night where we all agreed to write about recession today. CNN did not want to go along with it, but they changed their mind when we threatened to cut off their supply of adenechrome.
Antonio Velardo
Antonio Velardo Jul 05, 2022 9:03AM ET
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B talked to P: I need less inflation to win the mt, that’s the only thing I care of.
Brad Albright
Brad Albright Jul 05, 2022 9:03AM ET
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I heard P asked for some Adidas in exchange.
Joe Rizzuto
Joe Rizzuto Jul 05, 2022 8:09AM ET
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last week jpmorgan prices oil target at $380 ... this week citi at $65 !!
Jeff Chevalier
Jeff Chevalier Jul 05, 2022 8:09AM ET
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Depending on what happens. Read..
ANAND TIWARI
ANAND TIWARI Jul 05, 2022 8:09AM ET
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you are stupid if you think oil will touch $380 anytime soon
Kurz M Ndandu
Kurz M Ndandu Jul 05, 2022 8:09AM ET
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all based on certain scenarios
simone scelsa
simone scelsa Jul 05, 2022 7:34AM ET
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Citi trying to manipulate the market with their "analysis"
Clay Douglass
Clay Douglass Jul 05, 2022 7:24AM ET
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liars..$65 a barrell..pathetic liars
Edward Chong
Edward Chong Jul 05, 2022 7:22AM ET
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nowadays the reports are getting more and more ridiculous. i really wonder how these analysts graduated .
Rahid Shaikh
Rahid Shaikh Jul 05, 2022 7:16AM ET
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if crude ho up then its inflation and when its going down then its recession
 
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