North American Morning Briefing: Stocks Seen Weaker Again as Fears Build Over Economic Downturn

OPENING CALL

Stock futures and bond yields fell early Wednesday as a wave of global risk-aversion encouraged the buying of perceived haven assets and investors fretted about a slowing U.S. economy.

Benchmark Treasury yields sit just above their lowest levels of 2024, pushed down of late by three main factors.

First, concerns about the health of the U.S. economy have been revived after surveys released Tuesday showed the manufacturing sector continues to contract.

Next, a broad burst of risk-aversion among investors as stock-markets slide--on economic growth and tech-overvaluation fears--has encouraged a move into the supposed safety of sovereign debt.

Finally, those growth concerns, which include signs of patchy activity in the Chinese economy, are battering prices of industrial commodities like copper and oil, which will help reduce inflationary pressures and may allow central banks to cut interest rates at a faster pace.

"Every piece of economic data between now and September 18th will be scrutinized and traded as a clue for whether the Federal Open Market Committee will opt for a 25 basis point or a 50 basis point rate cut," SPI Asset Management said.

"Today's JOLTS report, while often overshadowed, could prove critical in shaping expectations for Friday's jobs data and beyond. With the bar set sky-high, even the slightest data miss will be magnified, turning lousy news into horrible news again," SPI added.

Stocks in Europe and Asia were falling, with chip companies hard hit in the wake of Nvidia's tumble. Japan's Nikkei 225 sank 4%, while the Stoxx Europe 600 and Hong Kong's Hang Seng Index fell around 1%.

U.S. chip makers were mixed in premarket trading. Intel rose 0.5%, Broadcom declined 0.4% and AMD was rising 1.1%.

Other Premarket Movers

Asana dropped 14%. The company said for its fiscal third quarter that it anticipates an adjusted loss of 7 cents a share on revenue of between $180 million and $181 million. Analysts had been expecting a loss of 3 cents a share on revenue of $182.3 million.

GitLab raised its fiscal 2025 outlook and the stock jumped 16%.

PagerDuty reported better-than-expected second-quarter adjusted earnings but the stock fell 15% after revenue in the period was weaker than expected and the company reduced fiscal-year revenue guidance.

Zscaler was down 15% after the company's profit outlook for its fiscal first quarter missed analysts' estimates.

Postmarket Movers

Athira Pharma's trial of fosgonimeton for Alzheimer's disease patients failed to meet its primary endpoint. The company said that neither the trial's primary endpoint nor its secondary endpoints reached statistical significance compared with the placebo group at 26 weeks. Shares fell 72%.

Sportsman's Warehouse net loss widened in its fiscal second quarter and the company cut its full-year outlook. Shares fell more than 11%.

Watch For:

International Trade for July; Factory Orders for July; Federal Reserve Beige Book; Bank of Canada Rate Decision; Canada International Trade for July

Today's Headlines/Must Reads:

- Nvidia's Top Spot on the S&P 500 Might Not Be a Good Thing, JP Morgan Says

- China's Economic Woes Are Dragging Down U.S. Companies

- How Immigration Remade the U.S. Labor Force

MARKET WRAPS

Forex:

The dollar was lower ahead of U.S. jobs data that could alter interest-rate cut expectations for the Federal Reserve.

The jobs opening and turnover survey will be released at 1400 GMT, followed by ADP private payrolls data on Thursday and the nonfarm payrolls report on Friday.

The dollar could see "a bit of a back and forth" on Wednesday and Thursday but "hardly anyone will stick one's neck out and position significantly for one side or the other, since Friday's report will be decisive," Commerzbank said.

August payrolls data are particularly important after July's report sparked speculation for more aggressive rate cuts, it added.

ING said concerns about weaker U.S. economic growth are more likely to hit risk-sensitive currencies than the dollar, while the yen and Swiss franc could benefit from safe-haven flows along with the euro but to a lesser extent.

Markets are already fully pricing in at least one 50 basis-point interest-rate cut by the Federal Reserve this year and need to get more worried about a recession to price in further cuts, ING added.

"We think the yen and Swiss franc are in a stronger position compared to other G-10 currencies."

ING said the euro could still benefit from its liquidity conditions and outperform risk-sensitive currencies, he says.

Bonds:

Tuesday's Treasury gains were led by long-end bonds, though were likely somewhat contained by a flood of new corporate issuance, Pepperstone said.

"While haven demand could see these gains extend, were it to continue into coming sessions, a renewed front-end sell-off, and round of curve steepening should come to fruition as and when the market comes to reprice the Federal Reserve outlook in a hawkish direction."

Current expectations for 100 basis points of Fed rate cuts that money markets price in by year-end are still over-the-top, Pepperstone said.

Energy:

Oil prices extended the previous session's losses, reaching their weakest levels this year on fears of an oversupplied market and following a report that Libya might soon restart production.

Expectations that OPEC+ will stick to its plan to gradually increase output and concerns over demand after the latest Chinese PMI data have weighed haevily on market sentiment.

Meanwhile, Libya's central bank governor said there are strong indications that political factions in the country are nearing an agreement, according to a Bloomberg report.

"This triggered a wave of selling," ANZ Research said, noting that a deal would pave the way for more than 500,000 barrels a day of oil to return to the market and bring the focus back to a tepid demand backdrop.

ING said this week's oil-price slump adds further pressure on OPEC+'s plans to unwind some of its production curbs.

"With the balance looking soft through 2025, the question is when the group will eventually be able to bring supply back onto the market without putting significant pressure on prices," ING said.

Metals:

Gold futures slipped further and failing to act like a traditional safe-haven during Tuesday's market slump, XTB said.

A mixture of fears around global growth, a commodity market selloff filtering through to stocks, shifting monetary policy cycles and seasonal market patterns have come together to drive the wider slump, XTB added.

While the precious metal has outperformed every other commodity during the wider fall, it is still 1.5% lower on-week, which suggests the market isn't in panic mode and flocking to safe havens yet.

There have also been large inflows into government bonds, which suggests investors believe the Federal Reserve has the market's back, XTB said.

Base metals were also lower, giving away the gains made in recent weeks.

Copper has led the decline among the wider metals complex--falling 5.1% in the last week--after bearish forecasts from analysts citing shrinking Chinese demand, Sucden Financial said. This prompted the metal to correct below the previously robust $9,000 a ton mark.

"While we do see confidence in Chinese recovery soften, the longer-term outlook remains in the supply/demand deficit, which should help maintain the robust support level at $8,700 a ton intact."

TODAY'S TOP HEADLINES

Bain Counteroffer for Fuji Soft Could Mean Takeover Tussle

TOKYO-A takeover tussle could break out over Fuji Soft as two U.S. private-equity firms compete to acquire the Japanese software developer for more than $4 billion.

Fuji Soft said late Tuesday that it would consider a counteroffer from Bain Capital if the private-equity firm made a binding offer, and compare it with KKR's bid. The statement came after a Nikkei business daily report that Bain planned to buy the company for 600 billion yen, equivalent to $4.12 billion.

Blackstone Buys Australian Data-Center Operator for $16.1 Billion

SYDNEY-Blackstone agreed to buy data-center operator AirTrunk for $16.1 billion, cementing its biggest-ever investment in the Asia-Pacific region as it seeks to capitalize on the boom in artificial intelligence and cloud computing.

The deal adds AirTrunk's centers in Australia, Japan, Hong Kong, Singapore and Malaysia to Blackstone's existing portfolio containing $55 billion of data centers and $70 billion more in prospective development. AirTrunk has more than 800 megawatts of capacity committed to customers.

China Caixin PMI Signals Slower Growth in Services Sector

A private gauge of China's service activity expanded at a slower clip in August, as Beijing continues to strive to stimulate domestic demand.

The Caixin services purchasing managers index dropped to 51.6 in August from 52.1 in July, said Caixin Media Co. and S&P Global on Wednesday.

Trump Wants to 'Drill, Baby, Drill,' but Can He Cut Energy Prices?

Donald Trump says he can rapidly cut Americans' energy costs by 50% or more, a welcome prospect for inflation-weary voters. It is easier said than done.

The Republican presidential nominee says he will rely on a favorite campaign slogan to accomplish the feat: Drill, baby, drill. Trump says faster permitting, weaker environmental regulations and other measures will unleash more production of oil and natural gas and push down prices at the pump and on electricity bills.

Write to paul.larkins@dowjones.com TODAY IN CANADA

Earnings:

Alimentation Couche Tard 1Q

D2L 2Q

Descartes Systems 2Q

Major Drilling 1Q

Economic Calendar (ET):

0830 Jul International Merchandise Trade

0945 Bank of Canada Interest Rate Announcement

Stocks to Watch:

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September 04, 2024 06:24 ET (10:24 GMT)

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