Stock Futures Edge Higher As Investors Weigh Rate Hike Outlook

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Stock futures ticked slightly higher early Friday as investors weighed the outlook for further interest rate hikes amid mixed economic data.

The Dow Jones Industrial Average futures rose 0.19%, indicating a modestly positive open. S&P 500 and Nasdaq 100 futures also edged up 0.17% and 0.25% respectively, signaling cautious optimism after recent declines.

Equity markets have seesawed this week as traders try to gauge the Federal Reserve’s rate hike path. After four straight days of losses, the tech-heavy Nasdaq Composite slid 0.9% on Thursday. The broader S&P 500 fell 0.3% for its third consecutive decline. Meanwhile, the blue-chip Dow bucked the trend, ending 57 points higher.

The mixed action came after weekly jobless claims data undershot estimates, dropping to 216,000 against expectations of 230,000. This reinforced bets that the Fed may need to continue aggressive tightening to combat inflationary pressures.

“August was a difficult month, with weak data, and September may be the same,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “Beyond that, though, the prospects remain good. Any recession is likely some time away, which should keep markets healthy.”

All three major indexes remain on track for weekly declines, with the S&P 500 and Nasdaq down 1.4% and 2% respectively since last Friday’s close. The Dow is also poised for a nearly 1% weekly drop, if levels hold.

Treasury Yields Retreat As Rate Path Uncertainty Lingers

Long-term Treasury yields dipped Friday morning amid ongoing debate around the Fed’s rate hike path. The benchmark 10-year yield slipped 2 basis points to 4.23%, while the 2-year yield also eased 1 basis point to 4.94%.

Lower yields reflect investor anxiety about economic slowing if the Fed lifts rates too aggressively. However, tight labor conditions and sticky inflation underscore the case for further hikes. Markets are currently pricing 50–50 odds of another 75 basis point increase in November.

“There is still significant uncertainty around how much higher rates will go,” said Commonwealth’s McMillan. “Nonetheless, markets seem to be gradually accepting the idea that rates will go higher than expected.”

European Indexes Edge Up, Looking To Halt Losing Streak

European stocks nudged slightly higher at the open on Friday after logging seven straight sessions of declines. The pan-European Stoxx 600 rose 0.3% in early trading, with most sectors posting modest gains.

Retail stocks led advancers, up 0.9%, followed by a 0.6% rise in tech shares. The moves aimed to provide some respite after European equities suffered their longest losing streak since February amid growth worries and hawkish central bank policy.

UK’s FTSE 100 gained 0.2%. Germany’s DAX and France’s CAC 40 both climbed 0.3%.

Offshore Yuan Weakens To Record Low On Dollar Strength

China’s offshore yuan slid to an all-time trough against the U.S. dollar early Friday, crossing 7.35 before paring losses slightly. The onshore yuan also hit fresh 16-year lows, reflecting broad greenback strength.

The People’s Bank of China has repeatedly insisted it won’t use the currency as a tool amid trade tensions with the U.S. However, the yuan’s swoon highlights China’s economic challenges as it grapples with ongoing Covid lockdowns, property sector turmoil, and weakening exports.

“The yuan will likely remain under pressure as long as the Federal Reserve keeps raising rates aggressively,” said Capital Economics. “However, we think fears of a large devaluation are overblown.”

Philippine Trade Deficit Widens On Import Contraction

The Philippines posted a larger trade deficit of $4.2 billion in July as imports plunged, outpacing a mild drop in exports. Total external trade in goods sank 10.5% versus last July to $16.49 billion.

July exports dipped 1.2% on year, reversing June’s slender 0.9% growth. Meanwhile, July imports cratered 15.3% from 2021 levels, extending the 15% slide in June. Purchases of mineral fuels and transport equipment led declines.

The data reflects waning global demand and higher inflation dampening consumer appetite domestically. “Exports will likely remain muted in the coming months,” Oxford Economics said.

Japan Q2 GDP Growth Slows On Weaker Domestic Demand

Japan’s economy grew less vigorously than first estimated in the second quarter as private consumption took a hit from resurgent Covid cases and inflationary pressure.

GDP increased 4.8% annualized from Q1, below the preliminary 6% reading. Economists predicted a revised 5.5% rise. On a quarter-on-quarter basis, growth slowed to 1.2% versus 1.5% initially reported.

Weaker domestic demand offset the boost from a pickup in service spending and solid business investment. “With household spending weak, a meaningful recovery will be deferred until wages rise more substantially,” said Marcel Thieliant, senior Japan economist at Capital Economics.

Investors Pile Into Bond ETFs Amid August Stock Slump

Investors sought shelter in fixed income exchange-traded funds last month as stocks retreated, data from State Street Global Advisors indicates.

Total August inflows into ETFs reached just $15 billion, sharply below the monthly average of $35 billion. U.S. equity ETFs lured $6 billion while benchmark indexes fell.

However, bond ETFs captured $11 billion, including $8 billion into ultra-short duration government funds. Still, August’s bond flows undershot the $17 billion monthly average, suggesting caution persists.

“The summer rally stalled in August as recession worries escalated,” said Matthew Bartolini, head of SPDR Americas Research at State Street. “This risk-off rotation benefited fixed income ETFs” amid stocks’ pullback.

Yext Shares Plunge On Disappointing Growth Outlook

Shares of Yext cratered almost 28% on Thursday for their biggest one-day drop since the cloud-based search services provider went public in 2017.

The selloff followed Yext’s latest quarterly results and forward guidance. While second quarter earnings and revenue beat estimates, the company warned customers are scrutinizing marketing budgets more closely.

“There’s more budget pressure,” said CEO Michael Walrath. “In some cases, we’re seeing cost-cutting pressure within existing customers.”

Yext now expects third quarter revenue between $99 million and $100 million, missing the $104.6 million consensus estimate. Full-year revenue guidance was also soft at $400 million to $402 million versus projections of $406.5 million.

The downbeat outlook underscores “enterprise conservatism” around incremental spending as macro uncertainty builds, Walrath added.

In conclusion, stocks appear set to close out a volatile week on a cautiously optimistic note following recent declines. Lingering uncertainty around the interest rate and economic backdrop has kept investors on edge and volatility elevated. However, markets seem to be gradually accepting the likelihood of more Fed hikes as inflation remains sticky high.

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