Mid-Market Update: Global PMIs collapse, Relief Rally will be tested next week, Mixed Earnings, Oil finds support, Gold shines, Bitcoin steadies

US stocks are under pressure as recession fears run wild as business activity contracts and the labor market shows signs of weakness. Wall Street is seeing mixed earnings as social media companies are seeing softer advertising revenues, the US consumer is struggling to pay their phone bills, while American Express says their premium customers are more resilient to inflation. ​ The US consumer is quickly weakening and if the job market cools quickly, the market will start to fear a recession could happen as soon as the end of the year.

Corporate America showed a major pivot this earnings season and that is to spend less on and to ease up on hiring. ​ With Wall Street remaining so pessimistic that we will retest the summer lows, it will be hard to see stocks muster up a meaningful rally until investors become confident they can see the end of the Fed’s tightening cycle. ​ ​

PMI

The S&P 500 got whipsawed after an abysmal flash PMI report. Business activity fell to contraction territory, a clear sign the economy is weakening faster than economists were expecting. ​ The composite managers output reading plunged to 47.5, much worse than what the slight gain traders were expecting. ​ The service sector is in freefall and manufacturing activity has lost its mojo.

Stocks initially rallied following the first contraction in two years with business activity. ​ The US PMIs mirrored what we saw in Europe and raised the prospect that central banks might have been too slow to tighten aggressively and that we might not see much more tightening before the winter.

Earnings

AT&T shares plunged to the lowest levels in 20 years as some of their customers hold off paying on their phone bills. American Express posted record revenue as high-income households continue to spend and remain resilient to inflation. ​ The credit card giant did see a drop in profit as they had to add USD 410 million in provisions for credit losses. ​ Twitter posted surprisingly stronger than expected monetized daily active users, but revenues disappointed, which was somewhat expected following Snapchat’s disastrous results.

Next week is going to be massive for earnings as quarterly updates come from Apple, Amazon, GM, GE, and 3M. After next week, traders will be able to have a better idea on how soon this economy will fall into a recession, which could signal peak Fed tightening expectations. ​ ​ ​ ​ ​

FX

The euro tumbled after a wrath of manufacturing PMI data collapsed to contraction territory, the lowest levels in about two years. ​ It looks like the eurozone economy is rushing towards a recession and that will disrupt how aggressive the ECB will be going forward. ​ ​

Oil

Crude prices are holding up despite intensifying global recession worries. Manufacturing activity in Europe was awful and business activity contracted for the first time in two for the US. ​ Despite troubling signs for crude demand across China, Europe and the US, the oil market remains very tight and is not allowing WTI crude to break below the mid-USD 90s.

Today’s headlines are plentiful and mostly bearish: global PMIs drive recession worries, Libya’s production is rising and earnings point to a weakening consumer. ​ Oil might stabilize around the mid-USD 90s, but this deterioration with the crude demand outlook should prevent a sustained move above the USD 100 level.

Gold

Gold prices are rising as global recession fears are resetting rate hiking expectations for all the major central banks. Gold is starting to act like a safe-haven as weakening economic growth will force many central banks to abandon their aggressive tightening plans. ​ Demand destruction is what will send inflation lower and a weakening global economy should do that. ​ Right now, Wall Street is still convinced the recent lows will be tested and that means gold could outperform as global economic data deteriorates. ​ Gold might find resistance at the USD 1750 level, but if it doesn’t, not much will get in the way until the USD 1800 level.

Bitcoin

Bitcoin traders are paying close attention to mining power as the global energy crisis could weigh on prices. ​ Bitcoin is starting to look attractive for some traders, but the majority of crypto watchers are still awaiting further weakness and possible retest of the June lows. As global recession calls grow, the focus will switch to how soon the Fed will be cutting rates and that should be good news for the beaten up crypto sector. ​ ​

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