Here are five things you must know for Tuesday, July 5:
1. -- Stock Futures Lower As Recession Concerns Mount
U.S. equity futures moved lower Tuesday, while the dollar traded at the highest levels in two decades and Treasury bond yields flashed another recession warning, as investors enter the holiday-shortened week focused on growth and inflation prospects in the world's biggest economy.
The Atlanta Fed's GDPNow growth forecasting tool suggests the economy is contracting sharply as it enters the third quarter, at -2.1%, following what is likely to be two consecutive quarters of shrinkage between January and June.
That won't automatically define recession -- that is ultimately the task of the The National Bureau of Economic Research -- but it's enough of a downturn to trigger changes in investment, financing and, perhaps, reaction functions from the Federal Reserve, which may opt to slow the pace of rate hikes needed to tame inflation in order to limit their impact on economic growth.
At present, however, markets are still betting on a 90% chance of a July rate hike of 75 basis points from the Fed, with an 82.3% chance of a follow-on move of 50 basis points in September.
That's keeping the U.S. dollar trading at the highest levels in 20 years against a basket of its global peers, but it's also tipping Treasury yields into a so-called inversion - where 2-year note yields trade higher than 10-year notes.
According to a study from the San Francisco Federal Reserve, a sustained inverted yield curve has preceded all of the nine recessions the U.S. economy has suffered since 1955, making it an extremely accurate barometer of financial markets sentiment.
Comments from President Joe Biden yesterday indicating he may eliminate some Trump-era tariffs on China-made goods in order to ease domestic inflation pressures, provided at least some market relief, as did reports of a constructive meeting between Treasury Secretary Janet Yellen and China Vice Premier Liu He.
Benchmark 10-year notes were last seen trading at 2.882% while 2-year notes were changing hands at 2.867%.
Still, growth concerns kept European stocks in the red this morning, with the Stoxx 600 falling 0.6% in early Frankfurt trading, following on from a modest 0.07% gain for the Asia-region MSCI ex-Japan index.
On Wall Street, futures tied to the S&P 500 are indicating a 115 point opening bell dip while those liked to the Dow Jones Industrial Average are priced for a 15 point retreat. Futures linked to the tech-focused Nasdaq are indicating a 60 point slip.
2. -- Week Ahead: Fed Minutes, Jobs Report In Focus
With the U.S. economy poised to slide into recession, and the Fed's preferred inflation gauge starting to show signs of peaking consumer prices, investors are starting to ask whether the central bank is prepared to pause its rate hike path in order to support domestic growth prospects.
Minutes of the Fed's June policy meeting, set for publication on Wednesday, could provide some insight into the Fed's thinking on growth and inflation and will be closely-watched for any suggestion that easing inflation pressures, or a downturn in job growth, could trigger a re-think from Fed Chair Jerome Powell and his colleagues.
Jobs data, in fact, will also loom large on Wall Street this week, with the June employment report slated for Friday at 8:30 am Eastern time. Analysts are looking for a softer gain of 270,000 net new jobs for the month, with only a modest 0.3% gain for average hourly earnings and a headline unemployment rate of 3.6%, unchanged from the final May tally.
3. -- Tesla Shares Slide After Q2 Delivery Slump
Tesla (TSLA) shares moved lower in pre-market trading after the carmaker posted a rare slump in quarterly deliveries and reports suggest two of its four key factories will go dark for two weeks over the month of July.
Supply chain disruptions, chip shortages and a 22-day shutdown at its gigafactory in Shanghai pulled second quarter deliveries down 17.7% from the first quarter, to a weaker-than-expected 254,695 new units, Tesla said Saturday.
Production fell to 258,580 vehicles, from the 305,407 made in the first quarter and the 305,840 tally recorded over the final three months of last year, Tesla said, but plans to idle factories in Shanghai and Berlin for upgrade work will test the clean-energy carmaker's ability to ramp-up output over the September quarter.
Tesla also said it will publish its second quarter earnings on Wednesday July 20, with analysts looking for a bottom line of $1.89 per share on revenues of $17.35 billion.
Tesla shares were marked 0.8% lower in pre-market trading to indicate an opening bell price of $676.23 each, a move that would extend the stock's year-to-date decline to around 43%.
4. -- Exxon Shares Jump On Record Q2 Profit Bet
Exxon Mobil (XOM) shares jumped higher in pre-market trading after the oil and energy giant indicated a likely record surge in second quarter profits.
In an update filed with the U.S. Securities and Exchange Commission late Friday, Exxon said operating profits would likely rise $7.4 billion from the three months ending in March, when it recorded profits of $8.8 billion.
Exxon said the bulk of the gains -- around $4.5 billion -- will come from improved margins in the sale of gasoline a diesel, a fact that is likely to elicit further criticism from President Joe Biden.
Biden Tweeted yesterday that "companies running gas stations and setting prices at the pump" should "bring down the price you are charging to reflect the cost you’re paying for the product," a message that was mocked by the U.S. Oil & Gas Association, which claimed it was "written by a WH intern".
"High energy prices are largely a result of underinvestment by many in the energy industry over the last several years and especially during the pandemic," Exxon said.
Exxon shares were marked 1.25% higher in pre-market trading to indicate an opening bell price of $88.65 each.
5. -- Swedish Airline SAS Files For Bankruptcy In the U.S.
SAS filed for bankruptcy protection in the United States Tuesday following a pilot strike Monday that crippled the Scandinavian airline.
SAS said it would continue to service the bulk of its routes during the Chapter 11 process, which could take up to a year, but noted the pilot strike is grounding around half of its daily schedule, disrupting 30,000 passengers and costing it around $10 million a day. That would eat up the group's existing cash base in less than two months.
"Through this process, SAS aims to reach agreements with key stakeholders, restructure the company's debt obligations, reconfigure its aircraft fleet, and emerge with a significant capital injection," the carrier said in a statement.
SAS shares were last seen 14% lower on the session in Stockholm at 0.53 Swedish Kroner each, a move that would extend the stock's year-to-date decline to around 61%.
