By Geoffrey Smith
Investing.com -- FedEx's drastic cost-cutting measures and weak revenue update put stocks on course for their lowest weekly close in two months as fears for the global economy grow. The yuan falls through 7 to the dollar as China's housing slump and consumer bust continue. Sterling slumps to its lowest since 1985 on dismal retail sales data, and the government is taking over Rosneft's refineries in Germany, as Berlin tries to ward off a looming fuel supply emergency. Here's what you need to know in financial markets on Friday, 16th September.
1. As FedEx goes, so goes the world economy
Global growth fears have a name, and its name is FedEx (NYSE:FDX). The delivery and logistics company’s stock plunged nearly 20% in after-hours trading on Thursday after its new chief executive announced it will close 90 locations around the globe, park some cargo aircraft and freeze hiring. While the company didn’t mention job cuts specifically, it will also close five corporate offices.
FedEx, with its global reach and its exposure to both businesses and households, is often taken as a loose proxy for global economic activity.
Its profit margins have been under pressure for months due to soaring fuel bills and rising labor costs due to tight job markets. But its top line is also now suffering, with economic weakness in Europe and Asia leaving its largest division, Express, $500 million short of forecasts in the last quarter, while the ebbing of the pandemic-driven surge in e-commerce deliveries left its Ground division $300 million short.
2. Weak Chinese data pressure local stocks, currency
China’s stock market benchmarks all fell by over 2% and the offshore yuan fell through the level of 7 to the dollar, as the economy put out a mixed bag of numbers that analysts said were weaker than they looked at first sight.
Growth in industrial production and retail sales accelerated, but largely due to targeted tax breaks for the domestic auto industry.
Other stimulus measures aimed at propping up a moribund real estate sector prompted an uptick in investment in fixed assets, but markets zeroed in on another, bigger annual decline in house prices, which were down 2.1% on the year in August. They’ve now been flat or in decline for 12 straight months.
Also of concern were private sector figures showing a 23% drop in tourism spending over the recent holiday weekend and a 26% year-on-year drop in movie attendances over the same period.
3. Stocks set for lowest weekly close in two months; Michigan consumer sentiment eyed
U.S. stocks are on course for their lowest weekly close in two months as the news out of FedEx, China, and Europe (see below) all darken the broader outlook for corporate earnings.
By 06:25 ET (10:25 GMT), Dow Jones futures were down 230 points, or 0.8%, while S&P 500 futures were down 0.9% and Nasdaq 100 futures were down 1.1%. The three main cash indices had fallen by between 0.6% and 1.4% on Thursday after a dump of U.S. data showed the economy slowing despite a still tight labor market.
The big economic number due later is the Michigan Consumer Sentiment index at 10:00 ET, where the focus will be any sign that inflation expectations are ‘de-anchoring’ from the Federal Reserve’s medium-term target of 2%. A severe inversion of the U.S. yield curve suggests that that isn’t the case yet.
4. Sterling slumps to new low after dismal retail sales
The pound sank to a new 37-year low against the dollar after data showing retail sales plummeted in August, a reflection of an ever more acute cost-of-living crisis.
The data showed how far the surge in energy and fuel prices has eaten into consumers’ spending power, even if spending is still being supported in the near term by a strong job market, pandemic-era savings, and – increasingly – a rise in consumer credit.
Analysts said the numbers increase the likelihood that the interest rate differential with the U.S. will widen next week, as the Fed hikes rates by more than the Bank of England.
The pound fell as low as $1.1351 before paring losses to trade at $1.1400 by 06:30 ET, still a decline of 0.6% on the day. It also fell 0.3% against the euro.
5. Germany steps up energy emergency measures
Germany took control of three refineries owned by Russian state oil company Rosneft, aiming to head off a looming fuel supply crisis for the capital, Berlin.
The Schwedt refinery in north-east Germany, along with two others in the south of the country, will be placed under state administration, similar to what happened with the German subsidiaries of gas monopoly Gazprom (MCX:GAZP) earlier in the year when it started to cut supplies to Europe.
The European Union approved another 5 billion-euro aid package to Ukraine earlier this week to help it continue its fight against the Russian invasion. Russia’s problems inside Ukraine appear, meanwhile, to be still deteriorating: the chief prosecutor of the Luhansk People’s Republic was killed by a bomb that exploded in his office building earlier, a day after he distributed a video address telling locals that “there is no need to panic” after the defeat of Russian forces around Kharkiv last week.