Markets Melt As Business Activity Cools

Economic News

We’re wrapping up a long week of economic news from around the world. 📰

Starting with the U.S., the S&P Global Flash PMI data showed that business activity contracted for the first time in two years. A significant slowdown in the service sector drove the decline, outweighing modest manufacturing growth. These preliminary numbers came in at 47.5, which is notable because a reading below 50 indicates that business activity contracted. 📉

U.S. economic data continues to surprise to the downside, fueling recession fears.

Euro Zone business activity didn’t fare much better, contracting to 49.4 in July, its lowest since February 2021. Record high inflation is causing consumers to rethink unnecessary spending, leading to a significant decline in service sector growth. 🔻

Manufacturing activity fell below 50 for the first time in over two years, as businesses fret over record-high costs and a potential recession. 🏭

To combat inflation, the ECB hiked rates by 50 bp yesterday and expects more tightening ahead. However, the energy and food crisis driving headline inflation higher each month is unlikely to find a resolution soon. 🛢️

With that said, there was some positive news on that front this week. 👍

The Euro Zone had been preparing for Russia to shut down its gas flows entirely, but Nord Stream’s data shows that gas is flowing again after nearly two weeks of pipeline maintenance. Russia and Ukraine have also signed an UN-backed agreement to resume grain exports in the Black Sea. 🌾

Despite the short-term improvements, structural issues and tensions in energy markets remain high, with Germany having to bail out energy giant Uniper for 15 billion euros this week. 💰

Russia’s interest rate policy remains volatile, with its central bank surprising investors with a larger-than-expected 150 bp cut as it fights a strong currency, cooling inflation, and a potential recession. The action marks the fifth rate cut this year after its emergency rate hike to 20% when it invaded Ukraine in February.

Additionally, the central bank said it would review deals by foreign banks to sell their Russian operations on a case-by-case basis. The rhetoric comes after it signaled that it would block future exit attempts as a way to retaliate against Western sanctions. ⛔

Lastly, Japanese inflation exceeded the Bank of Japan’s target for the third straight month. The central bank has taken the view that recent price hikes will be temporary, even though most of the country’s citizens are worried about higher living costs. We’ll have to wait and see whether its decision to retain an easy money policy while most countries hike rates will pay off or not. 👀

Earnings Recap

Verizon shares fell nearly 7% today after the telecom company missed earnings expectations and reduced its full-year earnings/revenue forecasts.

Twitter shares were flat after its earnings, revenue, and monetizable daily active users all missed expectations. The company blamed distractions from the Elon Musk acquisition and a challenging macroeconomic backdrop for the miss. For now, it appears most shareholders are making a bet that the acquisition will go through rather than a bet that the actual business is turning around.

American Express shares were green in a tough tape after beating earnings and revenue expectations. The company sees continued momentum across its customer base and business, raising its full-year EPS guidance to $9.25-$9.65 and revenue growth range to 23%-25%.

Cleveland-Cliffs shares dropped nearly 9% today after the company beat revenue estimates but missed on earnings.

Seagate Technology shares dove 8% after the company missed earnings and gave investors a weak Q1 outlook.

Schlumberger shares were up over 4% today after beating earnings and revenue estimates. 

NextEra Energy shares were up nearly 2% after its earnings beat estimates, though revenue lagged. 

Boston Beer’s shares rose over 6% today despite earnings and revenues missing analyst estimates.

HCA Healthcare shares closed up over 11% after being much higher intraday. The company beat earnings estimates and reiterated its full-year outlook, easing concerns that a nursing shortage would limit the U.S. hospital operator’s profits.

Tenet Healthcare also rose 6% after earnings and revenues came in above management’s estimates.

Keep track of all the upcoming releases with the Stocktwits’ earnings calendar! 📅

Bullets From The Day:

🤝 The Singapore Exchange and New York Stock Exchange are partnering. The partnership will permit the dual listing of companies, allowing investors to tap overseas investment opportunities. They will also explore the development of exchange-traded fund (ETF) products and environmental-social-corporate governance (ESG) products/services. CNBC has more.

⚡ Volkswagen-backed company to develop wood-basted batteries for EVs. Northvolt will partner with Stora Enso, one of the largest private forest owners in the world, to source a material called Lignode, which it will use to create the anodes needed for electric vehicle batteries. Northvolt will design, develop production processes, and scale the technology, while Stora Enso will provide the lignin-based anode material, Lignode. More from CNBC.

💳 Buy now, pay later looks across industries for growth. As consumers become tapped-out on discretionary goods like electronics, appliances, and clothing, buy now, pay later firms must find growth elsewhere to justify their valuations. A major source of revenue they’re eying is the healthcare sector, where a third of patients surveyed say they did not get needed healthcare because of their inability to pay. That almost sounds like an entirely different problem in our society, but for now, these companies see it as an opportunity to provide a solution and grow. PYMNTS.com has more.

🌯 Chipotle invests in kitchen automation and plant-based startups. Chipotle’s $50 million venture fund, Cultivate Next, announced its investment in two startups this week. The first is Hyphen, which automates plate and bowl portioning, and the other is Meati, a mushroom-based meat alternative company. The investments come as Chipotle and other food-service businesses fight a tight labor market and increased demand for plant-based options in their stores. More from CNBC.

🤖 An AI platform that analyzes surgery videos lands a big backer. Video-based data, and the advances in computer vision that allow it to be captured, are becoming more and more valuable in sectors like health care. That’s why startup Theator uses its AI to analyze video captured during operations, hoping to identify best practices and locate critical moments when an operation may have taken a wrong turn. The company just closed its Series A funding round, raising $39.5 million at an undisclosed valuation and landing a strategic partner, Mayo Clinic. TechCrunch has more.