ISM & Jobless Claims, China Lockdown, NVIDIA Warning

© Reuters

By Geoffrey Smith

Fxgecko.com -- One of China's biggest cities goes into lockdown over a COVID-19 outbreak, dragging commodities and stocks down across the world. U.S. stocks are set for a fifth straight drop, ahead of the release of more data from the labor market and the ISM manufacturing survey. China's private-sector manufacturers fell back into contraction last month. NVIDIA added to chipmakers' litany of woes, and Broadcom reports earnings after the bell. Here's what you need to know in financial markets on Thursday, September 1.

1. China lockdown drags commodities, stocks lower

Beijing’s COVID Zero policy returned to haunt commodity markets again overnight, as the city of Chengdu – capital of Sichuan province and home to 21 million people – went into lockdown.

The news hit base metals prices particularly hard, with copper, Nickel and Aluminum all falling over 2%, while Zinc Futures fell over 6%. Mining stocks such as BHP (LON:BHPB) and Rio Tinto (LON:RIO) also fell sharply in London.

While Chengdu has nothing like the direct importance to world markets that Shanghai has, it’s nonetheless an important industrial center. Volvo Cars (ST:VOLCARb) said its plant there will shut down temporarily. Others are likely to follow.

2. U.S. jobless claims, ISM survey

The U.S. economic data flow continues thick and fast with Challenger’s August job cuts survey due at 07:30 ET, the release of weekly jobless claims at 08:30 ET, and finally the Institute of Supply Management’s purchasing managers index at 10:00 ET.

The data will be released into a market whose hopes for a quick end to the monetary policy tightening cycle have taken a succession of blows in the last week, Cleveland Fed President Loretta Mester’s comments on Wednesday being the latest. Mester poured cold water specifically on the thought of a first rate cut coming before 2024.

Challenger’s survey is likely to confirm an increase in the pace of lay-offs but recent jobless claims numbers – and the Labor Department’s JOLTS survey on Tuesday, have suggested that there are still plenty of other jobs around. Initial claims are expected to have ticked a little higher to 248,000.

The ISM PMI may be more interesting, in what it says about progress in overcoming supply chain bottlenecks. ADP’s payrolls report on Wednesday confirmed that net hiring in manufacturing has come to a standstill, however.

3. Stocks set to open lower, as hope for a Fed pivot fades

U.S. stock markets aren’t even trying their usual premarket bounce this morning, as the news from China deals another blow to sentiment about the economy without offering much in the way of lower inflation pressures to compensate.

By 06:20 ET, Dow Jones futures were down 161 points, or 0.5%, while S&P 500 futures were down 0.7%, and Nasdaq 100 futures were down 1.1%. The main cash indices have fallen for four straight days, losing between 0.6% and 0.9% on Wednesday.

Stocks likely to be in focus later include Bed Bath & Beyond (NASDAQ:BBBY), whose latest drastic cost-cutting measures did little to stop selling in the stock even in after-hours trading on Wednesday, and Walt Disney (NYSE:DIS), which the Wall Street Journal reported as planning a membership scheme akin to Amazon’s Prime service.

Hormel Foods (NYSE:HRL) and Campbell Soup (NYSE:CPB) report earnings early, while Lululemon (NASDAQ:LULU) is up after the closing bell.

4. NVIDIA warns of new hit to China sales; Broadcom earnings eyed

Semiconductors are also likely to be in focus after NVIDIA (NASDAQ:NVDA) warned of another hit to revenue from U.S. restrictions on sales of its artificial intelligence chips to China.

NVIDIA said it stands to lose $400 million in sales each quarter from a new requirement for it to get a license to export some of its products.

The news comes in the middle of a rough week for chipmakers: Korean chipmakers reported their first quarterly drop in shipments three years earlier, while inventories of unsold chips are up 80% on the year.

That all makes for an interesting backdrop to Broadcom's (NASDAQ:AVGO) quarterly report after the bell

5. Oil slumps on lockdown, Caixin PMI news

Crude oil prices also slumped to a two-week low on the bad news out of China, which wasn’t restricted to Chengdu. The Caixin manufacturing PMI, a gauge of private-sector manufacturing activity, fell back into contraction territory last month at a level of 49.5, worse than expected.

That’s outweighing any short-lived support from a surprising 3.3 million barrel drop in U.S. crude stocks last week.

By 06:30 ET, U.S. crude futures were down 2.3% at $87.52 a barrel, while Brent crude was down 2.4% at $93.39 a barrel.

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