Futures drop on China growth fears

Following Wednesday's sell-off after the Fed signaled a possible tapering later this year, the downbeat Chinese manufacturing data further weighed on markets.

By Benzinga Jun 20, 2013 8:40AM

zurbar age fotostockBy Matthew Kanterman


U.S. equity futures declined in early premarket trade following a weak initial reading of manufacturing in China. The HSBC flash manufacturing PMI for June declined to 48.3 from 49.2 in May, with every internal figure showing negative signs for the Chinese economy.


Markets were already weak after the Federal Reserve signaled Wednesday it could start tapering its bond buying later in the year if economic recovery remains at its current pace. The weak China data further weighed on markets.


In other news, the Chinese overnight lending market continued to see stress as the overnight SHIBOR rate rose to an average 12.5% from an average 7.87% Wednesday and the seven-day rate rose to an average 10.96% vs. an average 8.26% Wednesday. China now not only faces a slowing economic growth but a massive liquidity and cash-shortage crisis, which could lead to bank runs.


The eurozone manufacturing PMI slightly beat expectations this morning, rising to 48.7 from 48.3 on an expected reading of 48.6. Strength was seen in France, while Germany's PMI unexpectedly dropped to 48.7 vs. 49.4 previously on an expected rise to 49.8. Meanwhile, the services PMI was better than expected at 48.6 with both countries showing improvement.


British retail sales were stronger than expected in May, with retail sales rising 2.1% from the prior month vs. an expected gain of 0.8%. Core retail sales also grew 2.1%, again beating expectations.

  • S&P 500 futures dropped 9.3 points to 1,614.40.

  • The EUR/USD was lower at 1.3212.

  • Spanish 10-year government bond yields rose 16 basis points to 4.69% following a very weak bond auction.

  • Italian 10-year government bond yields rose 18 basis points to 4.43%.

  • Gold plummeted 4.54% to $1,311.60 per ounce.

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Asian markets

Asian shares sharply declined overnight, as markets played catch-up to the U.S. markets' post-Bernanke sell-off and continued lower on the weaker than expected China PMI data. The Japanese Nikkei 225 Index declined 1.74% while the Topix Index fell 1.33%. In Hong Kong, the Hang Seng Index fell 2.88% while the Shanghai Composite Index shed 2.76% in China. Also, the Korean Kospi fell 2.00% and Australian shares lost 2.12%.


European markets

European shares tracked Asian markets lower and continued to decline following the weaker than expected German manufacturing data. The Spanish Ibex Index fell 1.49% and the Italian FTSE MIB Index declined 1.15%. Meanwhile, the German DAX fell 1.82% and the French CAC 40 declined 1.88% while U.K. shares

shed 1.91%.


Commodities

Commodities were torched overnight as the Fed cut its growth forecasts and then as China's PMI was weak. WTI crude futures dropped 2.11% to $96.17 per barrel and Brent crude futures fell 1.9% to $104.10 per barrel. Copper futures dropped 2.03% to $308.75, approaching a new 52-week low. Gold was much lower and silver futures were absolutely pummeled, declining 6.3% to $20.26 per ounce.


Currencies

Currency markets showed broad dollar strength overnight as Bernanke's comments put confidence under the dollar. The EUR/USD was was lower at 1.3212 and the dollar gained against the yen by 1.66% to 98.05. Overall, the Dollar Index rose 0.58% on strength against the yen, the euro, the Canadian dollar, the Swiss franc and the pound. Also, the Australian dollar was broadly weak as a proxy for China, touching a new 3-year low against the U.S. dollar.


Earnings reported Wednesday

Key companies that reported earnings Wednesday include:

  • FedEx (FDX) reported fourth quarter earnings per share of $2.13 vs. $1.97 expected on revenue of $11.4 billion vs. $11.44 billion expected. However, guidance for FY2014 was slightly below forecasts.

  • Actuant (ATU) reported third quarter EPS of $0.62 vs. $0.66 expected on revenue of $344.21 million. Also, the company announced the divestiture of a business segment.

  • Finisar (FNSR) reported fourth quarter EPS of $0.20 vs. $0.17 expected on revenue of $243.4 million vs. $242.95 million expected.

  • Micron Technology (MU) reported third quarter EPS of $0.04 vs. $0.02 expected on revenue of $2.3 billion vs. $2.25 billion expected.

  • Red Hat (RHT) reported first quarter EPS of $0.32 vs. $0.31 expected on revenue of $363.0 million vs. $359.77 million expected.

Premarket movers

Stocks moving in the premarket included:

  • SandRidge Energy (SD) shares rose 4.33% as the company announced a new CEO.

  • Micron Technology (MU) shares declined 1.65% premarket despite the better earnings.

  • Finisar (FNSR) shares rose 8.95% premarket as the company reported better earnings and gave revenue guidance.

  • Red Hat (RHT) shares climbed 3.42% premarket after the company reported better first quarter results.

Earnings

Notable companies expected to report earnings Thursday include:

  • Oracle (ORCL) is expected to report fourth quarter EPS of $0.87 vs. $0.82 a year ago.

  • Pier 1 Imports (PIR) is expected to report first quarter EPS of $0.19 vs. $0.16 a year ago.

  • Kroger (KR) is expected to report first quarter EPS of $0.88 vs. $0.78 a year ago.

  • Rite Aid (RAD) is expected to report first quarter EPS of $0.09 vs. a loss of $0.03 per share a year ago.

Economics

On the economics calendar Thursday, initial jobless claims are due out followed by the Markit's flash U.S. manufacturing PMI, existing home sales, Philly Fed survey, and leading indicators. The Treasury is set to auction 30-year TIPS as well. Overnight, Bank of Japan Governor Kuroda speaks.


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