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Early Morning Call: S&P 500 down 21% in H1; Nikkei down; Micron shares drop

Europe to open down after a negative end to June, same direction across APAC and Wall Street which saw S&P down 21% in H1 in worst performance since 1970; NDAQ down 30%; UKX down 5% in H1. MU falls 3¼% after fiscal Q3.

Indices outlook

US indices ended yesterday's session lower, embodying their performance since the start of the year.

The US 500 plunged 21% in the first half (H1) of 2022, its worst performance since 1970. The US Tech 100 ended this period down 30%, a drop not seen since 2002.

In the Asia-Pacific region, indices were mostly down. After trading higher for most of the session, the Australia 200 closed down 0.43%. The Japan 225 led losses, after the Bank of Japan's (BoJ) Tankan large manufacturers index fell to nine in the second quarter of 2022, from 14 in the previous three months. That is below expectations of 13 and its lowest level since March 2021. Additionally, May's unemployment rate unexpectedly rose to 2.6% from 2.5% the previous month.

Meanwhile in China, Caixin manufacturing PMI rose to 51.7 in June from 48.1 in the previous month, marking the first expansion in four months, and well above analysts' forecast of 50.1.

In Europe, indices started the third quarter the way the ended the second. The first half of the year has also been very difficult for European equities. STOXX Europe 600 fell 17%, recording its worst half since 2008. The FTSE 100, however, only lost just over 5% in the period.

Currencies

On the currency market, EUR/USD is heading for a weekly loss, after hitting a two-week low yesterday.

The currency pair could react to the release of the Eurozone consumer price index (CPI), expected to rise by 8.4% in June on a year-on-year basis.

On Wednesday, Germany CPI came in at 8.2% lower than the 8.8% expected, because of the German government's subsidies on train fares and lower fuel taxes. In France, CPI was in line with expectations at 6.5%.

At 3pm UK, ISM manufacturing PMI is forecast to remain in expansion in June but down from last month to 54.9.

Equities

Micron Technology Inc (All Sessions) shares fell in extended trading after the memory chip firm revealed a weaker-than-expected forecast.

Micron posted earnings of $2.59 per share, higher than the $2.46 anticipated, and revenue came in marginally lower than forecast at $8.64 billion.

But, the group said it expects adjusted revenue for the current quarter at $7.2 billion, plus or minus $400 million, saying that China's lockdown is causing a 30% drop in Micron's China revenue for the current quarter, and accounts for a 10% drop in total revenue. Analysts' outlook was an average of $9.05 billion. The company expects adjusted profit for the quarter of $1.63 per share, plus or minus 20 cents, compared with estimates of $2.57 per share.

The outlook for memory chip makers has worsened in recent months due to surging inflation, China's cooling economy, the Russia-Ukraine war., among others. Consumer spending on smartphones and personal computers has been hit, which has driven down chip prices and led to a build-up of inventories.

Micron said it will reduce spending on manufacturing of chips in fiscal year 2023, without providing any numbers.

Commodities

On the commodity market, oil prices are on track for a fourth straight week of declines.

Little came out of OPEC+ meeting yesterday. The organisation confirmed the 648,000 barrels per day (bpd) oil production increase for August. This decision is largely symbolic since most members hve been unable to raise their production in recent months, adding significantly less oil to the market than promised.

Last Friday, Baker Hughes total rig count increased by 13 to 753. As usual, this rise was mainly due to the increase in the number of oil rigs in operation, up to 594 from 584. The number of operating gas rigs increased by three to 159.

Industrial metals are also falling today. Like Oil - US Crude or Oil - Brent Crude, Copper is set for a fourth consecutive week of losses, now trading at levels not seen since February 2021.

And after recording its worst session since April yesterday, Zinc continues to fall, now at its lowest level since October 2021.

Spot Gold has fallen for a sixth consecutive day, now trading at a six-week low.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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