US indices struggle amid recession fears; Micron says sales may come down

Chipmaker Micron Tech says sales likely to come down; inflation data today

Stocks retreated as a downbeat outlook from another giant chipmaker added to recession fears, with traders awaiting Wednesday’s inflation report to gauge the path of Federal Reserve (Fed) tightening. 

The S&P 500 dropped for a fourth consecutive session, while the Nasdaq 100 underperformed after Micron Technology Inc, the largest US maker of memory semiconductors, said sales may come in at the low end of or below its previous guidance. Treasury yields climbed, while the dollar fell.

Focus is turning to the question of whether US consumer-price index may have peaked in June after a blowout jobs reading eased worries about a recession, while corporate performance remained generally strong. 

The rebound in US stocks has turned fragile, with stronger-than-expected economic data dulling optimism that the Fed would moderate the pace of rate hikes. Still, many are drawing confidence from corporate earnings for S&P 500 companies that have beat or met expectations in 81% of cases.

“Until inflation abates and the Federal Reserve rebalances its priorities away from inflation and toward growth, tempting rallies are likely to remain unsustainable,” Seema Shah, chief strategist at Principal Global Investors, wrote in a note to clients.

Elsewhere, oil reversed an earlier decline as Russian shipments via the southern leg of a major pipeline to Europe were suspended.

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Meanwhile, the broader Euro STOXX 600 fell 0.3%, after logging its best session in nearly two weeks on Monday, with German stocks down 0.4%. Miners and autos, among top gainers a day earlier, led declines on Tuesday.  "The focus is on tomorrow's U.S. inflation numbers and whether or not they are likely to show any indication of a softening of inflationary pressures," said Michael Hewson, chief market analyst at CMC Markets. 

"Are we near the peak, and will tomorrow's CPI numbers reflect that?" 

The MSCI world equity index, which tracks shares in 47 countries, fell 0.1%.  Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan was flat, after giving up modest gains. Japan's Nikkei slid 0.95%, hit by weak quarterly earnings by heavyweights and lowered expectations for the video game market. 

Inflation expectations 

There were some encouraging signs for the Fed on the prices front, with a New York Fed survey on Monday showing consumers' inflation expectations fell sharply in July. 

"That'll be music to the Fed’s ears, since if that trend continues then it means that the Fed may not have to be so aggressive in hiking rates," Deutsche Bank analysts wrote. 

"One of their big fears is that higher inflation expectations will lead to a self-fulfilling prophecy of higher actual inflation." 

Inflation was on the minds of policymakers too. Soaring prices across the globe are likely to be top of the agenda at the Jackson Hole central banking symposium later this month. 

The Bank of England will probably have to raise interest rates further from their current 14-year high to tackle inflation pressures that are gaining a foothold in Britain's economy, BoE Deputy Governor Dave Ramsden said. 

Sterling held at $1.2084. It is down more than 10% this year versus the greenback. 

Oil prices continued their recent retreat after suffering their biggest weekly drop since April 2020 on worries about stalling global demand as central banks keep tightening. During the day, US crude was down $1 a barrel, or 0.7%, at $90.07 a barrel. Brent crude fell 0.8% to $95.91 per barrel.