US stocks are setting up for a mixed open on Monday, a sign of caution in the face of heavy selling taking place in China blended with a focus on the latest Federal Reserve policy meeting and company earnings reported this week.
Monday has seen the biggest drop on China’s Shanghai Composite since 2007. It can only be called a complete capitulation considering the unprecedented government support. Data showed China industrial profits fell 0.3% in June after a year-over-year gain of 0.6% last month. Although more government intervention is expected, the data shows there is some link between stock market performance and real company profits.
The stock market is like a volatile microcosm of the real economy; government intervention can give a short term boost but over the long haul it makes things a lot worse. Global investors are heavily exposed to China as a source of global economic growth. The stock market crash in China is spreading to other markets because the risk is Chinese state control will eventually send the economy to the same fortune.
The leak of Federal Reserve staff projections on Friday again had markets second-guessing themselves on the timing of the next Fed rate hike. The projections were more dovish than expected but still insinuated some form of tightening by year-end. Markets took the projections as a weak economic forecast and dropped for a fourth day running.
The monstrous return seen on Amazon (NASDAQ:AMZN) stock on Friday after its earnings report has raised excitement levels over two other internet tech favourites; Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) which both report this week.
Baidu, Canon, Norfolk Southern, Restaurant Brands and Eastman Chemical all report earnings on Monday.
Futures suggest the:
S&P 500 will open 1 point higher at 2,080 with the
Dow Jones expected to open 10 points lower at 17,558 and the
Nasdaq 100 3 points lower at 4,554.
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