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Pre-Market Primer: Global Economic Weakness Weighs on Stocks


Markit's PMI data and FedEx's guidance both point to a worldwide economic slump with nowhere to hide.

MINYANVILLE ORIGINAL The signs of a global economic slowdown are everywhere today as US investors brace for the August jobs report.

Eurozone services and manufacturing contracted more than expected in August, according to Markit. The currency union's composite manufacturing and services PMI fell to 46.3. The initial estimate was for 47.2. A reading below 50 signals a contraction. German services PMI showed its sharpest drop since 2009, and further weakness was found in the French service sector.

"Some heart can be taken from the recent recovery in Ireland, which is providing hope to others that a return to growth is possible, and further evidence that the downturns in Italy and Spain may at least be easing," said Markit Senior Economist Rob Dobson. "The looming concern is the increasing signs of weakness coming out of Germany, the nation others were looking to as a pillar to prop up growth in the broader currency region. With its export engine in reverse gear and domestic demand faltering, this is looking less likely as the year progresses. If the core nations falter, the outlook for the periphery will surely worsen."

Eurozone retail sales in July slid 0.2% after rising just 0.1% in June. On a yearly basis, sales were down 1.7%. Markit found still more business stagnation in China and Japan.

A report due later this morning is projected to show that US non-farm productivity rose by 1.9% in the second quarter. Labor costs increased by 1.4%, according to economists' predictions.

Before the opening bell, US stock futures pointed to a day of declines. Futures on the Dow Jones Industrial Average (^DJI) dropped 0.22% to 13,021.00. S&P 500 (SPY) futures fell 0.28% to 1,402.00 and Nasdaq (^IXIC) futures fell 0.34% to 2,765.00.

Economic bellwether FedEx (FDX) issued a profit warning today. The company cut its earnings forecast for its fiscal first quarter, predicting further contraction of the global economy.

"Weakness in the global economy constrained revenue growth at FedEx Express more than expected in earlier guidance," the company said. Shares of FedEx fell 2.73% before the opening bell.

While share prices are down to all-time lows at less than half of the IPO price, Facebook (FB) announced yesterday that it will buy back $2 billion of shares, signaling to investors that the shares are priced too cheaply. Chief Executive Officer Mark Zuckerberg also declared that he will not be selling any of his own holdings of the stock for at least a year. Board member and early investor Peter Thiel divested himself of Facebook completely last month. Since the announcement of the buyback, Facebook's stock has risen 3.67%.

Nokia (NOK) will be unveiling its newest smartphone based on Microsoft's (MSFT) Windows 8. The Finish company might also expand its free music streaming service -- which is a competitor of Spotify and Pandora (P) -- into the United States.

(See also: SEC Says Retail Investors Are Clueless About Stocks.)

Twitter: @vincent_trivett
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No positions in stocks mentioned.
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