US open: Stocks head south as rate cuts called into question
Wall Street stocks opened lower on Monday as the previous week's strong jobs data dampened expectations that the Federal Reserve would cut interest rates by 50 basis points when rate-setters in the US next met at the end of July.
As of 1530 BST, the Dow Jones Industrial Average was down 0.48% at 26,792.13, while the S&P 500 was 0.51% weaker at 2,975.76 and the Nasdaq Composite was trading 0.77% lower to 8,100.21.
The Dow Jones opened 124 points softer after stocks finished slightly lower on Friday following a stronger than expected jump in hiring in June, which called into question the speed - but not the likelihood - of interest rate cuts by the Federal Reserve over what remained of 2019.
Fed funds futures were left fully pricing-in a 25 basis point cut at the 30-31 July Federal Open Market Committee meeting, instead of even odds of a 50 point reduction just before the jobs report's release, a 100% chance of a further 25 point cut by December and roughly even odds of another 25 basis points being lopped-off.
With the outlook for rate cuts now a bit murkier, Morgan Stanley said it was "putting our money where our mouth is" and downgraded global equities to 'underweight' from 'equal-weight' on Monday.
"The most straightforward reason for the shift is simple — we project poor returns," said MS analyst Andrew Sheets and his team.
While Morgan Stanley said it was still expecting a rate cut, Sheets argued that history showed that when central banks cut because growth was weak, it was the weakness that mattered more for stocks in the long run.
"If you don't believe us, we have some European stocks from April 2015, shortly after the European Central Bank's first QE program was announced, that we'd like to sell you," he added.
Strategists at JP Morgan, on the other hand, were more upbeat, projecting a gain of roughly 15% for global stocks over the next 12 months, on the back of an anticipated rebound in earnings growth and because stocks had yet to hit a peak in valuation multiples.
On the geopolitical front, Trump warned Iran to "be careful" on Monday after it was revealed that the Middle East nation was set to enrich uranium at 20% purity level after having breached the limits established by the 2015 nuclear deal
Iran threatened in May to abandon some of its commitments under the deal, after the US unilaterally abandoned a year ago, if Europe failed to meet the 7 July deadline to relieve sanctions on various sectors of the Iranian economy imposed by Trump.
West Texas Intermediate was up 1.06% at $58.12 a barrel in early trade, while Brent Crude was fetching $64.89 - a 1.03% gain.
In terms of data, US consumer credit figures were set to be published at 2000 BST, while on the corporate front AMD shares were up 0.76% after an upbeat analyst call and Apple was down 2.34% out of the gate after Rosenblatt Securities analyst Jun Zhang said he expects the tech giant's shares to continue to fell as consumers hold out for next year's 5G-enabled iPhone.