Global stock markets faced volatility on Wednesday as concerns over the economic outlook deepened due to disappointing corporate earnings, with even tech giant Alphabet (NASDAQ: GOOGL) falling short of expectations. These setbacks have compounded the prevailing worries regarding persistently high interest rates.
Asian markets saw a brief respite as they rose from 11-month lows overnight. Investors reacted positively to China’s approval of a significant trillion-yuan sovereign bond issue, interpreting it as a sign of impending stimulus. In addition, the Australian dollar made substantial gains following unexpectedly high inflation figures, which raised expectations for future interest rate hikes.
In contrast, European equities encountered headwinds, with the STOXX 600 index dropping 0.5%. Shares of French payments company Worldline plummeted by nearly 50% as it revised down its payment targets, citing economic slowdown in key markets.
The financial sector faced a pivotal day for bank earnings, with Deutsche Bank being the outlier, experiencing a 7% surge in its shares amid an otherwise underwhelming performance.
The MSCI All-World index dipped by 0.1% on the day, marking its third consecutive monthly decline in October, down by 1.9%. This decline is largely attributed to the significant surge in U.S. Treasury yields.
U.S. Treasuries retained their ground following a recent rebound, especially after the 10-year yield breached 5% earlier in the week, with the benchmark yield stabilizing at 4.82%.
Mega-cap technology companies have been a standout success story for equity investors in 2023. However, Alphabet saw a notable 6.9% decline in pre-market trading due to another slowdown in its cloud business. In contrast, Microsoft (NASDAQ: MSFT) shares rose by more than 3%. Nasdaq 100 futures fell by 0.5%, and S&P e-mini futures dropped by 0.3%.
Chris Beauchamp, Chief Market Analyst at IG Group, pointed out, “Tech earnings had a mixed start, primarily due to concerns over cloud computing, a significant revenue driver for the sector. While stocks have shown some improvement in the past 24 hours, the market is now looking to Meta (NASDAQ: META) tonight and Amazon (NASDAQ: AMZN) tomorrow to provide positive news that may fuel a month-end rally.”
China’s top parliament approved a 1 trillion yuan ($137 billion) bond issue, with state media reporting that the funds would be directed towards rebuilding disaster zones and enhancing infrastructure. Steven Leung, Executive Director of Institutional Sales at broker UOB Kay Hian in Hong Kong, noted, “Government expenditure is expected to further stabilize the economy and strengthen growth in the fourth quarter.”
On a less optimistic note, China’s largest private property developer, Country Garden, was reported to have defaulted on a U.S. dollar bond for the first time, adding to market concerns.
In currency markets, the euro received some relief following an improvement in German business confidence, recovering from a dip caused by weaker-than-expected purchasing managers surveys. It was last seen trading steadily at $1.0594. Meanwhile, the yen remained stable at 149.88, and the Australian dollar hovered around two-week highs near $0.64.
In Australia, the annual pace of inflation slowed in the third quarter, but the Reserve Bank of Australia’s (RBA) preferred core measure increased by 1.2%, exceeding forecasts of 1.1%. Analysts at CBA suggested, “We consider the rise in underlying inflation over Q3 23 to be strong enough for the RBA to act on their hiking bias at the upcoming Board meeting.”
Brent crude futures declined by 0.4% to $87.70 a barrel, as Europe’s economy struggled, leading traders to scale back gains made following the Middle East conflict.
Internationally, efforts were underway to secure a pause in the fighting between Israel and Hamas to allow aid into the besieged Gaza Strip, with the United States and Russia among several nations advocating for this relief.
Spot gold, after reaching $1,997 an ounce last week, was trading at $1,969.
Bitcoin witnessed a 15% increase during the week, driven by speculation that ETF applications from BlackRock (NYSE: BLK) and other institutions would gain approval, potentially directing more capital into cryptocurrencies. Bitcoin was last traded at $33,808. The U.S. Securities and Exchange Commission declined to comment on these speculations.
(1 USD = 7.3090 Chinese yuan)
