Aug 1 2024: On Thursday, major European stock markets experienced declines following a series of mixed corporate earnings reports in the U.S. and Europe. Meanwhile, the anticipation of potential policy easing in the United States contributed to a rally in global bond markets.
The Federal Reserve kept interest rates unchanged on Wednesday but indicated a possible rate cut in September. Traders speculated that the Bank of England might also lower rates later in the day, with a 60% chance of a quarter-point reduction.
European markets were mostly in the red, with the pan-European STOXX 600 falling 0.6%, and Germany’s DAX and France’s CAC 40 both down nearly 1.3%. The UK’s FTSE 100 dropped 0.3% ahead of the BoE’s interest rate decision at 1100 GMT.
“The fact that some major companies are lowering their guidance is a concerning sign and may explain the underperformance of European markets,” said Stephane Ekolo, equity strategist at TFS Derivatives.
“A disappointing set of results, slowing growth for industrials, a lack of demand from Chinese consumers, and a potential resurgence of inflation create a rather unpleasant mix.”
Nasdaq futures edged up 0.1% as shares of Facebook-parent Meta Platforms (NASDAQ
) surged 7% pre-market on strong earnings. On Wednesday, the Nasdaq gained 3% and the S&P 500 climbed 1.6%.
U.S. tech stocks have made a remarkable recovery following recent declines. AI leader Nvidia (NASDAQ
) soared 13% on Wednesday, adding approximately $330 billion in market value.
Tech giants Apple (NASDAQ
) and Amazon.com (NASDAQ
) are set to report their earnings later on Thursday. MSCI’s broadest index of Asia-Pacific shares outside Japan increased 0.4% after a relatively flat July. A regional MSCI IT index jumped 1.7%, and Taiwan’s shares surged 2%.
Japan’s Nikkei, however, dropped 2.5% as a sharp increase in the yen impacted the outlook for exporters.
The Japanese yen strengthened to 148.51 per dollar, its highest level since March 15, a day after the Bank of Japan raised interest rates for only the second time in 17 years and indicated further tightening. The yen was last up 0.3% at 149.54.
FED HINTS AT SEPTEMBER RATE CUT
Focus remained on the monetary policy outlook after Fed Chair Jerome Powell noted that policymakers had a “real discussion” about a rate cut at the July meeting. The central bank also indicated that the risks to employment were now comparable to those of rising prices.
As a result, markets, which had already anticipated a rate cut in September, now see a 10% chance of a 50 basis points reduction. For the entirety of 2024, they have priced in a total easing of 72 basis points.
“The statement was significant as it shifted from a tightening bias to a more neutral stance,” said Jan von Gerich, chief analyst at Nordea.
“It’s early days, but the lack of a continued rally suggests that markets might be pausing ahead of tomorrow’s payrolls report.”
Treasuries extended their gains from Wednesday, with the yield on 10-year Treasuries down 5 basis points to 4.0564%, having dropped 11 basis points the previous day to the lowest since March. Yields move inversely to prices.
After a 0.4% decline on Wednesday, the dollar index rebounded 0.3%, with the euro down 0.4% and the pound sterling lower by 0.5%.
In commodity markets, oil prices continued their rise following the killing of a Hamas leader in Iran, which heightened concerns of a broader Middle East conflict.
Brent crude futures rose 0.9% to $81.57 per barrel, while U.S. West Texas Intermediate crude futures increased 1% to $78.65 per barrel. Brent surged about 2.3%, and U.S. crude rose over 4% in the previous session.
Gold was down 0.5% at $2,435 an ounce.