A look at the day ahead in the US and global markets by Mike Dolan
Global markets struggled to find a footing on Wednesday after Europe’s ASML wiped out the global chip sector late yesterday with surprisingly weak order prospects.
There was better news for bond markets: Yields fell due to a combination of falling oil prices and significant European disinflation, underscoring expectations of another rate cut from the European Central Bank on Thursday.
And that picture was repeated in Britain on Wednesday, where headline inflation fell much further below the Bank of England’s 2% target than markets had expected – raising bets on a BOE rate cut next month and pound fell to its lowest point in almost two months. months.
With European fixed income markets rallying again, US Treasury yields have also fallen nearly 4% and Federal Reserve futures have fully priced in a quarter-point US interest rate cut on November 7.
But much of the heat and price action took place in stocks.
While banks and pharmaceutical companies dominate Wednesday’s agenda, reverberations from ASML’s big miss sent Wall Street tumbling back from record highs on Tuesday, contributing to oil prices’ slump in energy stocks and putting the spotlight on Thursday’s update from the Taiwanese chip giant TSMC.
AI darling Nvidia saw its shares fall almost 5% from Monday’s new high, with a small recovery leading up to today’s bell.
However, ASML itself, the world’s largest chip equipment maker, lost another 4% in Europe on Wednesday, adding to Tuesday’s 16% loss – the steepest one-day decline in four years.
And in a bad week for European shares in general, the luxury sector remained under pressure as France’s LVMH fell 7% due to a drop in third-quarter sales, hit by declining customer confidence in China.
The struggling Chinese economy, US investment restrictions in the technology sector and a looming trade war between Beijing and Brussels bring all these stories together.
And despite the somewhat hectic Chinese stimulus measures in recent weeks to revive the stagnant economy, the initial surge in stock prices is quickly fading away. China’s mainland index and Hong Kong’s Hang Seng finished in the red again on Wednesday – both down more than 10% from post-stimulus highs.
Beijing will hold a press conference on Thursday to discuss promoting the “steady and healthy” development of the real estate sector, the State Council Information Office said, although that has not sparked much excitement in the market.
And indeed, China’s troubles, along with scaled back forecasts for global oil demand through 2025, are one of the reasons why crude oil prices have been falling so far.
Crude oil fell more than 4% on Tuesday to its lowest in almost two weeks on that weaker outlook and after a media report said Israel would not attack Iran’s nuclear and oil sites, easing fears of supply disruptions.
While U.S. oil prices tried to hold on to $70 a barrel on Wednesday, they continue to post year-over-year losses of nearly 20% and remain a powerful force pushing down overall annual inflation.
Back on Wall Street, the swing in the chip sector hindered better news from the banks.
Shares of Bank of America rose 0.5% after a third-quarter profit margin, while shares of Charles Schwab rose 6% after beating expectations.
However, Citigroup fell 5% after reporting mixed results, with net income falling and net interest income weaker than expected, while debt underwriting supported investment banking results.
Morgan Stanley and some of the small regional banks will have their turn on Wednesday.
Wall St futures are generally slightly higher ahead of the open.
Partly helped by the decline in sterling, the dollar index rose to its best level since early August.
As the US election campaign enters its final stages, betting markets see Republican Donald Trump as the slight favorite to return to the White House, despite polls showing a close race between him and Democratic rival Kamala Harris.
Trump defended his protectionist trade policies and other budget proposals in an interview with Bloomberg on Tuesday, rejecting suggestions that they could boost the federal debt.
And he appeared to distance himself from earlier comments that as president he should be able to control the Fed’s interest rate decisions.
“I think I have the right to say that I think you should go up or down a little bit,” Trump said, referring to setting interest rates. “I don’t think I should be allowed to order it, but I think I have the right to comment on whether or not interest rates should go up or down.”
However, how Trump plans to weaken the dollar remains a bit of a mystery, aside from his well-marked tariff plans.
Key developments that should give more direction to US markets later on Wednesday:
* US Corporate Earnings: Morgan Stanley, US Bancorp, Citizens Financial, Discover Financial, Equifax, Synchrony, Prologis, Abbott Laboratories, CSX, PPG, Kinder Morgan, Steel Dynamics, Crown Castle
* US import/export prices in September
* Christine Lagarde, President of the European Central Bank, speaks
(Editing by Bernadette Baum)