Global stock markets experienced a downturn on Wednesday as the earnings reporting season commenced for major corporations.
Investors have shown a tepid response to the financial results released so far, reflecting a broader sense of apprehension in the markets.
European Markets Experience Notable Declines
In Europe, the major indices reported significant losses. Germany’s DAX fell by 1.1%, closing at 18,363.59, while the CAC 40 in Paris dropped 1.6% to 7,475.17. The FTSE 100 in London declined by 0.5%, ending the day at 8,126.38.
Among the companies facing setbacks, shares of luxury conglomerate LVMH plummeted by 5% in early trading following a quarterly sales report that failed to meet market expectations.
U.S. Futures and Asian Markets Show Weakness
The U.S. markets were not spared, with futures for the S&P 500 slipping 0.8% and those for the Dow Jones Industrial Average decreasing by 0.5%.
In Asia, Japan’s benchmark Nikkei 225 fell by 1.1% to 39,154.85. This decline coincided with the Japanese yen reaching its highest level in weeks, ahead of an anticipated Bank of Japan (BOJ) policy decision. The yen had been trading above 162 per dollar earlier in the month but strengthened in recent days due to intervention by Japanese officials aiming to curb its decline.
The BOJ is expected to consider raising its near-zero interest rate, a move that might prompt the Federal Reserve to lower U.S. rates, thus supporting the yen. A stronger yen typically harms major exporters’ earnings when repatriated and makes Japanese products less competitive internationally.
Early on Wednesday, the dollar traded at 154.84 yen, down from 155.59 yen late Tuesday. Additionally, a business survey released on Wednesday indicated that Japan’s factory activity contracted in July due to weak demand, although the services sector saw growth, driving overall activity in Japan’s private sector.
Hong Kong and China Markets Also Hit
Hong Kong’s Hang Seng Index lost 0.9% to close at 17,311.05, led by a 1.5% decline in the Hang Seng Tech Index. Similarly, the Shanghai Composite fell by 0.5% to 2,901.95. In Australia, the S&P/ASX 200 edged 0.1% lower to 7,963.70, with the services sector experiencing weaker growth in July. Although manufacturing improved slightly, it remained in contraction.
South Korea’s Kospi dropped 0.6% to 2,758.71, significantly impacted by a 2.3% decline in Samsung Electronics’ shares. This decline followed a breakdown in talks between Samsung and its largest workers’ union, which had initiated an indefinite strike to demand higher wages and better benefits.
U.S. Markets Reflect Mixed Sentiment
Tuesday saw a 0.1% decline in the Nasdaq composite, a 0.1% down in the Dow Jones Industrial Average, and a 0.2% decline in the S&P 500. However, smaller stocks in the Russell 2000 continued their upward trend, rising by 1% amid optimism over potential interest rate cuts.
This mixed trading occurred as numerous companies reported their spring results. Analysts expect strong profit growth for S&P 500 companies, the most significant since late 2021, according to FactSet. Despite this, investors appeared unimpressed with the initial earnings reports from major tech firms.
Swissquote Bank analyst Ipek Ozkardeskaya commented, “The first view on Big Tech earnings wasn’t inspiring.”
Corporate Earnings Under Scrutiny
Electric vehicle manufacturer Tesla reported a 45% decrease in second-quarter net income compared to the previous year, attributing the drop to a decline in global electric vehicle sales despite price cuts and low-interest financing. Tesla’s shares fell by 7.8% in pre-market trading on Wednesday.
Alphabet Inc., the parent company of Google, reported another quarter of steady growth driven by an AI-driven transformation of its search engine. However, its YouTube ad revenues did not meet expectations, leading to a 3.4% decline in its shares in pre-market trading.
Economic Outlook and Crude Oil Prices
With inflation slowing, there is a widespread expectation that the Federal Reserve may begin lowering its main interest rate in September. Such a move would provide relief for both the economy and financial markets, which have been strained by the highest federal funds rate in over two decades.
In commodities trading, U.S. benchmark crude oil gained 60 cents, reaching $77.56 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, rose by 44 cents to $81.45 per barrel. Meanwhile, the euro saw a slight decline, trading at $1.0835 from $1.0851.
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