Wall Street fell for the second straight trading day as growth stocks continued to decline amid cautions around major earnings and the Fed’s policy guidance. Walmart's cut in profit outlook caused a selloff in retailers, with the e-commerce tech giant, Amazon's shares sinking 5%. This morning, both Alphabet and Microsoft’s earnings came short of analysts’ expectations as spikes in the US dollar hurt their revenue growth, along with the economic headwinds. However, both stocks were resilient in after-hours trading despite a miss on earnings expectations, suggesting that bets for a peak of the Fed’s hawkishness may outweigh earnings impact on the equity markets, which makes tomorrow’s FOMC meeting a pivot event for investors.
In Europe, a jump in natural gas’s price has sent both the Eurodollar and stocks lower after Russia’s Gazprom indicated to cut gas supply to 20% of its capacity. Wheat prices also spiked after a sharp decline last week due to Russia’s missile strike on the port of Odesa. After a 50-bps rate hike by the ECB last week, the intensified geopolitical tensions will certainly not offer any relief to the soaring inflation, indicating a deteriorating outlook for the region, with IMF downgrading the global GDP growth to 3.2% from 3.6% in April.
Elsewhere in Asia, Chines stocks jumped after the Chinese tech giant Alibaba announced applying for a primary listing in Hong Kong, indicating that the Chinese companies may be looking at ways to diversify sources of investment funds on the back of divergence monetary policy between China and the US. And the move could lead the way for those US-listed Chinese companies to emulate, which could cause delisting from the US markets on the ongoing regulatory issues.
AU and NZ day ahead
The S&P/ASX 200 is set to open lower following the second day’s drop in the US markets. However, today’s session may be resilient as the US equity futures ticked up ahead of the Fed decision. The Chinese market’s optimism may also shine a light on the local equities. The second quarter CPI data will be in focus for local investors. The Australian dollar is expected to continue its rebounding trend against the other major currencies amid a better economic backdrop.
The S&P/NZX 50 was up 0.2% in the first hour of trading, with Fletcher Building and Meridian Energy leading gains, both of which were up more than 1% at the open. The New Zealand dollar firmed against Eurodollar, and the British pound but softened against the US dollar, Japanese Yen, Australian dollar, and Canadian dollar.
Dow Jones Industrial Average fell 0.72%, the S&P 500 was down 1.16%, and Nasdaq declined 1.87%.
The growth sectors, including consumer discretionary, technology, and communication services all fell between 1-3%, while defensive stocks outperformed. Energy stocks also declined due to a drop in oil prices. The sector’s performances indicate that risk-off prevailed ahead of the major earnings reports and the Fed’s rate decision.
On the earnings front, both Microsoft and Alphabet missed the earnings expectations. A strong US dollar and softened advertising demands are the major issues that slowed down these tech giants’ growth. However, Microsoft has given a positive outlook on its Azure cloud business for the year ahead, which boosted sentiment in the tech shares. Both Microsoft and Alphabet were up 5% in after-hours trading.
The major companies’ performance overnight (27 July 2022)Source: CMC Markets NG
The European markets were under pressure due to the renewed gas supply threat by Russia. But a jump in the energy and utility stocks offset some of the losses. The Stoxx 50 (-0.8%), FTSE 100 (+0.00%), DAX (-0.86%), CAC 40 (-0.42%).
Crude oil prices pared early gains as the API data showed that crude inventories sharply declined by 4.0 million, much more than economists’ estimate of a fall of 1.9 million, highlighting softened demands amid recession fears.
WTI: US$94.98 per barrel (-1.78%), Brent: US$104.69 per barrel (-0.44%), Natural Gas: US$8.99 per MMBtu (+3.05%)
COMEX Gold futures: US$1,715.4 per ounce (-0.22%), COMEX Silver futures: US$18.52 per ounce (-1.05%), Copper futures: US$3.39 per ounce (+1.07%)
Wheat: US$804.75 per bushel (+4.51%), Soybean: US$1,530 per bushel (+3.87%), Corn: US$599.25 per bushel (+2.66%).
The US dollar strengthened on risk-off trades. The sharp fall in the Eurodollar has also buoyed the dollar’s strength. All the other major currencies weakened against the greenback.
The US bond yields steadied ahead of the FOMC meeting’s announcement tomorrow. But the EU bond yields were lower on the economic concerns, while the Australian bond yield fell slightly.
US 10-year: 2.803%, US 2-year: 3.059%.
Germany bund 10-year: 0.92%, UK gilt 10-year: 1.91%.
Australia 10-year: 3.31%, NZ 10-year: 3.57%.
Major cryptocurrencies fell further. The crypto markets are positively correlated with the tech shares, which indicates that a rebound in the US growth stocks may lift the digital coins if the Fed slows down rate hikes.
(See below prices at AEST 9:08 am according to Coinmarketcap.com)
Bitcoin: US$21,099 (-2.69%)
Ethereum: US$1,408 (-4.88%)