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Market update

Wall Street snaps gaining streak on earnings concerns, recession fears

microsoft

US stocks fell on a broad-based selloff as investors become cautious ahead of the major tech earnings as both Microsoft and Amazon are to cut jobs, sparking growth concerns. Banking stocks were also mostly lower due to deteriorated profit margins on a jump in credit loss provisions, warning of increased default risks.

On the economic front, the US Producer Price Index (PPI) for December printed at 6.2%, well below the consensus of 6.8%, also a sharp decline from 7.3% the prior month. The data further strengthened the odds of a slowdown pace on rate hikes by the Fed, sending the US bond yields sharply lower, though the Fed officials repeatedly reiterate to stay on a rate hike cycle for longer. The December retail sales slipped 1.1% from a month ago following a revised 1% decrease in November, suggesting consumption has been heavily weighted by macro headwinds, again raising recession concerns.

In Asia, the Bank of Japan kept its ultra-loss monetary policy, defying market expectations for more tightening measures. The decision caused a sharp decline in the JGB yields and buoyed Nikkei 225 by 2.5%. However, Asian markets are set to open lower following the selloff on Wall Street. ASX futures slipped 0.42%, Nikkei 225 futures were down 0.97% and Hang Seng Index futures fell 0.82%.

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  • Cyclical stocks led broad losses on the economic growth concerns, sending Dow down by more than 600 points. All 11 sectors in the S&P 500 were lower, with Consumer Staples and Utilities leading losses, down by 2.6% and 2.4%, respectively. The financial sector also underperformed, falling 1.8%. All the tech giants finished lower, with Microsoft down 1.9%, Tesla falling 2.1%, and Apple losing 0.53%.
  • Microsoft’s shares declined 1.9% after the software giant announced a layoff of 10,000 staff, accounting for about 5% of the workforce. The company has also said it would take a $1.2 billion charge in the fiscal second quarter, which may reduce 12 cents to its earnings per share. The result will be released on 3 Feb.  
  • US bond yields sharply declined amid the lower-than-expected PPI data, and BOJ’s insistence on an ultra-loss monetary policy.  Both the US 10-year and 2-year bond yields fell to their 6-month lows. The US dollar index, however, consolidated above 102, rising against most of the Asian currencies due to the BOJ’s decision.
  • The UK’s inflation stayed sticky, printing at 10.5% in December, though sliding down from 10.7% in November, which promote the BOE to stay in the rate hike cycle for longer, sending the British Pound higher against the USD to a one-month high.
  • The Japanese Yen rebounded after a steep pullback against the US dollar amid the BOJ’s dovish stance. USD/JPY spiked to an intraday high of 131.58 before falling back to 128.83 at Australia AEST 7:55 am, due to a sharp decline in the US bond yields.
  • Crude oil prices fell on the economic growth concerns as deteriorated economic data weakened the demand outlook, despite China’s reopening. 


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