Tech giants call time on stocks party
A GLOBAL stock rally, powered by hopes of central banks ending aggressive rate rises, ran into roadblocks on Friday (Feb 3), following weak earnings from US tech giants.
The MSCI World Stock Index slipped 0.1 per cent, but was still near its highest since August, following a sharp rebound in recent weeks on hopes that the phase of rate hikes could be nearing its end.
Wall Street stock futures fell, with contracts on the tech-heavy Nasdaq 100 down 1.5 per cent, on disappointing earnings from Google, Apple and Amazon. S&P 500 futures slid 0.8 per cent.
Investors are also watching the fallout from this week’s plunge in shares of India’s Adani group, which continued to nosedive on Friday, with market losses amounting to US$115 billion in the wake of a US short-seller’s report.
In Europe, the Stoxx 600’s share benchmark fell 0.4 per cent. Germany’s benchmark 10-year bond yield inched almost eight basis points (bp) higher to 2.14 per cent, having dropped on Thursday by the most since 2011, as prices shot higher.
This week, the US Federal Reserve, the European Central bank and the Bank of England all increased benchmark borrowing costs, and warned of more hikes to come.
Markets initially shrugged off the hawkishness, however, and clung to a statement by Fed chair Jay Powell on Wednesday that the US was in the early stages of “disinflation”.
The mood turned much more cautious on Thursday, however, as US tech shares took a beating in after-hours trading.
Apple projected another revenue decline in the start of the year, Amazon warned that its operating profit could fall to zero in the current quarter, and Google parent Alphabet missed fourth-quarter profit and revenue expectations.
The US labour market affirmed its strength in January, producing another hefty round of hiring, with employers adding another 517,000 jobs. The keenly watched US non-farm payrolls is crucial in supporting the recent stock rally.
“If we are seeing an easing of net job creation, that would allow the Fed to just do one more rate hike of 25 basis points, and that would be the end of the cycle,” said Willem Sels, global chief investment officer at HSBC’s private bank ahead of the labour report. “We will see headwinds from further earnings downgrades, but we have incorporated quite a lot (of this) already, so I think markets can hold here if we are indeed right on the Fed.”
Futures markets favour another 25-bp hike from the Fed in March, and imply that might be the end of the tightening cycle. They have also priced in two rate cuts by the end of this year, a scenario Powell dismissed.
In currency markets, the euro traded at US$1.0934, pulling further away from Thursday’s 10-month top of US$1.1033.
Sterling rose 0.3 per cent to US$1.2238, supported by an upward revision to services activity data, after tumbling 1.2 per cent in the previous session.
An index measuring the US dollar against major currencies stood at 101.56, just away from its nine-month low of 100.80.
Treasury yields held largely steady. The 10-year was flat at around 3.39 per cent, while the two-year, which follows traders’ expectations of higher Fed fund rates, was also flat at around 4.08 per cent.
Brent crude futures meanwhile reversed earlier gains, and dipped 0.2 per cent to US$81.98 per barrel, while US West Texas Intermediate crude was also down 0.2 per cent at US$75.73. REUTERS
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