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If you missed this last night it’s well worth a read. With earnings season here, any miss by one of the big boys could result in a large market slide. Fortunately, Tesla saved the day yesterday Evening, but things would have looked very different today if they released poor results. The TPP midweek commentary discusses this in more detail:
A slide in some of the biggest tech companies dragged down stocks, with traders also wading through a slew of corporate earnings. Bets on less aggressive Federal Reserve rate cuts continued to lift bond yields.
Equities extended losses into a third consecutive session, with Nvidia down over 2% to lead megacaps lower. Qualcomm Inc. got hit as Arm Holdings Plc cancelled a license that allowed the company to use Arm’s intellectual property to design chips. As Tesla gets ready to report its quarterly results, Wall Street will be watching for signs that slowing sales are close to a trough and keeping an eye on margins.
“Earnings season is heating up and we will soon hear from big tech companies,” said David Laut at Abound Financial. “This is the ‘show-me-the-money’ quarter, as investors are becoming impatient with AI spend that may or may not yield extra profits. Tech valuations are priced for perfection and any disappointment could spark a pullback.”
Traders also parsed the latest US economic data released before the Fed’s Beige Book. Sales of previously owned homes declined to an almost 14-year low in September as prospective buyers waited for a further decline in mortgage rates and more attractive asking prices.
The S&P 500 fell 1.4%, the Nasdaq 100 dropped 2% and the Dow Jones Industrial Average slipped 1.8%. Boeing Co. dropped after signalling the company’s woes will take time to fix. Texas Instruments Inc. rallied after saying customers are working through excess inventory and the timing is right for an order recovery.
The yield on 10-year Treasuries rose three basis points to 4.24% and the dollar gained. The Canadian dollar retreated after the Bank of Canada stepped up the pace of easing. The yen hit the lowest in almost three months, reviving concern that Japan may act to support the currency.
“In the US, it is about the election and potential sweep,” Brenner said. “That is what is being built into the rate structure, which is giving the vigilantes the green light. It will reverse, but it might take a severe employment number or a surprise in the election. But it won’t be today.”
Bank of America Corp. Chief Executive Officer Brian Moynihan has urged Fed policymakers to be measured in the magnitude of interest-rate reductions.
“They were late to the game” in lifting borrowing costs in 2022, Moynihan said in an interview with Bloomberg TV in Sydney on Wednesday on his first trip to Australia. “They have got to make sure they don’t go too hard now” with cuts.
As the US dollar strengthens further against its key trading partners, UBS’s Chief Investment Office maintains its “unattractive view” on the greenback.
“Investors should consider the potential impact of a depreciating US dollar on their portfolios, and look to hedge dollar assets, switch USD cash and fixed income exposure into other currencies, and reduce exposure through options,” said Solita Marcelli at UBS Global Wealth Management.
In US equity markets AT&T gained more mobile subscribers in the third quarter than analysts expected, continuing the winning streak from the previous period.
Hilton Worldwide Holdings Inc. lowered its profit outlook, as the addition of new hotels to its global system failed to offset slower travel demand.
Coca-Cola Co. dropped as investors weighed how much longer the soft drink purveyor could raise prices without getting customers to buy more of its beverages.
Starbucks Corp. pulled its guidance for 2025, calling attention to the scope of the problems facing new Chief Executive Officer Brian Niccol.
A severe E. coli outbreak likely tied to onions served on McDonald’s Corp.’s Quarter Pounders sickened dozens of people in the US, mainly in Colorado and Nebraska, and killed one, the US Centres for Disease Control and Prevention said.
Spirit Airlines Inc. jumped after the Wall Street Journal reported Frontier Group Holdings is exploring a renewed bid for the embattled carrier.
Deutsche Bank AG said it will have to set aside more money than expected for souring debt, the second time this year it had to adjust its guidance. Caution is reigning on financial markets amid growing expectations that borrowing costs might come down slower in the US, the world’s largest economy, while political uncertainty and the threat of conflict spreading in the Middle East is also keeping investors a little more wary.
Here in the UK the FTSE 100 opened flat but soon dropped as speculation continued to swirl about the tax changes coming in the UK Budget. Closing out in the red today would mark the longest losing streak for the FTSE in six weeks.
The UK’s growth forecast got an upgrade Tuesday as the International Monetary Fund handed some rare good news to Chancellor Rachel Reeves a week out from her first government-wide budget.
In its latest world economic outlook and financial stability report, the IMF revised Britain’s GDP growth to 1.1% this year, up from 0.7% in its July projection. The revised 2024 growth forecast puts the U.K. ahead of Germany, Italy and Japan, and equal with France.
“Growth is projected to have accelerated to 1.1 per cent in 2024 and is expected to continue doing so to 1.5 per cent in 2025 as falling inflation and interest rates stimulate domestic demand,” the IMF said in its report.
The IMF’s report echoes a forecast from the Organization for Economic Cooperation and Development, which in September revised Britain’s GDP growth for 2024 to 1.1%, up from 0.4% in its previous May projection.
However, the latest U.K. growth projections are still far below global output, which the IMF predicts will hold steady at 3.2%in 2024 and 2025.
The new IMF figures come a week after better-than-expected inflation figures for the U.K. The Office for National Statistics data put the U.K.’s rate of inflation at 1.7% on an annual basis to September, down from 2.2% the month before.
Both metrics are a boost to UK Chancellor Reeves who will unveil her first budget in just over a week on October 30th, and who has pledged to ensure the U.K. has the highest sustained growth in the G7 by the end of this parliament.
However, official UK public sector borrowing figures for September show the scale of the challenge facing the country’s new finance minister, who has accused the previous Conservative administration of leaving a “black hole” in UK tax-and-spend plans.
According to figures published Tuesday by the ONS, the government borrowed £16.6 billion last month. That’s the highest amount since the Covid-19 pandemic and above the Office for Budget Responsibility’s March forecast. Public sector pay rises and debt interest payments were the biggest drivers, the ONS said on Tuesday morning.
In UK equity markets, advertising giant WPP rallied after saying it returned to growth in the third quarter, as it reiterated its outlook for the year. Third-quarter like-for-like revenue less pass-through costs rose 0.5%, with reported revenue up 1.4% and LFL revenue up 4.1%.
Reckitt Benckiser was also in the black as the consumer goods giant’s third-quarter like-for-like net sales growth beat estimates.
Barratt Redrow advanced as it highlighted “more stable” market conditions, said the integration of the two businesses had begun “at pace” and that it expects to deliver cost synergies of at least £90m.
Lloyds gained as it reported a slight decline in statutory profits over the third quarter but still managed to beat consensus forecasts, as the banking group reiterated guidance for the full year. Statutory profit before tax totalled £1.82bn in the three months to 30 September, down 2% on last year but well ahead of the £1.6bn expected by analysts.
Hochschild shone as the precious metals miner maintained its full-year production guidance after reporting its strongest third quarter in nearly five years.
In broker note action, Ibstock was boosted by an upgrade to ‘buy’ from ‘hold’ at Jefferies, “given the current compelling demand-supply dynamic in the UK brick sector”.
Volution was knocked lower as Davy downgraded its stance on the shares to ‘neutral’ from ‘outperform’.
It said that while it’s “very positive” on the Fantech deal and the overall outlook for Fantech, the stock now looks up with events, having risen more than 75% in the past year and more than 35% in the year to date.
Looking ahead to tomorrow, there’s a plethora of corporate earnings expected with reports from names such as Barclays and full group results from Unilever, following on from that disappointment from its India entity today.
Other companies scheduled to release results include stock exchange operator LSE Group, miner Anglo American and media and events group RELX.
Homeware retailer Dunelm Group and building products supplier Travis Perkins also report, so we’ll get some further insights into two different areas connected to the housing market. And we’ll get numbers from Bloomsbury Publishing for colour on how Harry Potter and cookbooks are performing ahead of Christmas.
TPP exposure:
Right now, many of our strategies are remaining patient whilst waiting for an entry point to add some BUY exposure. With tech priced for perfection and the earnings season here, they might get their wish soon.
Stay tuned. It could be an interesting few days in the market.
