Global stocks experienced a downturn on Wednesday as the earnings season for major corporations gained momentum, with investors displaying a tepid response to the reported results thus far.
Germany’s DAX index dropped by 1.1% to 18,363.59, while the CAC 40 in Paris fell by 1.6% to 7,475.17. In London, the FTSE 100 declined by 0.5% to 8,126.38.
Shares of luxury conglomerate LVMH plunged 5% in early trading after the company announced quarterly sales on Tuesday that failed to meet market expectations.
Futures for the S&P 500 slipped by 0.8%, and those for the Dow Jones Industrial Average decreased by 0.5%.
In Asian markets, Japan’s benchmark Nikkei 225 fell by 1.1% to 39,154.85. The Japanese yen reached its highest level in weeks ahead of the Bank of Japan’s policy decision next week.
Earlier this month, the U.S. dollar was trading above 162 yen, but the Japanese currency has strengthened in recent days following intervention by officials to halt the yen’s decline. Expectations that the Bank of Japan (BOJ) might raise its near-zero interest rate, coupled with speculation that the Federal Reserve may cut rates, have bolstered the yen. This comes after a period where the yen weakened due to the widening gap between U.S. and Japanese interest rates.
A stronger yen negatively impacts the earnings of major exporters when converted back to yen, and it also makes Japanese products less competitive in international markets.
As of early Wednesday, the dollar was trading 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 affecting the manufacturing sector. However, the services sector experienced growth, which contributed to an overall increase in Japan’s private sector activity.
In other markets, Hong Kong’s Hang Seng Index fell by 0.9% to 17,311.05, primarily driven by a 1.5% decline in the Hang Seng Tech Index. The Shanghai Composite Index also saw a decrease, shedding 0.5% to close at 2,901.95.
Australia’s S&P/ASX 200 saw a slight dip of 0.1%, ending at 7,963.70, influenced by weaker growth in the services sector for July. Although manufacturing showed slight improvement, it remained in contractionary territory.
South Korea’s Kospi Index dropped 0.6% to 2,758.71, largely impacted by a 2.3% plunge in Samsung Electronics’ stock. This decline followed unsuccessful negotiations between the company and its largest workers’ union, which had declared an indefinite strike earlier in the month to demand higher wages and additional benefits.
In the U.S. markets on Tuesday, the S&P 500 slipped by 0.2%, while the Dow Jones Industrial Average edged down by 0.1%, and the Nasdaq Composite dipped by 0.1%. However, smaller stocks in the Russell 2000 Index continued their upward momentum, gaining 1% amid optimism over potential interest rate cuts.
Trading was mixed as numerous companies released their spring results, with major players Alphabet and Tesla reporting after the market closed. Expectations are elevated, with analysts predicting the strongest profit growth for S&P 500 companies since late 2021, according to FactSet.
Despite these high expectations, investors seemed unimpressed.
“The initial outlook on Big Tech earnings wasn’t inspiring,” commented Ipek Ozkardeskaya, an analyst at Swissquote Bank.
Tesla, the electric vehicle manufacturer, saw its second-quarter net income drop by 45% compared to the previous year, as global EV sales declined despite price reductions and low-interest financing. Tesla’s shares fell 7.8% in pre-market trading early Wednesday.
Alphabet Inc., the parent company of Google, reported another quarter of consistent growth, driven by an AI-driven transformation in its core search engine operations. However, YouTube’s advertising revenue fell short of expectations, leading to a 3.4% decline in the company’s shares during pre-market trading.
With inflation easing, there is widespread anticipation that the Federal Reserve will begin lowering its main interest rate in September. Such a move would provide some relief to both the economy and financial markets after the Fed maintained the federal funds rate at its highest level in over two decades.
In other market activities, U.S. benchmark crude oil rose by 60 cents to $77.56 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international benchmark, increased by 44 cents to $81.45 per barrel.
Meanwhile, the euro declined to $1.0835 from $1.0851.