U.S. Averages Extend Losses to Third Consecutive Day, Germany Lowers Growth Outlook

Barry Adams
21 Feb, 2024
New York City

Market sentiment was negative for the third day running, and tech stock valuations were in focus ahead of Nvidia's quarterly results. 

The S&P 500 index declined 0.3% and the Nasdaq Composite dropped 0.8%, extending losses in the previous two sessions. 

Palo Alto Networks plunged more than 25% after the cyber-security company lowered its annual revenue outlook, and Teladoc fell 25% after the company reported weak quarterly revenue. 

Investors have turned cautious amid growing worries about a narrow market rally over the last nine weeks, as a few mega-cap tech stocks drive most of the market gains. 

On the earnings front, investors are looking ahead to quarterly results from Nvidia and Etsy after the market closes. 

HSBC said fourth-quarter earnings fell sharply after the UK-based and China-focused global bank took a $3 billion impairment charge linked to its investment in Shanghai-based BoCom. 

International Flavors & Fragrances declined 8.5% after the company reported its mixed quarterly results and lowered its dividend. 

Garmin rose 10.4% after the Swiss navigation company reported better-than-expected quarterly results, guided positive sales growth in the current quarter, and increased its quarterly dividend. 

 

U.S. indexes and yields

The S&P 500 index decreased 0.2% to 4,967.56, and the Nasdaq Composite fell 0.6% to 15,546.91. 

The yield on 2-year Treasury notes decreased to 4.58%, 10-year Treasury notes inched down to 4.25%, and 30-year Treasury bonds edged down to 4.44%.

WTI crude oil increased $0.68 to $77.72 a barrel, and natural gas prices increased 18 cents to $1.76 a thermal unit and rebounded from a low last seen in September 2020.

Gold increased by $1.18 to $2,024.12 an ounce, tracking lower yields on U.S. Treasury notes. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.02.

 

U.S. Stock Movers

HSBC declined 7.4% to $37.79 after the global bank said fourth-quarter earnings fell sharply and the bank announced a stock buyback program and an increase in its cash dividend. 

Palo Alto Networks dropped 23.8% to $279.01 after the cyber security company reported better-than-estimated fiscal second quarter revenue and earnings. 

However, the company lowered its revenue outlook in the fiscal third quarter to an increase between 13% and 15% and total billing growth between 2% and 4%. 

The company also lowered its full-year 2024 revenue outlook to between 15% and 16%, down from the previous estimate of between 18% and 19%. 

Diamondback Energy increased 0.8% to $179.50 after the energy company reported better-than-expected revenue and earnings in the fourth quarter. 

Caesars Entertainment decreased 0.1% to $41.60 after the hotel and resort operator reported weaker-than-expected revenue of $2.83 billion in the previous quarter. 

Solar Edge plunged 20% to $67.37 after the solar inverter maker reported weaker-than-expected revenue of $316 million, but losses narrowed in the fourth quarter. 

Walgreens Boots Alliance declined 2.9% after the company was replaced by Amazon in the Dow Jones Industrial Average effective Monday, February 26, according to index manager S&P Dow Jones Indices. 

 

European Market Indexes Traded In Tight Range

European markets traded mixed as investors awaited the release of the latest policy meeting minutes from the European Central Bank and the Federal Reserve. 

Benchmark indexes in Paris and Frankfurt advanced but eased in London. 

Banks were in focus after HSBC reported a less-than-expected increase in its annual earnings in 2023 and Fresenius Medical Care reported flat fiscal revenue. 

In overnight trading, benchmark indexes in the U.S. declined ahead of the release of the Federal Reserve's policy meeting minutes later today. 

Moreover, tech stocks were under pressure ahead of the release of quarterly earnings from Nvidia later in the day. 

 

Germany Lowers Growth Outlook 

German government lowered its 2023 economic growth estimate to 0.2% from the previous estimate of 1.3%, German Economy Minister Robert Habeck and Vice chancellor said Wednesday. 

Persistent weakness in global trade growth and growing uncertainties are weighing heavily on the overall growth of the third largest economy, minister Habeck said during an exchange with reporters. 

“We are coming out of the crisis more slowly than we had anticipated,” Habeck said in a statement released online. 

"We are seeing declines primarily in the construction industry, but there are also special factors, including the federal government having to prioritize its budget as a result of the Federal Constitutional Court's ruling last November,"  added Habeck.  

The economy is expected to rebound to only 1% in 2025. 

The German economy is facing multiple headwinds, including a shortage of skilled labor, a stifling bureaucracy, primitive digital infrastructure, and an aging population. 

 

UK Registers Budget Surplus In January 

The UK government registered a budget surplus in January, the largest on record for the month since record-keeping began in 1993, said the Office for National Statistics. 

Central government revenue increased £3.9 billion to £111.4 billion, while expenditure increased £1.6 billion to £102.6 billion.

The budget balance usually logs surpluses in January because of self-assessed tax receipts in the month. 

Public sector net borrowing, excluding public sector banks, swung to a surplus of £16.7 billion in January, higher than the £9.2 billion surplus in the month a year ago. 

In the ten-month period of the current fiscal year, UK government borrowing was £96.6 billion, £3.1 billion less than in the corresponding period a year ago. 

UK public sector net debt at the end of January was provisionally estimated at 96.5% of gross domestic product. 

 

Europe Indexes and Yields

The DAX index increased by 0.3% to 17,112.29, the CAC-40 index rose 0.2% to 7,812.93, and the FTSE 100 index inched lower by 0.7% to 7,662.51.

The yield on 10-year German bonds edged up to 2.39%; French bonds inched higher to 2.87%; the UK gilts edged higher to 4.07%; and Italian bonds inched higher to 3.87%.

The euro edged higher to $1.08, the British pound inched higher to $1.261, and the U.S. dollar gained to 88.07 Swiss cents.

Brent crude increased $0.23 to $82.58 a barrel, and the Dutch TTF natural gas declined by €0.30 to €23.87 per MWh.

 

Europe Stock Movers

HSBC Holdings declined 7.6% to 594.40 pence, despite the UK-based and China-focused global bank reporting a sharp jump in profit and announcing a stock buyback program. 

The bank reported a 56% surge in its annual profit in 2023 to $22.43 billion from $14.83 billion, and income per share increased to $1.15 from 72 cents a year ago, respectively. 

Revenue in 2023 rose 30% to $66.1 billion, driven by a $5.4 billion increase in net interest income and a $10.0 billion increase in non-interest income. 

Net interest margin increased by 24 basis points to 1.66%, and expected credit losses and other impairment charges were $3.4 billion. 

The bank announced a new $2 billion stock repurchase plan and hiked its full-year dividend to 61 U.S. cents from 32 U.S. cents a year ago. 

Revenue in the fourth quarter declined 11% to $13 billion after the company reclassified its retail operation in France as "held of sale" and after-tax profit dropped by $4 billion to $0.2 billion. 

The bank took an impairment charge of $3.0 billion related to its associate Shanghai, China based BoCom. 

 

China Action and Japan's Export Rebound Dominates Asian Trading

In Asia, market indexes lacked direction, but benchmark indexes soared more than 2% in Shanghai and Hong Kong after bargain hunters snapped up tech and healthcare stocks. 

In overnight trading, tech stocks were under pressure in New York ahead of the release of Nvidia earnings. 

But markets in mainland China and Hong Kong soared after government-controlled funds stepped up buying to stabilize financial markets. 

The Nikkei 225 decreased 0.3% to 38,260.93, and the Topix index fell 0.2% to 2,626.49 following the weakness in tech stocks. 

A private survey conducted by Reuters Tankan showed a sharp decline in business confidence in February. 

The confidence indicator dropped to -1 from +6 in January, highlighting interest rate uncertainties and persistent weakness in the yen. 

The private survey is considered a leading indicator of the Bank of Japan's official survey. 

 

Japan Trade Gap Shrinks after Exports Rebounded 

Japan's exports surged 11.9% to 7,332.65 billion yen, the fastest increase in exports since November 2022, the Ministry of Finance reported Wednesday. 

Exports soared on the back of higher shipments of transportation equipment, passenger cars, and semiconductor and electrical machinery and equipment. 

The trade deficit narrowed to 1,758.3 billion yen from 3,506 billion yen after imports declined 9.6% to 9,090 billion yen from a year ago, respectively. 

 

China Intervention Lifts Shanghai and Hong Kong Indexes 

Benchmark indexes in Shanghai and Hong Kong advanced to multi-week highs following the largest cut in the 5-year loan prime rate of 25 basis points since the introduction of the rate in 2019. 

Moreover, mainland-controlled funds stepped up investing in stocks, as reflected in the rising assets of exchange-traded funds, indicating intervention by the government. 

The CSI 300 index increased 1.8% to 3,472.68, and the Hang Seng index soared 3% to 16,735.92. 

The Hang Seng index jumped to a seven-week high after property developers rose on speculation that the government is set to announce additional measures to facilitate property demand and ease the tax burden. 

Longfor Group, China Resources Land, China Vanke, Henderson Land, New World Development, Wharf REIC, and Sun Hung Kai Properties advanced between 4% and 6%. 

HSBC Holdings increased 1.6% to HK$63.30 after the bank reported a 56% surge in its annual profit in 2023 to $22.43 billion from $14.83 billion, and income per share increased to $1.15. 

The bank announced a new $2 billion stock repurchase plan and hiked its full-year dividend to 61 U.S. cents from 32 U.S. cents a year ago. 

 

India Stocks Inch Higher Amid Positive Sentiment

Stocks in Mumbai turned up in early trading, and bond yields decreased as investors reviewed the latest report from the Reserve Bank of India. 

The state-of-the-economy report released by the RBI highlighted favorable macroeconomic conditions but urged Indian private sector companies to take advantage of stable interest rates.

The report urged private companies to increase capital expenditure and take advantage of the central government's plan to reduce its borrowing in the current financial year. 

The report also stressed that net interest rate margins for banks are likely to shrink in the coming months as the recent interest rate hikes work through the financial system and force banks to increase deposit and certificate of deposit rates. 

But the report highlighted rising unsecured loans issued by banks to nonbank finance and credit card companies, despite the recent hike in risk capital weights by the central bank. 

The Sensex index decreased 434.30 points or 0.6% to 72,623.09, and the Nifty index fell 141.90 points or 0.6% to 22,055.05. 

The yield on the 10-year Indian government bonds decreased to 7.06%, and the Indian rupee strengthened to ₹82.88 against the U.S. dollar.

Devyani International increased 0.6% to ₹166.20, and Yum Restaurant India plans to sell a 4.4% stake in the company in a block deal with a floor price of 153.50 per share. 

Hindalco Industries gained 0.05% to ₹512.0, and the group company's U.S.-based subsidiary Novelis filed with the U.S. financial regulator to list its stock in New York.