Global Market Indexes Turned Lower with Fading U.S. Rate Cut Expectations

Alexander Garcia
24 Apr, 2024
Miami

Interest rate fears resurfaced after the latest durable goods orders confirmed resilient economic conditions. 

Benchmark indexes on Wall Street attempted to rebound in early trading, but weak sentiment quickly overshadowed trading in New York after investors digested the latest update of durable goods orders. 

Investors have been on the defensive for the last three weeks amid interest rate uncertainty and strong economic data. 

Investors have dialed down their interest rate cut expectations after recent data on nonfarm payrolls and factory orders, home construction, and retail sales indicated resilient economic conditions. 

Orders rose from the previous month, indicating that despite the multiple rate hikes, the U.S. economy is still strong, and higher rates are likely to stay for longer. 

With the steady flow of strong economic data, expectations of rate cuts are fading. 

The S&P 500 index and the Nasdaq Composite turned lower, yields on Treasury notes edged slightly higher, and crude oil prices struggled to stay above the flatline. 

Investors also reviewed another batch of mixed quarterly corporate results. 

Boeing reported a narrower-than-expected loss in the first quarter; Tesla said in a call with investors that second-quarter results are likely to be better than the first quarter; and Texas Instruments projected higher revenue in the second quarter. 

 

Durable Goods Orders Advance for the Second Consecutive Month 

The latest new orders for manufactured goods signaled a resilient economy and positive demand for capital and non-capital goods. 

Seasonally adjusted new orders for manufactured goods increased by 2.6% from the previous month in March, the U.S. Census Bureau reported Wednesday. 

The orders rose for the second month in a row after the revised 0.7% increase in February. 

Excluding defense, new orders rose 2.3%, and non-defense orders excluding aircraft, a measure of business spending, rose 0.2% after rising 0.4% in February. 

 

U.S. indexes and yields

The S&P 500 index increased 0.3% to 5,084.03, and the Nasdaq Composite advanced 0.7% to 15,816,82. 

The yield on 2-year Treasury notes edged lower to 4.95%, 10-year Treasury notes inched down to 4.63%, and 30-year Treasury bonds edged lower to 4.73%.

WTI crude oil decreased $0.66 to $82.80 a barrel, and natural gas prices decreased 9 cents to $1.71 a thermal unit.

Gold decreased by $1.22 to $2,324.74 an ounce, and silver fell 4 cents to $27.24. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 105.82.

 

U.S. Stock Movers

Tesla jumped 12.4% to $162.25 after the electric vehicle maker reported a decline in sales and earnings, but the company's outlook supported market expectations. 

Revenue in the first quarter declined 9% to $21.3 billion, net income dropped 55% to $1.13 billion from $2.51 billion, and diluted earnings per share fell to 34 cents from 73 cents a year ago. 

In a statement released to investors, Tesla said the volume growth rate in 2024 "may be notably lower than the growth rate achieved in 2023."

The company said it plans to launch "new vehicles, including more affordable models," manufactured on the same production lines without needing additional investment. 

The company aims to achieve a 50% increase in annual vehicle production before investing in new plants and equipment. 

Boeing Co. increased 3.3% to $174.60 after the aviation company reported a narrower-than-expected loss and a smaller-than-expected cash outflow in the first quarter. 

Revenue in the first quarter declined 8% to $16.5 billion, net loss shrank to $355 million from $425 million, and diluted loss per share eased to 56 cents from 69 cents a year ago. 

Visa Inc. rose 2.4% to $280.80 after the payment processor reported stronger-than-expected quarterly results. 

Texas Instruments jumped 6.7% to $176.69 after the advanced semiconductor company reported better-than-expected first-quarter revenue. 

Revenue declined 16% to $3.66 billion from $4.4 billion, net income fell 35% to $1.1 billion from $1.7 billion, and diluted earnings per share dropped to $1.20 from $1.85 a year ago. 

The company also estimated second-quarter revenue in the range of $3.65 billion to $3.95 billion and earnings per share between $1.05 and $1.25.

 

European Indexes Erase Gains Amid Mixed Earnings Reports 

Stocks in European financial markets bounced higher, but erased gains of the session as investors debated the future rate path and level as corporate results rolled in. 

Benchmark indexes in Frankfurt, Paris, and London closed lower, and bond yields advanced after comments from Bundesbank president Joachim Nagle. 

The European Central Bank may not follow up with a series of rate cuts after the June rate cut, Nagle said at an industry conference in Berlin. 

Investors are anticipating the ECB to lower its rate cut in June amid a weakening of inflation in the last ten months, but core inflation is still above the central bank's target rate of 2%. 

Investors also reviewed the latest update on German business morale index released by the Ifo Institute. 

The business confidence index increased to 89.4 in April from 87.8 in March and advanced to the highest level since May 2023. 

Business morale is still weak but recovering in the hopes that the European Central Bank will lower the interest rate in June. 

 

Europe Indexes and Yields

The DAX index decreased by 0.4% to 18,073.62; the CAC-40 index fell by 0.2% to 8,091.86; and the FTSE 100 index inched lower by 0.1% to a new intraday record high of 8,040.38. 

The yield on 10-year German bonds edged up to 2.54%; French bonds inched higher to 3.04%; the UK gilts edged higher to 4.30%; and Italian bonds inched higher to 3.88%.

The euro edged higher to $1.068; the British pound inched higher to $1.242; and the U.S. dollar edged higher to 91.42 Swiss cents.

Brent crude decreased $0.45 to $88.0 a barrel, and the Dutch TTF natural gas rose by €0.45 to €29.10 per MWh.

 

Europe Stock Movers

ASM International soared 9.9% to €584.40 after the water processing equipment maker reported better-than-expected first quarter results and raised its sales outlook for the second quarter. 

Volvo AB increased 0.4% to SEK 283.70, and the Swedish automaker reported first quarter revenue below market expectations but adjusted operating profit rose sharply. 

Svenska Handelsbanken AB dropped 9.5% to SEK 123.0 after the Swedish bank reported a decline in earnings in the first quarter. 

Net income declined to SEK 6.6 billion from SEK 6.81 billion a year ago, after expenses rose faster than income in the quarter. 

Net interest income advanced to SEK 11.59 billion from SEK 11.49 billion, and the bank's common equity Tier 1 ratio, a measure of the bank's financial strength, eased to 18.8% from 19.4% a year ago. 

Roche Holding AG decreased 2.8% to CHF 223.20 after the Swiss pharmaceutical company said first-quarter sales declined 6%. 

Evotec SE plunged 37% to €8.86 after the German biotech company reported full-year results and appointed a new chief executive. 

Revenue increased 4% to €781 million from €751.4 million a year ago. 

The company registered an operating loss of €47.5 million compared to a profit of €20.85 million a year ago. 

Excluding one-time items related to restructuring, adjusted operating earnings plunged 35% to €66 million from €101.5 million. 

The biotech company said business conditions are not likely to improve until the end of 2024, and a simplified business structure is expected to improve operating earnings by €40 million on an annual basis. 

Kering SA plunged 8% to €321.85 after the parent company of Gucci projected a 40% to 50% decline in operating profit in the first half. 

 

Tech Rally Lifts Japan Indexes 2% 

Indexes in Tokyo led the gainers in Asia with a rise of 2%, and markets in Seoul and Hong Kong jumped around 1.5%, tracking gains in overnight trading in New York. 

Benchmark indexes in Tokyo advanced for the third session in a row following a sharp rise in tech stocks in overnight trading in New York. 

In New York, stocks advanced for the second day in a row following positive earnings from General Motors, GE Aerospace, UPS, and PepsiCo. 

The Nikkei 225 Stock Average soared 2.3% to 38,425.64, and the Topix index jumped 1.7% to 2,710.69. 

In addition, investors are looking forward to the Bank of Japan's rate decisions on Friday amid persistent weakness in the Japanese yen. 

The Japanese yen traded at a new 34-year low against the U.S. dollar and hovered at 154.82 at 11:30 a.m. local Tokyo time. 

The Japanese yen has lost 50% of its value against the U.S. dollar since December 15, 2020. 

Tech stocks led the gainers in Tokyo, and Tokyo Electron, Advantest, Socionext, Disco Corp., and Lasertec advanced between 3% and 8%. 

Nidec Corp. plunged as much as 3% before recovering to a gain of 0.5% to ¥6,779.0 after the maker of small electric motors announced a surprise loss in its latest quarter. 

The company is battling intense price pressure as price competition heats up in the electric vehicle market in China. 

Asahi Kasei Corp. decreased 1% to ¥1,088.0, and the company said it plans to build a $1.3 billion battery component plant in Canada, according to Nikkei News. 

The company plans to invest about 200 billion yen, or about $1.3 billion, with a target to start production in 2027 and supply mainly Honda's electric vehicle plant in the nation. 

Asahi plans to make lithium-ion battery separators, a key component in electric vehicle batteries. 

 

Hang Seng Index Soar 1.7%, Weakness In IPOs Highlight Cautious Sentiment 

Stocks in Shanghai struggled to stay above the flatline, but market indexes in Hong Kong advanced for the second consecutive day. 

Market sentiment was cautiously optimistic in the hopes that Chinese companies are likely to meet or exceed lowered earnings expectations, supporting the advance indexes from the current depressed levels. 

The CSI 300 index decreased 0.01% to 3,505.81, and the Hang Seng Index rose 1.7% to 17,110.21. 

Stocks in Hong Kong soared following the rally in Asian markets after advances in New York for the second consecutive day. 

Positive earnings by General Motors, GE Aerospace, UPS, and PepsiCo supported the market gains in New York. 

Closer to home, Ping An Insurance gained 3.3% to HK$34.05 after the largest insurance company in China reported a smaller-than-expected decline in quarterly earnings. 

New Business Value, a measure of revenue and future profitability, was ahead of market expectations and rose 21% from a year ago. 

Hong Kong Exchanges & Clearings advanced HK$234.80 ahead of the company's release of earnings later this week. 

SenseTime Group soared 31% to HK$0.80 after the company released its latest version of the SenseNova generative AI model used for creative writing. 

Investor sentiment continues to be weak for the second day this week as new issues struggle to gain traction. 

Mobvoi, the speech recognition software developer, plunged 15% to HK$3.18 after the company listed its share on the Hong Kong Stock Exchange in an initial public offering. 

The company sold 84.6 million shares in an initial public offering and priced its shares at HK$3.80 per share, near the lower end of its filing range between HK$3.70 and HK$4.0. 

Sichuan Baicha Baidao, the operator of the tea store chain, extended its decline for the second consecutive day and fell 10% to HK$11.52 after the stock plunged 35% on the first day of trading on the Hong Kong Stock Exchange. 

On Tuesday, the tea store chain operator sold 174.4 million shares in an initial public offering and priced its shares at HK$17.50 per share. 

Elsewhere In Asia, market indexes gained following the advances in overnight trading in New York. 

Indexes in Tokyo led the gainers in Asia with a rise of 2%, and markets in Seoul and Hong Kong jumped around 1.5%, tracking gains in overnight trading in New York. 

In addition, investors are looking forward to the Bank of Japan's rate decisions on Friday amid persistent weakness in the Japanese yen. 

The Japanese yen traded at a new 34-year low against the U.S. dollar and hovered at 154.82 at 11:30 a.m. local Tokyo time. 

The Japanese yen has lost 50% of its value against the U.S. dollar since December 15, 2020.