Heightened Market Volatility Across Atlantic Ahead of PCE Index and Eurozone Inflation Updates

Alexander Garcia
30 May, 2024
Miami

Benchmark indexes turned lower amid heightened volatility in the bond market and a weak outlook from Salesforce and Kohl's. 

The S&P 500 index and the Nasdaq Composite turned lower as investors debated the future direction of monetary policy and an appropriate level of interest rate after the yield on 10-year Treasury notes continued to trend higher in volatile trading for the third day in a row. 

The yield on 10-year U.S. Treasury notes stayed above 4.5% after rising to 4.6% in the previous session, sparking a broad selloff in stocks that covered all major industry sectors. 

The rise in bond market yield poses a significant challenge as safer investments offer competitive returns of close to 5%, dampening demand for risky stocks. 

Retailers were in focus after positive earnings from Abercrombie & Fitch, Best Buy, Foot Locker, and Dollar General raised the prospect of earnings improvement in the second half. 

Kohl's said net income unexpectedly swung to a loss, and the department store chain operator sharply lowered its annual earnings outlook. 

Salesforce reported better-than-expected quarterly earnings but offered a cautious outlook for the current quarter, forcing a selloff in tech stocks. 

The first quarter U.S. economic growth estimate was revised lower to an annual pace of 1.3% from the previous estimate of 1.6%, according to a report released by the U.S. Commerce Department. 

The downward revision was due to the reduction in the consumption growth estimate to 2.0% from the preliminary estimate of 2.5%. 

The initial jobless claims increased by 3,000 to 219,000 in the week ending May 25, according to the weekly report from the U.S. Department of Labor. 

Continuing claims, which run one week behind, edged slightly higher to 1.799 million. 

Investors are looking forward to the release of personal consumption expenditure index data, along with the personal income and outlay report, on Friday. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index fell 05% to 5,241.59, and the Nasdaq Composite dropped 0.5% to 16,832.57.

The yield on 2-year Treasury notes edged lower to 4.95%, 10-year Treasury notes increased to 4.57%, and 30-year Treasury bonds edged higher to 4.71%.

WTI crude oil decreased $1.02 to $78.16 a barrel, and natural gas prices eased 6 cents to $2.59 a thermal unit.

Gold increased by $5.72 to $2,344.14 an ounce, and silver rose 87 cents to $31.36. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 104.77.

 

U.S. Stock Movers

Salesforce declined 17% to $224.60 after the customer management software developer reported slightly lower-than-expected revenue of $9.13 billion. 

The stock was also under pressure after the company's current sales guidance fell short of market expectations. 

Foot Locker surged 14.5% to $25.75 after the apparel and sneaker retailer reported better-than-expected adjusted first quarter earnings of 22 cents per share. 

The company's improved earnings suggest that the latest plan to reorganize is showing early signs of progress. 

Walt Disney increased 0.6% to $101.25 after activist investor Nelson Peltz sold his entire stake in the media company for a profit of $1 billion and abandoned his plan to change management. 

Peltz sold his $30 million stake at an average price of $120 per share after he lost the proxy battle to change company management. 

Kohl's Corp. declined 26.2% to $20.15 after the department store chain reported weaker-than-expected quarterly results and outlook. 

The retailer reported revenue of $3.18 billion, and net income swung to an unexpected loss of 4 cents per share. 

Best Buy soared 11.5% to $79.94 after the electronics retailer's earnings surpassed market expectations. 

American Eagle Outfitters plunged 9% to $21.85 after the apparel retailer reported weaker-than-expected sales in the first quarter. 

 

European Markets Halted a Two-day Slide In Bond and Stock Markets

European stock markets halted a two-day slide and paused a bond market selloff, and investors reviewed the latest updates on unemployment and inflation. 

Benchmark indexes in London, Paris, and Frankfurt rebounded slightly, and bond market selloffs paused as investors looked ahead to the release of inflation updates in the eurozone and in the U.S. on Friday. 

Spain's annual consumer inflation accelerated for the third month in a row in May to 3.6% from 3.3% in April, the National Statistics Institute, or INE, reported Thursday. 

 

Eurozone Jobless Rate Eased in April 

The unemployment rate in the eurozone eased to a record low of 6.4% in April from 6.5% in March 2024 and April 2023, the statistical agency Eurostat reported Thursday. 

The number of unemployed in the European Union eased to 13.15 million, including 11 million in the eurozone. 

The jobless count decreased by 103,000 in the European Union, including 100,000 in the Eurozone. 

The jobless rate among young workers remained high as businesses limited expenses. 

The unemployment rate in Germany held steady at 3.2%, in France it decreased to 7.3% from 7.4%, in Spain it was unchanged at 11.7%, and in Italy it decreased to 6.9% from 7.1% in the previous month, respectively. 

In April, 2.8 million young people under the age of 25 were unemployed in the European Union, including 2.3 million in the eurozone. 

The youth unemployment rate edged lower to 14.4% in the European Union, down from 14.7% in March, and 14.1% in the eurozone, down from 14.3% in the previous month.

 

Europe Indexes and Yields

The DAX index increased by 0.2% to 18,504.17; the CAC-40 index rose by 0.5% to 7,975.17; and the FTSE 100 index advanced by 0.6% to 8,235.14. 

The yield on 10-year German bonds edged down to 2.57%; French bonds inched higher to 3.15%; the UK gilts edged lower to 4.40%; and Italian bonds inched higher to 3.98%.

The euro edged higher to $1.081; the British pound inched higher to $1.272; and the U.S. dollar gained to 90.63 Swiss cents. 

Brent crude decreased $1.10 to $82.49 a barrel, and the Dutch TTF natural gas rose by €1.29 to €35.13 per MWh.

 

Europe Stock Movers

Telecom Italia SpA declined 5.7% to €0.23 despite the telecommunications company reporting an increase in revenue in the first quarter and reiterating its full-year outlook. 

Banco BPM SpA soared 2.8% to €6.61 after the company's chief executive officer, Giuseppe Castagna, said that there are no conditions for the merger with the rival Monte dei Paschi. 

Bayer AG increased 2.8% to €27.70 after the German pharmaceutical and life science company said its clinical-stage cell therapy to treat Parkinson's disease has received the U.S. FDA's Regenerative Medicine Advanced Therapy designation. 

BHP Group declined 0.9% to 2,333.0 pence after the company withdrew its £39 billion takeover offer for Anglo American. 

Anglo American edged up 0.1% to 2,481.0 pence. 

Auto Trader increased 12.1% to 819.20 pence after the UK-based online marketplace reported better-than-expected full-year results.

The company announced a dividend of 6.40 pence to shareholders on record on August 29 and payable on September 27. 

Vinci SA advanced 0.8% to €114.05 after the French construction company announced the receipt of a $159 million project from the Melbourne Airport in Australia. 

 

BoJ Policy Uncertainty Extends Nikkei Index 2-month Losses to 8% 

The yen's weakening,  the prospect of higher U.S. interest rates, and a lack of progress in Japanese corporate governance dragged lower market indexes in Japan. 

The Nikkei 225 and the Topix indexes dropped to one-month lows and extended losses to close to 8% from the peak in March. 

Surging global bond yields lifted the yield on a 10-year Japanese government bond to above 1.1%, a 13-year high. 

The yen declined and traded at 156.82 against the U.S. dollar and approached the record low against the euro on the worry that the wide rate differential with U.S. and Euro Area bonds is likely to persist well into 2026. 

The hawkish comments from U.S. Federal policymakers and tepid demand for the U.S. Treasury auctions this week also dampened market sentiment. 

Closer to home, investors are looking ahead to the release of the Tokyo area's inflation data on Friday, which also provides insights into nationwide price trends. 

 

Japan Stock Movers 

The Nikkei 225 stock average dropped 1.7% to 37,899.21, and the Topix index decreased 0.8% to 2,719.10. 

Tech stocks led the declines amid worries that higher interest rates would dampen future earnings streams. 

Tokyo Electron, Advantest, Lasertec, and Screen Holdings declined between 3% and 6%. 

Terumo Corp., the maker of medical devices and supplies, declined 2.8% to ¥2,620.0; Nissan Chemical dropped 4.9% to ¥4,309.0; and Fanuc Corp., the manufacturer of advanced automation products, declined 1.6% to ¥4,442.0. 

The four largest trading companies in Japan, Itochu, Marubeni, Sumitomo, and Mitsui, declined between 1.5% and 2.5% amid general market weakness. 

 

China Stocks Extend Selloff Amid Earnings Growth and Property Market Worries 

Stocks in Shanghai and Hong Kong remained under pressure for the third consecutive day due to lingering property market woes and a lack of effective policy responses. 

Market jitters were compounded after hawkish comments from U.S. policymakers raised the prospect of interest rates staying higher for longer and a possible rate cut that may not materialize in 2024. 

The yield on 10-year U.S. Treasury bonds rose above 4.5%, a troublesome level for the stock market, as rising bond yields attract more fund flows away from the riskier stock markets. 

The rise in U.S. bond yields dragged down market indexes in Tokyo and Seoul by 1% and in Mumbai and Sydney by 0.5%. 

Benchmark indexes in Hong Kong trimmed the five-week market gains to less than 12% from 20% after policymakers' drive to lift the embattled property market showed little progress. 

Shanghai and Guangzhou were the latest tier-one cities to relax curbs on buying properties and support loosened mortgage standards, but the lack of confidence in property developers kept buyers away. 

Moreover, job market uncertainty and elevated home prices have also dampened interest from first-time home buyers. 

On the economic front, investors are looking forward to the release of China's survey of the manufacturing industry, and most economists are anticipating the sector to expand for the third month in a row.

The manufacturing sector's health is closely watched by policymakers because the sector is one of the largest contributors to economic growth and critical for creating new jobs. 

 

China Stock Movers 

Market indexes in Shanghai and Hong Kong extended weekly losses to over 2.5% amid persistent worries about earnings growth and property market woes. 

The CSI 300 index decreased 0.5% to 3,594.81, and the Hang Seng index dropped 1.5% to 18,208.58. 

Longfor Group declined 3.9% to HK$12.68, China Resources Land dropped 3% to HK$29.15, and China Vanke fell 5.4% to HK$5.47. 

Electric vehicle markers generally traded down on the worry that additional U.S. sanctions imposed on Russia may negatively impact the export of automobiles. 

BYD rose 1.4% to HK$220.60, Li Auto dropped 2.7% to HK$77.75, and Xpeng declined 1.7% to HK$31.85. 

Banks traded down amid market volatility and speculation that the People's Bank of China may be forced to lower its 5-year loan prime rate amid property market woes and economic growth weakness. 

Bank of China dropped 2.2% to HK$3.70, ICBC declined 1.7% to HK$4.47, and China Construction Bank fell 2.1% to HK$5.57. 

Zijin Mining Group declined 5.7% to HK$17.02 after volatile gold and silver prices declined on the speculation that U.S. interest rates are likely to stay higher, supporting a higher dollar in international currency trading.