Global Investors Stay Cautiously Optimistic About Rate Decisions and Big Tech Earnings

Alexander Garcia
29 Jul, 2024
Miami

Benchmark indexes on Wall Street lacked direction as investors prepared for key policy decisions from the Federal Reserve, labor market data, and earnings from leading tech companies. 

In Monday's trading, the S&P 500 index and the Nasdaq Composite struggled to rise above the flatline amid rate path uncertainties and anxieties about upcoming tech earnings. 

In the previous week, the S&P 500 index and the Nasdaq Composite extended losses to the second week in a row as investors rotated into smaller companies and cyclical sectors after Alphabet and Tesla reported weak quarterly results.

Apple, Amazon, Microsoft, Mastercard, Toyota, AMD, Starbucks, Chevron, and Exxon Mobil are scheduled to release their results this week. 

Last week, the S&P 500 index declined 0.8% and the tech-heavy Nasdaq Composite dropped 2.1% amid heightened volatility. 

This week, U.S. investors are looking forward to monetary policy decisions by the Federal Reserve. 

The central bank is likely to keep key lending rates steady for the eighth time in a row, and investors are looking for clues about the rate path and the Fed’s views on the economy.

The U.S. economy is expected to add 185,000 jobs in July, slower than 206,000 in June, while the jobless rate is expected at 4.1% and wage growth is expected at 0.3%.

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.5% to 5,483.05, the Nasdaq Composite added 0.6% to 17,473.29, and the Russell 2000 index fell 1.1% to 2,236.21.

The yield on 2-year Treasury notes edged lower to 4.39%, 10-year Treasury notes decreased to 4.17%, and 30-year Treasury bonds decreased to 4.42%.

WTI crude oil increased $1.61 to $75.55 a barrel, and natural gas prices edged up 3 cents to $2.04 a thermal unit.

Gold decreased by $7.86 to $2,378.65 an ounce, and silver declined by $0.25 to $27.68. 

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 104.65.

 

U.S. Stock Movers 

McDonald's Corp. jumped 3.7% to $261.28 despite the fast food company reporting weaker-than-expected revenue and earnings in the second quarter. 

Consolidated revenue in the second quarter was stable at $6.5 billion, net income declined 12% to $2.0 billion from $2.3 billion, and earnings per share dropped to $2.80 from $3.15 a year ago. 

Global comparable sales declined 1.0%, driven by a 0.7% decrease at U.S. stores, and international location segments declined 1.1%. 

 

Mixed Trading In Europe Amid Rising Tensions in the Middle East 

European markets advanced in Monday's trading as investors looked ahead to monetary policy decisions from major central banks this week. 

However, market enthusiasm was tempered amid rising tensions in the Middle East and an escalation of the war of words between Turkey and Israel. 

Israel has been under pressure from the U.S. and other leading nations in the Muslim world for not allowing the passage of humanitarian aid to Gaza and for stepping up illegal land acquisition. 

Turkey's President Recep Tayyip Erdogan is also under domestic pressure to show solidarity with Gaza, amid frequent military invasions by the Israeli army. 

Amid a busy week of earnings, investors are looking forward to quarterly results from at least 1,500 companies in the U.S. and Europe, including Amazon, Apple, Microsoft, Exxon Mobil, and P&G. 

In Europe, the eurozone, Germany, France, Spain, and Italy are set to release their GDP and inflation reports.

Euro Area inflation is expected to ease to 2.3%, but inflation in Germany is likely to hold at 2.2%.

Moreover, the Bank of England is likely to hold its key lending rates, amid rising speculation that policymakers may cut rates for the first time in four years.

In China, investors are looking ahead to the release of the business activities survey in July, which will provide the first economic signals into the third quarter. 

Luxury stocks in Paris, Milan, London, and Frankfurt may turn volatile as China struggles to revive flailing consumer confidence amid a protracted property market bubble. 

 

Europe Indexes and Yields

The DAX index decreased by 0.5% to 18,320.67; the CAC-40 index fell by 1.0% to 7,443.84; and the FTSE 100 index advanced by 0.01% to 8,292.35.

In the previous week, the DAX index gained 0.7%, the CAC 40 index fell 1.2%, and the FTSE 100 index advanced 1.4%. 

The yield on 10-year German bonds edged higher to 2.34%, French bonds inched higher to 3.04%, the UK gilts inched higher to 4.02%, and Italian bonds increased to 3.68%.

The euro edged lower to $1.08; the British pound inched lower to $1.282; and the U.S. dollar weakened to 88.50 Swiss cents.

Brent crude decreased $1.61 to $79.50 a barrel, and the Dutch TTF natural gas fell by €1.55 to €33.90 per MWh.

 

Europe Stock Movers

ThyssenKrupp declined 1.7% to €3.51, and the German steel company lowered its 2024 outlook. 

Heineken declined 8.6% to €82.92 after the brewer reported lower-than-expected results in the first half of 2024. 

Reckitt Benckiser dropped 9.5% to 4,070.0 pence amid potential litigation worries after a U.S. jury found Abbott Laboratories' infant formula had caused a girl to develop a dangerous bowel disease. 

China-linked luxury stocks traded down ahead of the release of the factory activities update later in the week. 

LVMH declined 1.3% to €654.40, Kering fell 0.2% to €283.55, and Hermes International declined 2.4% to €2,025.0. 

Stabilus SE jumped 5.4% to €44.65 after the French industrial control solution provider reiterated its 2024 outlook. 

Net income in the fiscal third quarter increased to €24.3 million from €21.7 million a year ago. 

Merck KGaA jumped 4% to €165.80 after the pharmaceutical company raised its annual outlook. 

Energy stocks advanced after crude oil prices rose amid rising tensions in the Middle East. 

Israel stepped up its acquisition of land in the occupied territories, and Turkish Prime Minister Recep Tayyip Erdogan said Turkey could intervene in Israel's war on Gaza and help Palestinians. 

 

Nikkei In Tokyo Soared 2%Tracking Gains On Wall Street 

Benchmark indexes in Tokyo soared in a busy week of central bank decisions, and tech stocks led the gainers. 

The Nikkei and Topix indexes advanced more than 2% in tracking gains in Friday's trading on Wall Street after an alternative measure of inflation slowed in the U.S.

The decline in inflation strengthened the bets that the Federal Reserve is likely to initiate its rate-cutting program as early as September. 

The U.S. Federal Reserve Bank is expected to hold its key lending rates steady for the eighth time in a row at the end of the meeting on Wednesday. 

Investors were cautious ahead of the Bank of Japan's monetary policy decisions on Thursday, and traders are anticipating that the central bank will increase its short-term lending rate by 10 basis points to 0.1%. 

The Bank of Japan is expected to announce a tapering of its government bond purchase program from six trillion yen a month to as low as three trillion yen. 

The yen continued its rebound and traded at 153.69 against the U.S. dollar ahead of the Bank of Japan's decisions. 

Investors are worried that the yen could weaken to 165 against the yen if the central bank fails to lift rates and announce measures to support the yen, which could stoke retail inflation. 

 

Japan Stock Movers 

The Nikkei 225 stock average soared 2.1% to 38,468.63, and the Topix index advanced 2.2% to 2,759.67. 

Tech stocks surged sharply in Monday's trading, and Tokyo Electron, Advantest, Shin-Etsu Chemical, and Disco Corp. jumped between 8% and 2.5%. 

Furukawa Electric jumped 6.2% to ¥3,954.0, gained 6% to ¥2,977.0, and Resonac Holdings advanced 6.1% to ¥3,687.0. 

Hitachi Construction Machinery plunged 9.5% to ¥3,764.0 after the company reported weaker-than-expected earnings in the June quarter. 

Eisai Co. Ltd. dropped 12.2% to ¥5,768.0 after the European Union's drug regulator rejected the company's early Alzheimer treatment. 

The regulator said that the drug's positive impact on slowing cognitive decline was outweighed by swelling in the brain. 

The EU's rejection, a surprise to investors who had factored in the drug's approval, could also impact the drug's sales in the U.S. and in Japan. 

 

Hong Kong Indexes Surged 2% After Industrial Profits Rebounded

Benchmark indexes in Hong Kong advanced after the total profit of industrial enterprises rose in the first half of this year. 

The Hang Seng indexes jumped as much as 2%, but the CSI 300 index declined as two indexes diverged in Monday's trading. 

Total profits of industrial companies in the first half rose 3.5% from a 0.1% increase in the first five months to May a year ago, the National Bureau of Statistics reported Saturday. 

Investors are also looking forward to an announcement after the Politburo meeting in Beijing, which is likely to offer more policy support to meet the annual growth target rate of 5%. 

Last week, the People's Bank of China lowered its policy rate for ultra-long-term bonds and announced its plan to purchase 300 billion yuan, or about $41 billion, of bonds. 

Despite the market surge in Monday's trading, mood was subdued in Shanghai and Shenzhen trading on the worries ahead of the start of the earnings season this week. 

Market sentiment was also cautious ahead of monetary policy announcements from major central banks in the U.S., the UK, and Japan. 

The U.S. Federal Reserve is expected to keep interest rates steady for the eighth time in a row, and policymakers may provide clarity on the timing and amount of rate cuts later in the year. 

Most market participants are anticipating the Fed to lower rates by 25 basis points as early as September. 

 

China Stock Movers

The Hang Seng index increased 2% to 17,352.37, and the CSI 300 index decreased 0.4% to 3,397.37. 

Tech stocks led the gainers in Monday's trading, and Alibaba Group advanced 5.4% to HK $77.05, Tencent Holdings increased 1.8% to HK $360.40, and Baidu gained 1.7% to HK $87.0. 

Financial services stocks advanced after banks and insurance stocks participated in the market rally. 

China Merchants Bank added 1.4% to HK $32.40, Industrial and Commercial Bank advanced 2.1% to HK $4.40, HSBC gained 1.3% to HK $67.10, and AIA Group jumped 1.9% to $52.70.