World Markets Hover Near Record Highs, ECB Cuts Rates and China Housing Stimulus Lacks Punch

Alexander Garcia
17 Oct, 2024
Miami

Tech rally on Wall Street powered a rise in broader indexes as investors reviewed latest economic updates. 

The S&P 500 index increased 0.4%, and the S&P 500 index edged up 0.6% as investors bid up tech stocks.

Chip stocks led the gainers after Taiwan Semiconductor reported strong third-quarter results and boosted its sales outlook for the current year. 

Taiwan Semi's quarterly results boosted other chip stocks, and Nvidia jumped 2.2%, AMD advanced 1.5%, and Broadcom gained 2.7%. 

Investors reacted positively to the latest updates on retail sales and weekly jobless claims. 

Retail and food services sales increased at an annual rate of 1.7% in September, but the pace of increase was the slowest in eight months, according to the U.S. Census Bureau. 

Sales are adjusted for seasonal factors but not adjusted for inflation. 

Preliminary retail and food services sales increased 0.4% from the previous month to $714.4 billion. 

Sales at food services and drinking places increased 1% from the previous month; miscellaneous stores advanced 4%, but declined 3.3% at electronic and appliance stores and fell 1.6% at gasoline stations. 

Sales at auto dealers were flat. 

However, sales excluding food services, auto dealers, building materials stores, and gasoline stations, which are used to calculate gross domestic product, jumped 0.7%. 

Weekly initial jobless claims declined 19,000 to 241,000 in the week ending October 12, the U.S. Department of Labor reported Thursday. 

The jobless claims eased from the previous week after disruptions from Hurricanes Milton and Helena spiked filings. 

Despite the decline in the last week, claims are still running higher than the average earlier in the year, highlighting softening labor market conditions since its post-pandemic peak. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.4% to 5,863.52, the Nasdaq Composite rose 0.6% to 18,473.97, and the Russell 2000 index fell 0.4% to 2,287.77. 

The yield on 2-year Treasury notes edged higher to 3.99%, 10-year Treasury notes inched up to 4.08%, and 30-year Treasury bonds inched higher to 4.36%.

WTI crude oil increased $0.21 to $70.71 a barrel, and natural gas prices edged up 2 cents to $2.38 a thermal unit.

Gold rose by $16.61 to $2,690.51 an ounce, and silver increased by $0.18 to $31.57.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 103.81.

 

U.S. Stock Movers

Taiwan Semiconductor Manufacturing Company increased 12% to $210.36 after the company reported sharply higher sales and earnings in the third quarter. 

Revenue increased 36% to $23.5 billion, and gross margin expanded to 57.8% from 54.3% a year ago. 

Net income in the quarter jumped to NT 325.08 billion, or $10.05 billion, from NT 210.8 billion a year ago. 

Gross margin for the quarter was 57.8%, operating margin was 47.5%, and net profit margin was 42.8%. 

In the third quarter, shipments of 3-nanometer accounted for 20% of total wafer revenue; 5-nanometer accounted for 32%; 7-nanometer accounted for 17%. 

Advanced technologies, defined as 7-nanometer and smaller chip technologies, accounted for 69% of total wafer revenue. 

The company guided fourth-quarter revenue to fall between $26.1 billion and $26.9 billion. 

Lucid Group dropped 14.9% to $2.80 after the electric vehicle company announced a stock offering to sell 262.5 million. 

The company also said its major stockholder, Ayar Third Investment, and an affiliate of the Saudi Arabia-controlled sovereign wealth fund have agreed to purchase 374.7 million shares in a concurrent private placement. 

 

European Markets Advanced After the ECB Lowered Rates Third Time In 2024 

European markets advanced as investors reacted rate decisions from the European Central Bank. 

Benchmark indexes in Paris, London, and Frankfurt rose between 0.5% and 1.2% as investors reviewed the latest update on the Euro Area inflation. 

Consumer price inflation was lowered to an annual rate of 1.7% in September from the previous estimate of 1.8% and fell from 2.2% in August. 

The annual core rate of inflation, which excludes prices of food and energy, eased to 2.7% from 2.8% in August, according to a report by the Eurozone statistical agency, Eurostat. 

As widely expected, the European Central Bank lowered its benchmark rates by 25 basis points, the second time in a row and the third time this year, as policymakers looked for ways to arrest the rapidly deteriorating economic conditions. 

The central bank lowered its deposit facility rate to 3.25%, main refinancing rate to 3.4%, and marginal lending facility rate to 3.65%. 

Crude oil prices continued to slide in international trading amid weakening demand growth expectations from China. 

China's housing minister announced several key measures to revive demand for new homes, but those measures fell short of market expectations. 

China plans to increase its "white list" of approved residential projects eligible for financing and increase lending to 4 trillion yen, or $562 billion. 

Local Chinese authorities in key metropolitan areas relaxed home purchase restrictions, lowered down payments, and provided additional incentives for first-time home buyers. 

Despite the raft of measures, property stocks sold off in Shanghai and Hong Kong on the worry that the proposed stimulus did not go far enough to revive consumer confidence. 

 

Europe Indexes and Yields

The DAX index increased by 0.8% to 19,583.59; the CAC-40 index rose by 1.2% to 7,583.73; and the FTSE 100 index jumped by 0.7% to 8,385.13. 

The yield on 10-year German bonds edged lower to 2.19%, French bonds inched lower to 2.94%, the UK gilts edged down to 4.07%, and Italian bonds decreased to 3.40%.

The euro edged lower to $1.08; the British pound inched higher to $1.30; and the U.S. dollar strengthened to 86.34 Swiss cents.

Brent crude decreased $0.23 to $73.98 a barrel, and the Dutch TTF natural gas rose by €0.10 to €39.58 per MWh. 

 

Europe Stock Movers

Nordea Bank increased 5.5% to €10.97 after the Helsinki-based bank raised its estimate of annual return on equity and announced a new stock buyback plan. 

Pernod Ricard increased 1.9% to €125.80 despite the French wine and spirit maker reporting a decline in sales. 

Sales in the fiscal first quarter declined 8.5% to €2.78 billion, and the negative impact of unfavorable foreign exchange rates was €103 million. 

The company blamed the weakness on a sharp decrease in sales in China because of weak consumer sentiment, inventory adjustments in the U.S., and technical challenges in India. 

Sales in the U.S. declined by 10%, in China plunged by 26%, in Europe fell by 3%, but rose in India by 2%. 

Nokia Oyj declined 4.3% to €3.88 after the Finnish tech company reported a 9% increase in operating profit and reiterated its annual earnings outlook. 

Net sales in the third quarter declined 7% to €4.3 billion from €4.7 billion, net income increased 32% to €175 million from €133 million, and diluted earnings per share rose to 3 cents from 2 cents a year ago.

The company reiterated its full-year operating earnings outlook to range between €2.3 billion and €2.9 billion and free cash flow conversion from operating profit to range between 30% and 60%. 

Nestle SA increased 2.5% to CHF 86.02 despite the Swiss food product maker reporting weaker-than-expected sales. 

Reported sales in the nine-month period declined 2.4% to CHF 67.1 billion from CHF 68.8 billion, driven by the 4.1% negative impact of foreign exchange rates and net divestures by 0.3%. 

The company estimated full-year organic sales growth of 2%, underlying operating profit margin of around 17%, and underlying earnings per share growth in constant currency to be broadly flat. 

 

China Indexes Extended Weekly Losses After Housing Secretary Conference Failed to Deliver New Measures 

Stocks in Hong Kong and mainland China resumed their downward slide after a press briefing from the housing secretary fell short of market expectations. 

Benchmark indexes opened higher but turned lower as the press briefing by the Minister of Housing Rural-Urban Development, Ni Hong, got underway. 

Officials made several key announcements to relax property purchase restrictions, increase financing to local governments, and expedite the purchase of properties on the so-called preferred list of projects. 

The housing minister said between January and September, about 1.5 million residential units were built or allocated, and about 4.5 million people are expected to move in by the year's end. 

Minister Hong added that loans to preferred projects on the so-called white list have reached 2.3 trillion yen, or about $313 billion, with the target of 4 trillion yuan by the end of the year. 

The officials from the central bank, the Ministry of Finance, the National Financial Regulatory Administration, and the housing secretary chaired the widely advertised press conference. 

The government's relaxation of mortgage rates and additional measures to lower down payment requirements will support the demand for new homes but will not ease the financial strain on property developers in the near future. 

The latest press briefing from the housing secretary follows the announcement from the finance minister a week ago, and government officials failed to provide clear fiscal measures to revive consumer confidence. 

Market indexes in Hong Kong and mainland China surged more than 20% in the three-week period but have lost about one-third of the gains after the government officials failed to follow through with specific measures. 

The Hang Seng index has lost more than 6% in the last three days as investors lower expectations of policy reforms to arrest falling property markets and revive consumer confidence. 

 

China Stock Movers 

The Hang Seng index decreased 1.2% to 20,039.69, and the CSI 300 index dropped 0.8% to 3,803.19. 

Residential property developers fell sharply after the housing secretary failed to announce any new measures to ease the financial burden on the companies. 

The announced measures are not expected to improve home buyers's confidence as the property market is likely to remain depressed in the foreseeable future. 

China Vanke plunged 16.6% to HK $6.61, China Resources Land dropped 5.2% to HK $25.20, and Longfor declined 13.5% to HK $11.92. 

Alibaba Group fell 0.8% to HK $98.15, Tencent Holding decreased 1.1% to HK $411.20, and JD.com declined 0.5% to HK $154.70.