Bond yields fall, Lower Oil Demand, China Woes
Markets in the EU drop as ASML warns of weak orders; bond yields fall with easing inflation, oil prices drop as demand slows
European Markets and Bond Yields
European markets were hit by weak earnings from major players like ASML, which warned of lower orders, sending its stock down 16% on Tuesday and 4% more on Wednesday. The luxury sector also suffered, with LVMH falling 7% due to a drop in third-quarter sales, especially impacted by lower demand in China. This extended a bad week for European stocks, with broader indices like the CAC 40 and DAX losing 0.5% and 0.3% respectively.
Bond markets, however, saw relief. European bond yields dropped as inflation eased, with the UK’s inflation rate falling to 1.7%—well below the Bank of England’s 2% target. This led to speculation of an upcoming rate cut, which pushed UK gilts higher and sent the pound to its lowest level in two months. In anticipation of a European Central Bank rate cut, European fixed income markets rallied, with similar effects seen in U.S. Treasury yields, which neared 4%.
U.S. Markets
U.S. Treasury futures pointed to a potential rate cut by the Federal Reserve in November, following easing bond yields. The S&P 500 and Nasdaq 100 contracts edged up by 0.1% in premarket trading, as the U.S. markets balanced the fallout from ASML with strong earnings reports from other sectors. Chip stocks, including Nvidia, suffered after ASML’s earnings warning, with Nvidia’s shares falling nearly 5%. Meanwhile, Bank of America and Charles Schwab posted strong earnings, with Schwab’s shares climbing 6%.
U.S. Corporate Movements
Morgan Stanley reported better-than-expected results, helping lift bank stocks, while trucking company J.B. Hunt rose 7.4% after beating profit forecasts. United Airlines also reported stronger-than-expected profits and announced a $1.5 billion share buyback, boosting its stock.
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Asia Markets and China’s Economic Struggles
Asian markets were mixed, with Japan’s Nikkei 225 falling 1.8% due to weakness in tech stocks after ASML’s earnings warning. Major Japanese chipmakers like Tokyo Electron and Lasertec saw sharp declines of 9.2% and 13.4%, respectively. Hong Kong’s Hang Seng index was down 0.2%, while China’s CSI300 and Shanghai Composite indices struggled, weighed down by concerns about China’s economic slowdown.
Despite recent government stimulus measures, Chinese stocks are more than 10% off their post-stimulus highs. Investor sentiment remains cautious, with China set to hold a press conference to discuss stabilizing its property sector, but this has yet to spark market optimism.
Oil and Global Commodities
Oil prices have continued to drop, partly due to concerns about lower global demand, particularly from China. Crude oil fell over 4% on Tuesday and continued to trade lower on Wednesday, with U.S. crude at $70.29 per barrel and Brent crude at $73.95. The weaker oil market has helped ease inflationary pressures globally. Additionally, a report suggesting that Israel would not attack Iranian nuclear sites further reduced concerns about potential oil supply disruptions.
Currency and Interest Rates
The U.S. dollar strengthened, supported by expectations of further interest rate cuts. The dollar index hit its highest levels since August, while the pound fell 0.6% against the dollar due to the declining inflation rate in the UK. Meanwhile, the Japanese yen traded at 149.19 per dollar. Central banks in Asia also moved to ease rates, with the Bank of Thailand cutting its benchmark rate to 2.25% to relieve pressure on household debt, while the Philippine central bank also lowered its rates.
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