- European shares calmed as fears of the gas crisis escalated
- Big List of Tech Dividends Due on Wall Street Later
- Bond yields fall ahead of expected Fed rate hike
- Walmart is heading for a huge loss after a profit warning.
LONDON (Reuters) – European stocks moved sideways and bond markets rose on Tuesday with some disappointing gains, the prospect of another big hike in US interest rates and a looming gas crisis.
Asia rebounded overnight with a new Chinese plan to tackle its real estate crisis, and with tech giant Alibaba seeking a core listing in Hong Kong, but Europe and Wall Street couldn’t keep up.
Walmart’s earnings warning pushed Dow and S&P 500 futures lower while the European STOXX 600 Index (.STOXX) was barely budging. Unlike Walmart, Unilever (ULVR.L), its largest consumer giant, offered a dividend upgrade and higher oil prices pushed up commodity stocks.
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But it was met with broader recession fears as European Union leaders agreed to cut gas use in their country, and a 6% drop in UBS shares drove the banking sector. Read more
“The key question we have as these earnings come in is how aggressively these (consumer-facing) companies have pricing,” said Krishna Mohanraj, International Equity Portfolio Manager, Diamond Hill, referring to pressures of rising inflation.
In the US, Walmart shares fell about 9% in pre-opening trading after it lowered its forecast on Monday due to those subtle issues. Read more.
General Electric (GE.N) rose 6% although growth in its aerospace business helped it beat estimates. Coca-Cola (KO.N) rose 1% as it raised expectations. In Europe, too, Unilever, which makes everything from laundry detergent to ice cream, raised its expectations due to what CEO Alan Job said was “robust pricing to mitigate input cost inflation”. Read more
European Union countries approved a weaker contingency plan to curb their gas use on Tuesday after striking compromise deals to limit cuts in some countries as they prepare for further Russian supply cuts. Read more
The Kremlin also warned again that the state monopoly Gazprom (GAZP.MM) will reduce its supply further this week due to another maintenance problem on the Nord Stream 1 pipeline. Flows will drop to 33 million cubic meters per day – half the already low current level. Read more
This sent European gas prices up about 10% and are now more than 450% higher than they were a year ago, although still well below the record high levels set shortly after Russia began its invasion of Ukraine in February.
“It’s a cat-and-mouse game,” said Christopher Granville, managing director of EMEA and global political research at TS Lombard.
“The Russian position will always be that it will continue to supply gas within the constraints caused by the sanctions of the West. But then they will have a lot of problems that suddenly arise.”
Investors are also waiting for a possible 75 basis point Fed rate hike on Wednesday – with markets pricing around 10% the risk of a bigger rally, as well as waiting to see if economic warning signs lead to a shift in rhetoric.
The International Monetary Fund is also due later to publish its closely watched global outlook which is expected to point to slower growth and higher inflation.
“We’re inclined to the view that 75 basis points is more likely, but it won’t be the end unless they see some demand destruction and some easing in inflation,” said John Milroy, investment advisor at Ord Minute.
Not high tech
Global tech giants Microsoft and Google will report after the Wall Street session later, followed by owner Facebook Meta tomorrow and then Apple and Amazon on Thursday.
Jim Reed of Deutsche Bank noted that it adds up to $7.5 trillion in market capitalization. “While these five stocks fell between about -13% (Apple) since the beginning of the year to about -50% (Meta), with the other three dropping by about -20 to -25%, that number was closer to $10 trillion at the start of the year. general”.
In Asia, MSCI’s broadest regional index outside Japan (.MIAPJ0000PUS) rebounded 0.5%.
Chinese stocks jumped after reports that the country will create a fund of up to $44 billion to help real estate developers. Read more
Hong Kong’s Hang Seng Index (.HSI) finished 1.7% higher on Alibaba news (.CSI300) although Japan’s Nikkei (.N225) shed 0.16%.
In terms of currencies, the dollar has been pushing towards its recent gains as uncertainty continues to swirl around the interest rate and economic outlook. / FRX
The Euro slipped back to $1.0139 from $1.0250 surrounded by all the uncertainty over Europe’s energy security. Read more
The yen settled at 136.44 per dollar. The US dollar index, which touched a 20-year high this month, was up 0.6% on the day at 107.132.
Oil prices rose further on expectations that Russia’s cut in natural gas supplies to Europe could encourage a switch to crude, with Brent crude futures up 1.5% at $106.68 a barrel and US crude rising 1.6% to $98.21 a barrel. Read more
The 10-year Treasury yield fell to 2.73% from 2.87% at the end of last week. German benchmark 10-year bond yields slipped back below the psychological 1% threshold as well as recession fears intensified in Europe.
Tuesday also marks the 10th anniversary since European Central Bank President Mario Draghi pledged to do “whatever it takes” to prevent the euro currency project from unraveling.
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Additional reporting by Ken Woo from Hong Kong. Editing by Edmund Kelman and Angus McSwan
Our Standards: Thomson Reuters Trust Principles.
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