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Today, global stocks experienced a decline due to mixed corporate results and in anticipation of the US Federal Reserve’s interest rate announcement later in the day.
The S&P started the day on Wall Street with a 0.2% fall after reaching its highest level in over a year on Tuesday. The Nasdaq Composite, focused on technology, fell 0.3% as investors analyzed mixed earnings from major tech companies.
Europe saw even larger losses, with the region-wide Stoxx 600 dropping 1.2%, primarily driven down by the consumer cyclicals sector. Germany’s DAX and France’s CAC 40 fell by 1.2% and 2.2% respectively, with the luxury goods sector experiencing a significant sell-off.
Louis Vuitton and Tiffany owner, LVMH, saw a 5.7% drop in shares following their statement about revenue contraction in the second quarter. They attributed this to a general slowdown in the luxury market due to economic uncertainty. This triggered declines in luxury stocks across the region, with Hermès International dropping 3.3% and Richemont falling 1.6%. The Stoxx Europe Luxury 10 index also experienced a loss of almost 3.2%, nearing its lowest level since March.
London’s FTSE 100 index saw a decline of 0.8%, with Lloyds Banking Group being one of the biggest losers. This was due to their earnings falling below expectations in the second quarter, partially because of higher charges for bad loans. NatWest Group’s shares also dropped by 3.6%.
In the US, Microsoft lost 3.6% at the market open following its second-quarter earnings report. While they narrowly beat Wall Street expectations, the company mentioned that revenue from artificial intelligence products would not be evident until after the end of the year. Microsoft, along with a few other tech stocks, has been responsible for the Wall Street rally this year, boosted by enthusiasm surrounding artificial intelligence.
David Bahnsen, chief investment officer at Bahnsen Group, commented on Microsoft’s valuation, stating that it reflects excessive speculation and momentum. He believes a substantial re-pricing needs to occur before sanity can prevail and emphasizes that investors often become too excited over the latest trend, overlooking valuations and fundamentals.
On the positive side, Google parent Alphabet saw a 5.4% increase following their forecast-beating results announced on Tuesday.
In terms of the US Federal Reserve, most investors expected a quarter-point increase in the benchmark interest rate, bringing it to a range of 5.25% to 5.5%, the highest level since 2001. The market will closely analyze the central bank’s forward guidance to determine whether this increase signifies the end of the tightening campaign or if rates will rise again in September. Fed chair Jay Powell is expected to stress the need for further evidence regarding inflation control.
Yesterday, the US Conference Board survey indicated that consumer confidence reached a two-year high in July, indicating the resilience of the US economy despite rising borrowing costs.
In government debt markets, the policy-sensitive yield on two-year Treasuries fell by 0.02 percentage points to 4.87%, while the yield on the benchmark 10-year note dropped by 0.05 percentage points to 3.87%.
The European Central Bank and the Bank of Japan are due to announce their own policy moves on Thursday and Friday respectively.
In Asia, Hong Kong’s Hang Seng index and China’s benchmark CSI 300 declined by 0.4% and 0.2%, respectively. Despite China’s vow to stimulate its slowing economy earlier in the week, investors remained unconvinced.
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