US equity futures slumped on Wednesday, after tech giant Microsoft Corp. and a slew of other major firms forecast slower earnings and fears grew that Berlin’s decision to approve the re-export of German-made tanks would provoke an escalation in the Ukraine war.
(Bloomberg) — US equity futures slumped on Wednesday, after tech giant Microsoft Corp. and a slew of other major firms forecast slower earnings and fears grew that Berlin’s decision to approve the re-export of German-made tanks would provoke an escalation in the Ukraine war.
Contracts for the Nasdaq 100 fell more than 1%, after a two-day rally in the underlying index ground to a halt on Tuesday when Microsoft warned of decelerating revenue growth in its cloud-computing business. Earnings reports from companies such 3M Co. and chipmaker Texas Instruments Inc. also reinforced concerns about the health of corporate America and added to investors’ jitters as they await updates from the likes of Tesla Inc. and IBM Corp.
In US premarket trading, Microsoft shares and other tech names such as Salesforce Inc., Tesla Inc. and Amazon.com extended falls, while Europe’s Stoxx 600 equity index also weakened. Shares in major European software firms such as SAP SE and Sage Group Plc. feeling the heat from Microsoft and Dutch chip-tool maker ASML Holding NV falling after posting a profit miss.
A weak earnings outlook, fears of US recession as well as the potential escalation in the Ukraine-Russia war were all contributing to the market pullback, according to Kenneth Broux, a strategist at Societe Generale. “The market is definitely worried about slowing earnings growth especially on tech, so there has been a sense the market wants to keep selling tech and the dollar,” Broux said. “But a huge tail risk now is what happens in Ukraine, if there is an escalation in the conflict and Europe gets drawn into the conflict.”
That concern weighed on the euro, knocking it lower against the dollar for the first time in six sessions. It fell even after Germany’s Ifo institute survey showed “considerably less pessimistic expectations” in January, adding to other data indicating the euro zone could dodge recession.
German 10-year bond yields slipped four basis points.
The greenback’s gauge held around flat as the euro, yen and pound retreated and the global market mood soured.
If additional hostilities with Russia don’t materialise, the dollar downtrend would continue, given the Federal Reserve is widely expected to wind down its policy-tightening cycle in coming months and recent data, including business activity figures on Tuesday, implied a looming recession.
The pound was hit by data showing sharp declines in factory costs, fanning speculation that the Bank of England is close to completing its rate-hiking cycle and prompting some to start pricing rate cuts by year-end. The Australian dollar on the other hand jumped to the highest since August after scorching inflation figures, that also sent 10-year Australian yields soaring about 10 basis points.
Elsewhere, oil prices flatlined, giving up earlier rise and looking set to extend Tuesday’s sharp decline caused by the weak US business activity. while gold inched lower after recent gains that pushed the precious metal to the highest level since April.Bitcoin fell as much as 2.5% and faced its first two-day drop this year.
Key events this week:
- Earnings for the week include: Abbott Laboratories, ASML Holding, AT&T, Boeing, International Business Machines, NextEra Energy, Tesla (Wednesday); American Airlines, Blackstone, Comcast, Diageo, Intel, LVMH Moet Hennessy Louis Vuitton, Mastercard, SAP, Southwest Airlines, Visa (Thursday); American Express, Charter Communications, Chevron, HCA Healthcare (Friday)
- US MBA mortgage applications, Philadelphia Fed non-manufacturing activity, Wednesday
- US fourth-quarter GDP, new home sales, initial jobless claims, Thursday
- US personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.4% as of 11:14 a.m. London time
- S&P 500 futures fell 0.7%
- Nasdaq 100 futures fell 1.1%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The MSCI Asia Pacific Index rose 0.3%
- The MSCI Emerging Markets Index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0862
- The Japanese yen rose 0.3% to 129.81 per dollar
- The offshore yuan was little changed at 6.7805 per dollar
- The British pound fell 0.2% to $1.2309
Cryptocurrencies
- Bitcoin fell 1.2% to $22,621.21
- Ether fell 3.1% to $1,548.63
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.43%
- Germany’s 10-year yield declined four basis points to 2.11%
- Britain’s 10-year yield declined six basis points to 3.21%
Commodities
- Brent crude fell 0.3% to $85.89 a barrel
- Spot gold fell 0.6% to $1,925.11 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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