London (Reuters) – As a result of some disappointing profits, this week’s imminent U.S. interest rate hike, and a growing gas crisis, the tone on European stock markets was cautious on Tuesday.
Overnight, Asia was buoyed by new Chinese plans to combat its housing crisis and by tech giant Alibaba (NYSE:BABA) seeking a primary listing in Hong Kong [.SS], but Europe was unable to sustain the momentum.
The STOXX 600 index in Europe paused as rising commodity stocks [O/R] and a profit boost from Unilever (NYSE:UL) were offset by a 6% drop in UBS shares and broader recession fears.(EU)
“The fundamental question we have as these earnings are released is how much pricing power these (consumer-oriented) corporations have,” said Krishna Mohanraj, portfolio manager for foreign stocks at Diamond Hill, in reference to the inflationary pressures.
Walmart (NYSE:WMT) shares were down 10% after the company lowered its forecasts on Monday due to the same difficulties.
Unilever, which manufactures everything from laundry detergent to ice cream, increased its full-year profit projections in Europe, citing “strong pricing to counteract input cost increases” as the reason.
The nations of the European Union were also poised to endorse weakened emergency plans to reduce their gas consumption. Russia’s Gazprom (MCX:GAZP) warned on Monday that it would further curtail flows this week owing to an additional maintenance issue.
Dutch and British “day ahead” prices increased by 8% and 16.5%, respectively, on Tuesday, while a decline in euro zone bond yields in fixed income markets coincided with analysts progressively pricing in a recession for the region.
Jim Reid of Deutsche Bank (ETR:DBKGn) stated, “The projected 15 percent decrease that all member nations would be required to comply to was quite controversial amongst certain members.” Expect several carve-outs and concessions if a proposal that can move forward is agreed upon.
Investors are also expecting the Federal Reserve to raise interest rates by 75 basis points on Wednesday, with markets pricing in a 10% chance of a higher increase, as well as a possible shift in language in response to economic warning signs.
Later, the International Monetary Fund will release its highly anticipated global estimates, which are anticipated to indicate even weaker growth and higher inflation.
John Milroy, an investment consultant at Ord Minnett, stated, “We are leaning toward the opinion that 75 basis points is most likely, but it won’t be the end unless they see some demand destruction and some moderation of inflation.”
TECH PROBLEMS
Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL) will report shortly after the closing bell on Wall Street, followed by Meta (NASDAQ:META), the owner of Facebook, tomorrow, and Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday.
Reid of Deutsche Bank noted that the market capitalization is greater than $7.500 billion. Despite the fact that these five stocks are down between 13 percent (Apple) and 50 percent (Meta) YTD, and the other three are down between 20 and-25 percent, this amount would have been closer to $10 trillion at the beginning of the year.
Later on, GM, NXP Semiconductors (NASDAQ:NXPI), Raytheon Technologies (NYSE:RTX), Coca-Cola (NYSE:KO), and McDonald’s (NYSE:MCD) will also release their quarterly results. [.N]
In Asia, the MSCI’s broadest regional index excluding Japan increased by 0.5%.
Chinese markets rose on news that China might establish a fund of up to $44 billion to assist property developers. [.SS]
Hong Kong’s Hang Seng Index rose 1.7% in response to the Alibaba news, while Japan’s Nikkei lost 0.16%. (T)
As uncertainty about interest rates and the economy persisted, the dollar remained flat, not far from recent milestone highs.[FRX]
The euro held around $1.0215 despite uncertainty regarding Europe’s energy security, which is not helped by a projected decrease in the westbound flow of Russian gas.
The currency stabilized at 136.54 USD per yen. The index of the U.S. dollar, which reached a 20-year high this month, was marginally down at 106.380. [FRX/]
Oil prices increased more in anticipation. Russia’s reduced natural gas exports to Europe may promote a move to petroleum, with Brent futures up 1.3% to $106.45 per barrel and U.S. crude up 1.2% to $97.75 per barrel.
As growth concerns supported bonds, benchmark 10-year Treasury yields fell to 2.875% and Germany’s benchmark 10-year bond yield plummeted to a two-month low just below 1%. [US/] [GVD/EUR]
(Kane Wu contributed additional reporting from Hong Kong; Edmund Klamann edited)
