EQUTY MARKET WITNESSING A TESTING WEEK
US futures cut early losses to trade in the green on Wednesday, with contracts on the 3 main averages adding around 0.3% each after upbeat earnings reports from Morgan Stanley, UnitedHealth, Procter & Gamble and Bank of America. Still, bond yields continued to scale pre-pandemic highs as investors are bracing for the possibility of a more aggressive tightening by the Federal Reserve. Housing starts and building permits figures due early in the morning will also be in the spotlight today.
European shares erased early losses to trade near the flat line Wednesday, as investors weighed upbeat trading updates from Richemont, Burberry and ASML against a rise in bond yields on concerns over inflation and prospects of tighter monetary policy this year. Germany's 10-year bond yield traded in positive territory for the first time since May 2019, as the country's inflation rate was confirmed at an over 29-year high. Markets have priced in a 10 basis-point rate hike from the ECB in September, and are betting on a second rate hike by December, while both the Bank of England and the US Fed are also seen speeding up policy tightening.
The FTSE 100 pared early losses at the open to trade little changed around the 7560 level on Wednesday as investors digest soaring global bond yields, hotter than expected inflation and upbeat earnings reports. Fresh data showed the British inflation rate was the highest in 3 decades, raising prospects the Bank of England will raise rates again in February. Meanwhile, earnings from Richemont and Burberry topped forecasts and Pearson lifted its profit forecasts. The banking sector, however, was among the worst performers.
The CAC 40 Index was 0.4% higher to hover around 7,160 on Wednesday, as shares from the luxury goods sector carried the index to outperform its European counterparts, while investors continue to weigh on rising bond yields worldwide. Strong corporate results by Richemont in Switzerland and Burberry in the UK lifted consumer discretionary goods in Paris by 1.9%, driven by gains from LVMH (3.1%), Kering (3.2%), and Hermes (2.4%). At the same time, Safran rose 2.2% after JPMorgan raised its recommendation from “underweight” to “neutral”. On the other hand, Valneva shares traded 12.3% lower after the European Medicines Agency stated it still needed more data to assess the biotech’s Covid vaccine.
The Shanghai Composite fell 0.33% to close at 3,558 while the Shenzhen Component lost 1.28% to 14,207 on Wednesday. The moves came after Chinese equities recouped some of their year-to-date losses this week as a waning economic momentum fuelled hopes for more policy support and rate cuts to stabilize growth. The People’s Bank of China slashed interest rates on 1-year MLF loans by 10 basis points to 2.85% on Monday, with analysts expecting more policy easing this year and predicting a cut in China’s loan prime rate on Thursday. High-growth biotech, new energy and high-end manufacturing firms led the declines, with notable losses from Andon Health (-5.27%), Wuxi Apptec (-4.92%), Contemporary Amper (-2.86%), BYD Company (-4.93%) and EVE Energy (-7.81%), among others. Meanwhile, technology, industrial and commodity-linked stocks mostly advanced.
The BSE Sensex ended 656.04 points or 1.08% lower at 60,098.82 on Wednesday, the lowest since January 7th, tracking weak global cues and amid a global rise in bond yields due to surging inflation. At the same time, elevated crude oil prices and continuous selling by foreign institutional investors weighed on investor sentiments. Technology and consumer goods were the main draggers. 22 out of 30 stocks on BSE Sensex ended in red. Among the individual stocks, Bajaj Finance retreated 2.28% on valuation concerns while consumer giant Hindustan Unilever slumped 2.41% ahead of its Q3 earnings report tomorrow and amid reports that GlaxoSmithKline (GSK) rejected three bid proposals from Unilever to acquire the GSK consumer business unit. Besides these, Infosys (-2.77%), Asian Paints (-2.71%), Nestle India (-2.41%) and Wipro (-1.91%) were other notable laggards.
The Nikkei 225 Index fell 2.8% to close at 27,467 while the broader Topix Index dropped 2.97% to 1,920 on Wednesday, with both indices closing at their lowest levels in nearly 5 months as Japanese stocks tracked a tech-led overnight selloff on Wall Street. The Bank of Japan also raised its inflation and growth forecasts on Tuesday citing broadening price pressures, while keeping interest rates unchanged. All sectors of the market declined, with notable losses from Lasertec (-7.13%), Tokyo Electron (-6.06%), Nippon Yusen (-9.34%), Murata Manufacturing (-5.92%) and Nippon Paint (-7.29%). Meanwhile, Toyota fell 4.97% after the company said it no longer expects to meet its annual production target due to a global chip crunch, while Sony sank 12.79% after gaming rival Microsoft said it will buy developer Activision Blizzard in a $68.7 billion deal.
