European stock markets took their cue from the softness in US tech and a broad decline in Asia, led by Tokyo. The FTSE 100 has slipped more than 0.8 per cent while shares in Frankfurt headed south, dropping 1.4 per cent and in Paris, markets are down nearly 1 per cent. Banks are sliding hard and the Stoxx 600 bank index is at its weakest since June, mirroring some real weakness in regional banks in the US of late. The Nikkei 225 slid more than 2 per cent as Japanese yields also climbed.
Stocks are slumping again as bond yields rise: the US 10-year is re-approaching the 5 per cent barrier which has hit tech down hard, along with disappointing results from Google-owner Alphabet which sent the shares down almost 10 per cent.
That dragged on the tech-heavy Nasdaq, which slid almost 2.5 per cent for the session while the broader S&P 500 declined almost 1.5 per cent. Meta beat but shares fell after-hours on comments from the CFO, who said the revenue outlook was “uncertain”. Margins are up a lot, and profits are up a lot but there are questions on how much needs to be spent on virtual reality, artificial intelligence and the metaverse. More on that here
Meanwhile, Mattel reported Barbie sales rose 16 per cent in the third quarter thanks to the movie, a $1.4bn box office hit of the year. But Mattel shares also fell…maybe we’re just in more of an Oppenheimer world than a Barbie world right now, with a rip in yields sending risk to the cleaners.
Oil is firmer this morning along with gold – maybe some geopolitical premium at work given developments in the Middle East. US GDP later is expected to show the economy grew 4.7 per cent on an annualised basis in the third quarter. Also, watch unemployment claims data and durable goods orders.
The European Central Bank is expected to go for a pause today. At its last meeting, it signalled it was ready to coast in and developments since lend further support to a pause. Downside economic risks have become more pronounced and in particular, the sharp rise in bond yields and market volatility in credit markets pose challenges for the ECB. Given the firm conviction in the market that the ECB stands pat on rates and will not alter forward guidance much, market participants are interested in QT and any acceleration in this programme.
Possible outcomes for traders? Hawkish – a leaning towards leaving the door wide open to another hike, emphasising the potential inflation risk from the geopolitical situation – oil etc. The base case is that they stick to the September view – leave the door ajar for a further hike but are of the opinion it’s finished. Dovish – slams the door shut on any hikes, and starts talking about timing for cuts. EURUS trades at 1.0550 this morning, hitting a one-week low as the dollar firms on higher Treasury yields.
The Trader is written by Neil Wilson, chief market analyst at Finalto