On 11 October, 2016 – Global stocks retreat

US and European stocks slide on lower oil prices and a disappointing start to earnings season.
United States
Stocks tumbled Tuesday after a disappointing start to earnings season, a drop in oil prices and growing expectations of an interest rate increase by the Federal Reserve before year’s end. The Dow Jones industrials were down 1.1 percent, the S&P lost 1.2 percent and the Nasdaq was 1.5 percent lower. Tumult in the currency markets as the pound continued to tumble also made investors risk averse.
Alcoa dropped after the company’s quarterly profit missed estimates and lowered its revenue forecast. The company said its third quarter adjusted profit, which excludes certain items, was 32 cents per share. Revenues fell 6 percent from a year ago to $5.2 billion. Both missed expectations. The third-quarter earnings report will be the last for Alcoa in its current incarnation. Effective November 1, it will split into two standalone entities — Alcoa Corp, which will house its traditional mining, smelting and refining businesses, and Arconic Inc, focused on engineering aerospace and automotive parts. Illumina plunged after the diagnostic test maker’s weak quarterly update.
St Jude Medical was lower after it said it would recall some of its implanted heart devices due to risk of premature battery depletion. Abbott Laboratories, which has agreed to buy St Jude, retreated. Seagate Technology and Western Digital were both down. Apple was up after Samsung announced it was discontinuing its Galaxy Note 7 phone permanently because of overheating handsets.
US crude oil declined following a report from the International Energy Agency suggesting global supplies rose in September. Oil prices had hit a one-year high in the previous session on news that Russia would support the Organization of the Petroleum Exporting Countries’ attempt to cut its collective output.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$6.05to US$1,253.45. Copper futures were down 0.6 percent to US$2.18. WTI spot crude was down 51 US cents to US$50.84. Dated Brent spot crude was down 64 US cents to US$52.50. The US dollar was up against the euro, pound, Swiss franc and the Canadian and Australian dollars. However, it declined against the yen. The Dollar Index was up 1.0 percent. The yield on US Treasury 30 year bond was up 6 basis points to 2.51 percent while the yield on the 10 year note was up 5 basis points to 1.77 percent.
Europe
Stocks tumbled in Europe in choppy trading. Energy stocks were in focus after they reversed early gains. Lingering doubts that OPEC and Russia will follow through with meaningful supply cuts were responsible for the weakness. The FTSE and DAX retreated 0.4 percent, the CAC lost 0.6 percent and the SMI was down 0.5 percent.
Sterling’s plunge on fears of a “hard” Brexit has boosted international companies of the FTSE 100 which earn substantial US dollar revenues and get a currency-related accounting lift as those dollars are converted to pounds. Brexit worries overshadowed the stronger than expected German economic sentiment data. A leaked Treasury document published by the Times showed that Britain will lose up to £66 billion per year in tax revenues if it pursues the “hard Brexit” option of leaving the single market and EU customs union.
Traders are pricing in a 68 percent chance of a Federal Reserve interest rate increase in December, up from even odds on September 27 and a 17 percent probability of a move in November. That adds to worries the ECB may turn less accommodative following reports last week that it has held discussions on the best way to taper quantitative easing.
Luxury goods companies were among the strongest performing stocks after better than expected third quarter revenues from France’s LVMH drove the rest of the sector higher. Hugo Boss increased. Christian Dior and Kering advanced. Airbus Group was down on reports that it plans to slow the assembly rate of its A380 superjumbo to one aircraft per month from next year. Both Technip and Total slipped. Royal Dutch Shell, BP and Tullow Oil finished lower.
Victrex advanced after delivering an improved performance in the second half. High-street fashion brand Ted Baker climbed after reporting a jump in interim profit and lifting its dividend. Burberry advanced. Richemont and Swatch gained. AB InBev rose in Brussels after announcing the successful completion of the business combination with SABMiller. Commodity companies including Glencore, BHP Billiton and Rio Tinto declined thanks to weaker metals and oil prices.
The ZEW indicator of economic sentiment, which measures investors’ expectations for the German economy in six months’ time, rose to a four-month high of 6.2 from 0.5 in the previous two months.
Asia Pacific
Stocks were mixed Tuesday. Energy stocks were among the best performers across the region after oil prices hit one-year highs following bullish comments from Russian President Vladimir Putin and Saudi Arabia’s energy minister.
The Shanghai Composite was up 0.6 percent while the Hang Seng index was down 1.3 percent on profit taking after recent gains. The Shanghai Composite gains occurred after Beijing unveiled guidelines to reduce corporate debt levels and help reduce bad loans at commercial banks.
The Nikkei and Topix added 1.0 percent and 0.4 percent respectively as traders returned following a long holiday weekend. The Nikkei rallied to close at its highest closing level since September 6 as the yen weakened and Japan posted its largest current account surplus for the month of August since 2007. A weaker yen lifted exporters’ shares, with Toshiba and Sony rising. Energy stocks Inpex, JX Holdings and Japan Petroleum climbed. Mobile carrier SoftBank jumped after backing a Silicon Valley biotech startup. Apple Inc.’s supplier Murata Manufacturing climbed Samsung asked all global carriers to stop sales and exchanges of its Galaxy Note 7 smartphones.
Both the S&P/ASX and All Ordinaries were 0.1 percent higher as oil prices hit a one-year high overnight and the latest survey from National Australia Bank revealed that both Australian business confidence and conditions held at-or-above long-run averages in September. However, August home loan lending declined for a second consecutive month. Beach Energy, Oil Search, Origin Energy and Santos advanced after crude oil prices jumped over 3 percent overnight. Rio Tinto gained after announcing it would cut its debt by $1.5 billion under the cash tender offers of its US dollar-denominated notes. BHP Billiton and Fortescue Metals Group also advanced.
The Kospi lost 1.2 percent after Samsung Electronics announced its decision to halt global sales of its latest Galaxy Note 7 smartphones. The Sensex was closed for a holiday.
Looking Forward
Japan posts August machine orders. The Eurozone posts August industrial production. In the US, JOLTS for August will be released. The Federal Reserve will publish the minutes from its FOMC meeting held on September 21.
Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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