On 25 October, 2016 – Stocks mixed globally

Disappointing earnings sent stocks lower in Europe and the US.

United States

Stocks retreated on mixed earnings and forecasts. Economic data were mixed. The Dow Jones industrials were down 0.3 percent, the S&P declined 0.4 percent and Nasdaq retreated 0.5 percent. Companies that reported weaker than expected results were punished.

Under Armour tumbled after it reported its slowest sales growth in six years and said its future sales would not be as strong as it expected a year ago. Sherwin-Williams posted a profit that was smaller than expected. The company cut its annual guidance because of slower sales growth combined with spending on new stores. Procter & Gamble reported better results than investors expected. The consumer products giant has been selling some businesses to cut costs and it posted stronger sales of personal care products like toothbrushes and deodorants. Whirlpool’s results fell far short of analysts’ projections.

Baker Hughes disclosed a smaller loss than investors expected. Investors were also pleased that Baker Hughes was preparing to cut more costs. The company said it planned to eliminate $650 million in spending this year, up from the $500 million it had planned to cut. General Motors had a strong quarter but investors sent its stock down anyway. Domestic auto sales have risen to record highs but have shown signs recently of slowing, which has left investors worried about the company’s growth. The auto maker said net income doubled, but currency declines tied to the UK’s vote to leave the European Union could hurt its business in the fourth quarter. Merck advanced after it raised its forecast after it reported a bigger profit on greater sales of vaccines and cancer medicines.

After US markets closed for the day, Apple said it sold more iPhones than expected in the latest quarter and the company forecast higher-than-expected revenue for the critical holiday-shopping season. Apple said it 45.51 million iPhones in the three months ended September 24, beating the average analysts' estimate of 44.8 million. Apple forecast revenue of between $76 billion and $78 billion for the current quarter. Revenue in the latest quarter fell 9 percent to $46.85 billion, the third straight decline. That meant annual revenue fell for the first time since 2001, highlighting the slowdown in the smartphone market as well as intensifying competition, particularly from Chinese rivals.

These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was up US$3.85 to US$1,269.40. Copper futures were up 2.1 percent to US$2.14. WTI spot crude was down 71 US cents to US$49.81. Dated Brent spot crude was down 82 US cents to US$50.64. The US dollar was up against the pound and yuan. It was down against the euro and the Canadian and Australian dollars. However, the currency was unchanged against the yen and Swiss franc. The Dollar Index was down 0.05 percent. The yields on both the US Treasury 30 year bond and the 10 year note slipped 1 basis point to 2.50 percent and 1.75 percent respectively.

Europe

European stock indices were down Tuesday with the exception of the FTSE. While the majority of the indices were in positive territory for most of the day, the gains were eroded by US indices struggles. A bigger than expected drop in consumer confidence weighed on the US markets, along with a high number of corporate financial reports. Early gains in Europe were driven by the stronger than expected German Ifo data. The FTSE was up 0.4 percent. The CAC and SMI were down 0.3 percent and 0.8 percent respectively. The DAX was virtually unchanged (down 3.86 points).

Eurozone officials approved fresh loans of €2.8 billion to Greece after Athens delivered required reforms for the release of the second tranche of the financial assistance. The European Stability Mechanism ESM) said the current disbursement consisted of two parts. The €1.1 billion was approved for the release following the full implementation of a set of 15 milestones by the Greek authorities. This amount will be used for debt servicing. A further €1.7 billion can also be disbursed after a positive assessment of the clearance of net arrears by Greece. This amount will be disbursed to repay arrears owed to domestic contractors, the ESM said.

Fresenius and Fresenius Medical Care retreated. ThyssenKrupp and Salzgitter slipped. In Paris, Orange surged after reaffirming its FY16 outlook. Air Liquide was up after reporting a 24 percent increase in third quarter revenue. In London, Glencore climbed after signing a deal for high-quality thermal coal. Anglo American jumped after the miner left output guidance broadly unchanged for most of its commodities. Rio Tinto, Antofagasta and BHP Billiton also advanced.

Hotel and restaurant group Whitbread dropped despite the company reporting a rise in first-half profit. Novartis declined after its earnings fell for the seventh consecutive quarter. AMS tumbled after issuing a weak outlook for the fourth quarter. Banca Monte dei Paschi di Siena plummeted in Milan on news that the troubled lender will slash 2,600 jobs and shut 500 branches as part of a restructuring plan to boost profitability.

German Ifo survey indicated that business confidence improved to a 30-month high in October reflecting the upturn gathering impetus in the economy. The Ifo business confidence index climbed to 110.5 from 109.5 in September.

Bank of England governor Mark Carney in testimony to a House of Lords committee said that he will announce his decision to the length of his term. He will announce before Christmas whether he intends to remain in his post for his full eight-year term or the five years that was originally agreed to. He said that the decision will be “entirely personal”. Speculation has been rife about whether the governor will stay in his post until 2021 following a series of recent critical comments about the negative impact of low interest rates and quantitative easing – particularly on savers.

Asia Pacific

Asian stocks were mixed Tuesday. The US dollar advanced and comments from two Fed officials strengthened the case for a US rate increase in December. While oil extended overnight losses, a weaker yen and better-than-expected GDP data from South Korea helped to cap overall losses.

The Nikkei and Topix added 0.8 percent and 0.7 percent respectively thanks in part of a weaker yen. Kyushu Railway rose sharply in its market debut. J Front Retailing, Nippon Sheet Glass, Dainippon Screen Manufacturing, Sumitomo Mitsui Trust, TDK, Mitsui Mining & Smelting and Mitsubishi Motors jumped. Hitachi, Nissan Motor, Toyota, Honda Motor, Suzuki Motor and Mazda also rallied as the yen retreated.

Both the S&P/ASX and All Ordinaries were 0.6 percent higher on the day. Higher metal prices boosted miners and banks gained ahead of earnings results from three of the big four banks. Healthcare stocks also rebounded from a recent string of losses. NAB advanced before unveiling its financial results on Thursday. The other three big banks gained as well. BHP Billiton and Rio Tinto rallied as copper and iron ore prices advanced. Gold miners Regis Resources and Evolution Mining were lower after a stronger US dollar weighed on gold prices overnight.

The Shanghai Composite added 0.1 percent while the Hang Seng slipped 0.2 percent. The Kospi lost 0.5 percent as a stronger US dollar and tighter travel regulation in China spurred selling in cosmetics makers. AmorePacific, the country's top cosmetics maker and LG Household & Healthcare retreated. Third quarter gross domestic product was up 0.7 percent on the quarter and 2.7 percent from the same quarter a year ago. The Sensex retreated 0.3 percent with Tata Group stocks in focus after the Tata Sons board sacked Cyrus Mistry as Chairman in a dramatic development following a clash of cultures and management styles.

Looking Forward

Australia posts third quarter consumer price index. In the US, September international trade in goods and new home sales, October flash PMI services and week EIA petroleum status report will be released.

Global Stock Markets

*Note — all releases are listed in local time.

Source: Fidelity

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