Stock markets experienced volatility on Wednesday as concerns grew among investors about the economic outlook. Even tech giant Google’s parent company, Alphabet (NASDAQ: GOOGL), reported disappointing earnings, adding to worries about high interest rates.
Asian markets saw a recovery from 11-month lows overnight as China’s approval of a one-trillion-yuan sovereign bond issue raised hopes of economic stimulus. In addition, the Australian dollar gained ground after inflation figures surpassed expectations, hinting at potential rate hikes.
However, in Europe, the STOXX 600 index fell by 0.5%. French payments company, Worldline, faced a nearly 50% decline in its shares as it reduced its payment targets due to economic slowdowns in key markets.
It was a notable day for bank earnings, with Deutsche Bank standing out by recording a 7% increase in its shares, despite a generally weak financial sector.
The MSCI All-World index saw a 0.1% dip for the day. It is on track for a third consecutive monthly decline in October, reflecting a 1.9% loss, primarily attributed to the surge in U.S. Treasury yields.
U.S. Treasuries rebounded after the 10-year yield briefly surpassed 5% on Monday, with the benchmark yield stabilizing at 4.82%.
Mega-cap tech companies have been a success story for equity investors in 2023. Nevertheless, Alphabet’s shares fell by 6.9% in pre-market trading after reporting a slowdown in its cloud business. In contrast, Microsoft (NASDAQ: MSFT) shares rose by over 3%. Nasdaq 100 futures fell by 0.5%, while S&P e-mini futures dropped by 0.3%.
Chris Beauchamp, IG Group’s Chief Market Analyst, commented on the mixed start for tech earnings, particularly focusing on cloud computing, which has been a significant revenue driver for the sector.
“Stocks have shown some improvement in the past 24 hours, but the performance of Meta (NASDAQ: META) tonight and Amazon (NASDAQ: AMZN) tomorrow will be crucial in determining whether stocks rally by month-end,” Beauchamp added.
In China, the top parliament approved a one-trillion-yuan (approximately $137 billion) bond issue, with state media reporting that these funds would be directed towards disaster zone recovery and infrastructure improvements. Analysts believe that this government expenditure will further stabilize the economy and enhance growth in the fourth quarter.
However, a gloomy note emerged as China’s largest private property developer, Country Garden, was reported to have defaulted on a U.S. dollar bond for the first time.
Rate Hikes on the Horizon in Australia
In currency markets, the euro found some relief with an improvement in German business confidence after a setback caused by weaker-than-expected purchasing managers’ surveys. It stabilized at $1.0594.
The yen was at 149.88, while the Australian dollar remained near two-week highs, hovering around $0.64.
In Australia, the annual inflation rate slowed in the third quarter, but the Reserve Bank of Australia’s preferred core measure increased by 1.2%, surpassing forecasts of 1.1%.
Analysts at CBA believe that this rise in underlying inflation during Q3 2023 is strong enough to prompt the Reserve Bank of Australia to act on their hiking bias at the upcoming board meeting.
Commodities and Geopolitical Developments
Brent crude futures fell by 0.4% to $87.70 a barrel, influenced by Europe’s economic challenges, leading traders to reevaluate gains made following the Middle East conflict.
On the international front, the United States and Russia, along with other nations, are urging a pause in the conflict between Israel and Hamas to allow humanitarian aid into the besieged Gaza Strip.
The price of gold, which had touched $1,997 per ounce the previous week, was trading at $1,969.
Meanwhile, Bitcoin saw a 15% increase in value during the week, driven by speculation surrounding the success of ETF applications from BlackRock (NYSE: BLK) and other firms, which could attract more capital into cryptocurrencies. The price of Bitcoin was last recorded at $33,808.
The U.S. Securities and Exchange Commission has declined to comment on this speculation.
(1 USD = 7.3090 Chinese yuan)