Stocks down on mixed earnings, dollar up slightly

Markets kicked off August on a cautious note as investors responded to the latest corporate updates and news on the health of China’s economy. The dollar posted modest gains.

European stocks declined, with miners falling following weak data on China’s manufacturing and property sectors. BMW AG dragged the autos sector lower, slumping after warning about supply-chain costs. HSBC Holdings Plc led banks higher after announcing a new share repurchase program and earnings that outpaced estimates. BP Plc rose as its dividend and buyback outweighed disappointing results. 

US equities futures edged lower after the S&P 500 closed at a 16-month high on Monday, while the Nasdaq 100 notched its longest streak of monthly gains since August 2020. 

There are signs of a pause in the bullish mood that has boosted equity markets this year, as traders prepare for major events in the next few days, including a Bank of England interest rates decision on Thursday and US employment figures Friday. The line-up of blockbuster earnings still to come before the week is out includes tech heavyweights Apple Inc. and Amazon.com Inc.

“We’ve had a pretty good year so far, in terms of performance for risk assets, although when we look forward from here, we feel that the drivers for the rally may become a little bit more mixed,” said Karim Chedid, head of EMEA iShares investment strategy at BlackRock International.

“There could be more pain for equities, and we still don’t feel that the trough in earnings has come yet,” Chedid said. “Whilst the macro picture has been stronger than expected, there is no doubt that the tightening from central bank policy is starting to come through.”

The recent buoyant mood on Wall Street has prompted a retreat among bears as market returns and economic data continue to challenge expectations. The S&P 500 just received its most bullish outlook from Oppenheimer Asset Management, which predicts further strength in stocks as the Federal Reserve nears a pivot and the US economy stays resilient.

Chief Investment Strategist John Stoltzfus raised his year-end price target on the index to 4,900, leaving room for a near 7% advance through the end of the year, the most bullish among Wall Street strategists tracked by Bloomberg. The S&P 500 would end the year about 28% higher if his forecast materializes, the best performance since 2019. 

AUSSIE DOLLAR

Treasury 10-year yields traded near 3.95% while a gauge of dollar strength climbed by about 0.3%.

The Australian dollar declined against the greenback after the nation’s central bank held interest rates unchanged. Financial markets had predicted the decision, while economists anticipated a 25 basis point hike. Australian bond yields extended declines following the decision. 

In China, home sales plunged by the most in a year last month, underscoring why policymakers need to address faltering demand and a liquidity crunch in the sector. Caixin PMI figures showed factory activity contracted in July, missing economists’ estimates for a small expansion.

China investors “are still waiting to see some meaningful comeback in high frequency indicators,” Alec Jin, investment director of Asian equities at abrdn, wrote in a note. “We would expect targeted measures that can boost consumer income and demand in sectors like autos, electronics and household products,” as well as more support for the property sector, he added.

The yen traded weaker against the dollar, adding to Monday’s decline, amid sluggish demand at a 10-year bond auction. While investors had earlier anticipated that the Bank of Japan is moving toward letting yields rise after a tweak to its yield-curve control policy, it bought bonds on Monday to anchor rates. 

The tweak to YCC “is great for the Japan equity story,” Gareth Nicholson, chief investment officer and head of discretionary portfolio management for Nomura International Wealth Management said on Bloomberg Television, referring to the yield curve control policy. “You have a measured, controlled policy change, controlled growth and controlled inflation at the moment — these are all things investors like.”

Key events this week:

• Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Tuesday
• US construction spending, ISM Manufacturing, job openings, light vehicle sales, Tuesday
• China Caixin Services PMI, Thursday
• Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
• Bank of England rate decision, Thursday
• US initial jobless claims, productivity, factory orders, ISM Services, Thursday
• Eurozone retail sales, Friday
• US unemployment rate, non-farm payrolls, Friday

Some of the main moves in markets:

STOCKS

• The Stoxx Europe 600 fell 0.4% as of 9:22 a.m. London time
• S&P 500 futures fell 0.2%
• Nasdaq 100 futures fell 0.3%
• Futures on the Dow Jones Industrial Average fell 0.2%
• The MSCI Asia Pacific Index fell 0.1%
• The MSCI Emerging Markets Index fell 0.1%

CURRENCIES

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.1% to $1.0981
• The Japanese yen fell 0.3% to 142.67 per dollar
• The offshore yuan fell 0.4% to 7.1724 per dollar
• The British pound fell 0.1% to $1.2819

CRYPTOCURRENCIES

• Bitcoin fell 1% to $28,916.17
• Ether fell 1.1% to $1,833.48

BONDS

• The yield on 10-year Treasuries advanced two basis points to 3.97%
• Germany’s 10-year yield advanced one basis point to 2.50%
• Britain’s 10-year yield advanced two basis points to 4.32%

COMMODITIES

• Brent crude fell 0.6% to $84.88 a barrel
• Spot gold fell 0.4% to $1,956.49 an ounce

This story was produced with the assistance of Bloomberg Automation.