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By Lawrence White
LONDON (Reuters) – Global stocks fell on Wednesday after disappointing earnings from Tesla, Alphabet and European luxury brands, while oil prices fell to their lowest in almost six weeks as summer demand failed to pick up.
The US dollar was broadly steady, with traders awaiting Friday’s inflation reading and next week’s Federal Reserve meeting, while the yen rose to a seven-week high ahead of the central bank’s meeting next week.
The European index fell 0.34% to 513.72 points by 1143 GMT. The decline was led by a 2% drop in the personal and household goods sector after the world’s largest luxury goods group LVMH reported slower sales growth as Chinese shoppers curbed their spending.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.32%, while the Nikkei fell 1%.
The gloomy mood looks set to continue in the US. Nasdaq futures fell 1.1% and 0.7% after Tesla reported its lowest profit margin in five years, while major tech stocks also underperformed.
“The interim results season has kicked off on both sides of the Atlantic and so far investors are not happy with what they have seen,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.
Shares of Google parent Alphabet Inc. fell in after-hours trading even as the company beat revenue and profit targets.
“Investors have questioned whether the huge sums of money being invested in Google’s AI capabilities are actually yielding a return,” Clayton said.
Interest rate cut expected
Weak global stock trading was a sign that markets are searching for direction, as traders digest a range of themes including the U.S. election, expectations of interest rate cuts and weak corporate earnings reports.
Oil prices snapped three straight sessions of losses on Wednesday on falling inventories and growing supply risks from wildfires in Canada, but remained near a 1-1/2-month low amid weak demand.
U.S. West Texas Intermediate crude futures for September delivery rose 93 cents, or 1.21 percent, to $77.89 a barrel.
U.S. gross domestic product data on Thursday and personal consumption spending data — the Fed’s preferred gauge of inflation — on Friday could help investors calibrate their expectations for the timing of an interest rate cut.
The CME FedWatch tool showed markets have priced in 62 basis points of easing this year, with a 95% chance of a September cut.
A growing majority of economists in a Reuters poll said the Federal Reserve is likely to cut interest rates twice this year, in September and December, as strong demand from U.S. consumers justifies a cautious approach despite falling inflation.
“The US consumer has remained very strong… but you are starting to see a degree of fragility behind some of the data,” said Luke Brown, head of Asia asset allocation at Manulife Investment Management.
Riding the yen
The yen rose to a seven-week high of 154.1 yen per dollar after rising about 1 percent on Tuesday, after remaining near a 38-year low of 161.96 yen at the start of the month.
Traders are focusing on the Bank of Japan’s meeting next week, where interest rates are expected to rise by 10 basis points, with a 44% chance of a rate hike. [FRX/]
Traders suspect Tokyo intervened in the currency market in early July to prop up the yen, with Bank of Japan data estimating authorities may have spent about 6 trillion yen ($38 billion).
The suspected bouts of intervention have prompted speculators to pull back from lucrative and popular trades, where traders borrow yen at low interest rates to invest in dollar-denominated assets for higher returns.
The yen also rose against other currencies, hitting its highest level in more than a month against the pound and the euro and its highest level in two months against the Australian dollar. [AUD/]
The U.S. dollar index, which measures the greenback against six major currencies, was little changed at 104.33. The index has fallen 1.3% this month.
(1 dollar = 155.3600 yen)
