by Claude Chendjou
PARIS (Reuters) – Major European stock markets are expected to rise on Wednesday as investors digest results from Microsoft and AMD, as well as a host of European releases ahead of U.S. Federal Reserve decisions and a key euro zone inflation indicator.
According to the first available indications, the Parisian CAC 40 should gain 1.01% at the opening. The Dax in Frankfurt could advance by 0.50%, while the FTSE 100 in London should gain 0.60%. The EuroStoxx 50 index is expected to increase by 1.11% and the Stoxx 600 to rise by 0.93%.
The session could be volatile even though there is little doubt that the Fed will keep the federal funds rate at its current levels in a range of 5.25%-5.50% after two days of discussions within the FOMC, its monetary policy committee.
The uncertainty is more about the future trajectory of borrowing costs. A comment deemed restrictive by Fed Chairman Jerome Powell could trigger a fresh sell-off in stocks as tech giants are currently rotating into small and mid-caps on fears that the “magnificent seven” are overvalued.
Microsoft, one of those giants, reported lower-than-expected quarterly revenue growth in its cloud computing division on Tuesday evening. The stock fell 4% in after-hours trading. Microsoft’s announcement suggests that the return on investment in artificial intelligence (AI) will take longer than expected, after the disappointment caused by the publications of Alphabet and Tesla.
However, Advanced Micro Devices’ raised forecast for AI chips offers some cause for optimism, with the stock up 7.5% in after-hours trading. The market now awaits financial statements from Meta, Apple and Amazon later this week.
In addition to monetary policy and tech giants’ earnings, investors will also be watching data on the US labor market, with the ADP private employment survey due out at 12:15 GMT ahead of Friday’s official report. The latter is expected to show a slowdown to support the soft landing view for the economy and the prospect of a monetary easing cycle.
In the Eurozone, the first estimate of inflation for July will be known at 09:00 GMT while the day before Germany surprised with a reacceleration of price dynamics to 2.6% over one year. The monthly inflation indicator in France is expected at 06:45 GMT.
A WALL STREET
The New York Stock Exchange ended in mixed order on Tuesday, with only the Dow Jones ending higher, while the S&P 500 and Nasdaq declined amid caution ahead of earnings releases from several tech giants this week.
The Dow Jones index gained 0.50%, or 203.40 points, to 40,743.33 points.
The broader S&P 500 lost 27.10 points, or 0.50%, to 5,436.44.
The Nasdaq Composite fell by 222.78 points (1.28%) to 17,147.42 points.
The financial sector, which gained 1.19%, outperformed the market, extending and highlighting a recent rotation away from high-growth stocks.
Among the stock moves of note on Tuesday, Procter & Gamble fell 4.84% after posting disappointing results. Merck plunged 9.81% after lowering its annual profit forecast.
IN ASIA
On the Tokyo Stock Exchange, the Nikkei index rose 1.49 percent to 39,101.82 points, supported by banks. The Bank of Japan (BoJ) raised interest rates on Wednesday and said it expects inflation to remain around its 2 percent target in the coming years. The broader Topix gained 1.45 percent to 2,794.26 points.
The MSCI index of Asia and Pacific stocks (excluding Japan) gained 1%.
In China, the Shanghai SSE Composite gained 1.92% and the CSI 300 gained 2.05%, with both indexes led by consumer stocks. Chinese leaders said Tuesday that the stimulus needed to hit the economic growth target this year would be targeted at consumers, a departure from the usual strategy of investing primarily in infrastructure projects.
On the indicator side, manufacturing activity in China contracted for a third consecutive month in July with an index at 49.4, while in the services sector, the official PMI index stood at 50.2 in July against 50.5 in June.
VALUES TO FOLLOW IN EUROPE:
L’Oréal reported a 5.3% rise in like-for-like sales in the second quarter, slightly below expectations as China continues to weigh on the cosmetics giant.
Airbus reported a smaller-than-expected decline in second-quarter operating profit, mainly reflecting charges in space systems programmes and lower deliveries of commercial aircraft.
CHANGES/RATES
The dollar fell 0.03% against a basket of benchmark currencies, while the euro gained 0.05% to $1.082 and the pound sterling gained 0.04% to $1.2839.
The yen rose 0.05 percent to 152.83 per dollar after the BOJ raised rates and unveiled a plan to scale back its massive bond-buying program. The Japanese currency hit a 38-year low of 161.96 per dollar earlier this month.
The yield on 10-year U.S. Treasury notes was steady at 4.1394%, after falling about three basis points on Tuesday.
The yield on the German Bund of the same maturity was virtually unchanged at 2.331% after falling around four points on Tuesday.
OIL
The oil market rebounded on Wednesday after the assassination of Hamas leader Ismail Haniyeh in Iran, which could escalate tensions in the Middle East.
Brent rose 1.63% to $79.91 per barrel and US light crude (West Texas Intermediate, WTI) rose 1.81% to $76.08.
(Written by Claude Chendjou, edited by Kate Entringer and Augustin Turpin)
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