Wall Street hit by Walmart wipeout, gas concerns hit Europe
Falling in world stocks and some disappointing earnings in bond markets on Tuesday, the prospect of another super-sized US interest rate hike this week and Europe’s looming gas crisis put investors on edge.
Asia was buoyed by a new Chinese plan to tackle its asset woes overnight and tech giant Alibaba sought a primary listing in Hong Kong, but Europe and Wall Street could not keep up.
Walmart’s warning of profit and another cut in the International Monetary Fund’s global growth forecast weighed Wall Street down as the main markets opened.
Europe’s STOXX 600 also began a sharp decline after rising gains from consumer goods giant Unilever and higher commodity stocks.
But they were shrugged off on fears of a wider recession as EU leaders agreed to cut their countries’ use of gas and a 9 percent dive in UBS shares hit the banking sector.
Referring to high inflationary pressures, Diamond Hill International Equities Portfolio Manager Krishna Mohanraj said, “As these earnings unfold, the key question we have is how much pricing power do these (consumer-facing) firms have.” “
“The second issue is whether the Fed will be able to control inflation without killing the economy.”
A turbulent Wall Street restart left Walmart shares down nearly 9% after it lowered its forecasts Monday because of those exacting issues.
General Electric gained 6 per cent, though growth in its aviation business helped beat estimates. Coca-Cola rose 1 percent after raising forecasts, while Unilever rose 2.5 percent after earnings, Chief Executive Alan Jopp said, adding that “strong pricing” has enabled it to moderate cost inflation.
EU countries had previously approved a weak emergency plan to halt their gas use, after striking deals to limit the hit to some countries as they face further Russian supply cuts. Were prepared.
The Kremlin warned again that state monopoly Gazprom will further reduce its supply this week due to another maintenance issue on the Nord Stream 1 pipeline, reducing already current flows.
It raised European gas prices by about 10 percent and they are now 450 percent higher than a year ago, though well below a record high shortly after Russia launched an invasion of Ukraine in February.
“It’s a game of cat and mouse,” said Christopher Granville, managing director of EMEA and Global Political Research at TS Lombard.
“Russia’s position will always be that it will continue to supply gas within constraints caused by the sanctions of the West. But then they will find a lot of problems that suddenly come to the fore.”
Graphic – The rise in gas prices in Europe
Fed Up, IMF Down
Investors are also looking forward to a potential 75 basis point increase in the Federal Reserve’s interest rate on Wednesday — about 10 percent risking a big hike in market pricing. They would also like to see if economic warning signs indicate a change in rhetoric.
The IMF cut global growth forecasts again on Tuesday, warning that high inflation and the effects of the Ukraine war will push the world economy to the brink of recession if left unchecked.
It now sees global real GDP growth of 3.2 per cent in 2022, lower than the 3.6 per cent projected in April, adding that the world economy actually contracted in the second quarter due to slowdowns in China and Russia.
However for the United States, the IMF reaffirmed its July 12 forecast of growth of 2.3 percent in 2022 and an anemic 1.0 percent for 2023, which it had cut twice since April.
“Since April the outlook has deepened significantly. The world may soon be on the verge of a global recession, two years after the previous one,” said IMF chief economist Pierre-Olivier Gourinches.
not so high tech
Global tech giants Microsoft and Google are both reporting after the Wall Street session, followed by Facebook bosses Meta tomorrow and Apple and Amazon on Thursday.
Deutsche Bank’s Jim Reid said this adds a market cap of more than $7.5 trillion, while those five stocks were still valued at close to $10 trillion at the start of the year.
In Asia, MSCI’s broadest regional index outside Japan had jumped 0.5 per cent.
Chinese stocks jumped after reports the country will set up a fund of up to $44 billion to help property developers.
Hong Kong’s Hang Seng index ended 1.7 percent higher on Alibaba News, though Japan’s Nikkei fell 0.16 percent.
Among currencies, the dollar was pushing higher from recent milestones as uncertainty loomed large around interest rates and the economic outlook.
The euro fell from $1.0250 to $1.0139 on concerns over Europe’s energy security.
The yen held steady at 136.44 per dollar. The US dollar index, which touched a 20-year high this month, was up 0.6 per cent on the day at 107.132.
Oil prices rose further on hopes of a cut in Russia’s gas supply, with Brent futures rising 1.5 per cent to $106.68 a barrel and US crude up 1.6 per cent to $98.21 a barrel.
The benchmark 10-year Treasury yield declined to 2.73 per cent from 2.87 per cent at the end of last week. Germany’s benchmark 10-year bond yield is also back below the psychological 1 per cent range as worries over a Europe recession intensify.
Tuesday also celebrated the 10-year anniversary since then, with ECB president Mario Draghi pledging to “do whatever it takes” to prevent the euro zone’s collapse.