A series of earnings reports set a test for the lofty valuations on global stock markets on Thursday, with European bourses slipping after a mixed run in Asia, although futures trade pointed to further gains on Wall Street. The main driver of the negative trend was the poor economic data from South Korea, one of Asia’s biggest exporters.
South Korea’s economy unexpectedly shrank in the first quarter, marking its worst performance since the global financial crisis, as government spending failed to keep up the previous quarter’s strong pace and as companies slashed investment. The shock contraction reinforced financial market views that the central bank is likely to make a U-turn on policy, shifting to an easing stance and possibly cutting interest rates to counter declining business confidence and growing external risks.
In Europe, the corporate headlines are on the focus of investors, taking the focus from Brexit, but uncertainty remained as Britain’s Conservative Party looks likely to demand a “clear roadmap” for Prime Minister Theresa May’s departure if a European Union divorce deal is not approved.
Asian markets recap
The main stock indexes in the Asia-Pacific region ended today’s trading session into the red after the good quarterly earnings reports raised concerns of investors that Beijing could revise its stimulus policy.
In China, the mainland index Shanghai Composite wiping out 77.79 points, or 2.43%, dropping to 3,123.83 points. Hong Kong’s index Hang Seng fell by 241.57 points, or 0.81%, to 29,564.26 points. Many investors are afraid that the Chinese authorities can put an end to the financial incentives they were provided to local businesses to regain the good growth of the economy. The stocks of Tencent traded in Hong Kong reported a decline of more than 2%.
In Japan, the benchmark Nikkei 225 added 107.58 points, or 0.48%, to its value, ending the day at 22,307.58 points. The Financial Times reported that the Central Bank of Japan has promised not to raise interest rates before the spring of 2020. For the first time, Japanese Central Bank sets an end date for the “extended period” during which it intends to maintain the low interest rates by applying a monetary policy originally used by the US Federal Reserve in 2011. The specific date gives the markets more security, although almost no one expected an increase in the interest rate next year. No major change in the economy is expected.
In South Korea, the local index Kospi dropped by 0.48% to 2,190.50 points after it became clear that the country’s economy shrunk in the first quarter, taking into account its weakest performance since the last financial crisis. The shares of chipmaker SK Hynix rose by 2.17% after the company said it expects the demand for memory chips to recover later this year. The stocks of LG Electronics also rose by 4.48%, driven by the news that the company plans to move its South Korean mobile phone to Vietnam.
Australian stock exchanges are closed today for holidays.
European markets mid-session recap
German index DAX 30 recovered early loses from Thursday opening deals and fluctuates near 12,312 points at 11:20 GMT. The stocks of carmakers Daimler and Volkswagen edged lower by 0.65% and 0.91%, while the stocks of software giant SAP moved into correction by 0.4%, after rising by 11.9% yesterday after the strong earnings report. The stocks of Deutsche Bank added 0.45%, while Commerzbank dropped by 2.65% after the banks abandoned their merger. There are no German or eurozone events on the schedule.
French index CAC 40 is trading with a decrease of 0.15% to 5,567.87 points at mid-session trading. The shares of automakers Peugeot and Renault dragged the benchmark down, reporting a decrease of 2.22% and 1.01%, while the shares of Airbus inched higher by 0.14%.
British shares were in the red on Thursday as investors soured on Sainsbury’s after the company scrapped its proposed takeover of Walmart’s Asda, while Taylor Wimpey’s warning on margins triggered a sell-off among housebuilders. The blue-chip index FTSE 100 loses 29.76 points, or 0.4%, to 7,441.99 points at mid-session trading. Sainsbury’s tumbled 5.6% to a near three-year low after the supermarket chain scrapped its proposed 7.3 billion GBP takeover of Walmart-owned Asda after the deal was blocked by Britain’s competition regulator. Shares of rivals Tesco, Morrisons and Ocado were down between 1.3% and 3%. Taylor Wimpey shed 4.5% and was on course for its worst day in more than five months after it warned full-year margins would be slightly lower than last year as it cost more to build homes.
Wall Street pre-session recap
Wall Street stock index futures were mixed on Thursday morning, as market participants digested geopolitical news and looked ahead to another day of corporate earnings. After trading modestly lower in early trading, Dow futures tumbled after component 3M reported earnings that were much lower than analysts had expected.
At around 6:30 a.m. ET, Dow futures indicated a negative open of more than 165 points. Futures on the S&P are marginally down by 1.50 points, while Nasdaq Composite edged higher by 57 points.
The markets will focus on the data on jobless claims and durable goods at 8:30 a.m. ET and housing vacancies due at 10:00 a.m. ET.