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Tech stock sell-off intensifies

Equity markets were down across globe on Tuesday after results at two of the world’s largest tech stocks - Alphabet and Tesla - caused concerns that artificial intelligence isn’t yet sufficiently driving company earnings. US business activity ticked up so far in July, but in Europe, preliminary Purchasing Managers’ Indices (PMI) were weak, dragging down stock markets on the continent with them. Wall Street’s negative sentiment could be felt on markets in the Asia-Pacific region on Thursday.

Date
Author
Shane Strowmatt, LGT
Reading time
5 minutes

Falling market
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US Composite PMI increased 0.2 points from the previous month to hit 55 points in July, well above the 50-mark, which separates expansion from contraction. It was the fastest rate of expansion in US business activity in more than two years, supported by an increase in services activity. Production activity fell. The positive composite value couldn’t keep markets afloat with concerns about the high valuations of tech stocks setting in following earnings from Google parent Alphabet and Tesla after the bell on Tuesday. Alphabet’s shares plunged 5% and Tesla stock lost more than 12% on Wednesday. The tech-heavy Nasdaq-100 fell 3.7%, breaking through its 50-day moving average to the downside, which is often interpreted as a sell signal by traders. The Dow Jones Industrial slipped 1.3% and the S&P 500 lost 2.3%.

In central banking news out of North America, the Bank of Canada cut interest rates by 25 basis points on Wednesday, bringing its benchmark overnight rate to 4.5%. The move was in line with market expectations. At 2.7%, Canadian inflation is approaching the central bank’s target of 2% annual price increases.

Asian stocks follow Wall Street lower

In the Asia-Pacific region, stock markets were in the red across the board again on Thursday. In Tokyo, the Nikkei 225 dropped 3.1% extending losses for more than a week in a row, while the yen recorded a fourth consecutive day of gains. In South Korea, the Kospi lost 1.5% after gross domestic product (GDP) came in slightly below expectations. South Korea’s economy grew 2.3% on the year in the second quarter. In Australia, the S&P/ASX 200 was trading 0.9% lower. The latest efforts by the People’s Bank of China to prop up the economy didn’t seem to have much of an impact on equity markets on Thursday. The central bank cut its one-year medium-term lending facility rate to 2.3% from 2.5%. The unexpected move comes just days after the central bank surprised markets with reductions to its one-year and five-year loan prime rates. Hong Kong's Hang Seng Index was down 1.8%, while the CSI 300 was trading with a loss of 0.9%.

European earnings disappoint

Beyond the US, earnings season in Europe was picking up as well with individual titles also struggling to impress. Deutsche Bank shares lost 8.3% after the Frankfurt-based firm reported its first quarterly loss in four years. The loss, at EUR 143 million was slightly smaller than market expectations and was primarily due to a provision of EUR 1.3 billion for an ongoing lawsuit over its Postbank division. Shares of Europe’s second-largest listed company, LVMH, also dropped 4.7% after second-quarter sales growth slowed, primarily due to reduced spending on luxury fashion by Chinese consumers. The broader European markets were under pressure midweek with the Euro Stoxx 50 closing down 1.1% on Thursday, Germany’s DAX losing 0.9% and France’s CAC 40 dropping 1.1%.

Euro-area business growth slows, Germany contracts

In July, euro-area business activity growth slowed, with the preliminary Composite PMI dropping to 50.1 from 50.9 in June, just barely above the 50-mark, which indicates growth. The slowdown was mainly due to a sharp contraction in German manufacturing output, which led to an unexpected contraction in its overall business activity. The German Composite PMI slipped into contractionary territory at 48.7 in July, which was at odds with the country’s consumer confidence data also released on Wednesday. The GFK Consumer Climate for Germany for August came in at -18.4 points, up from July’s -21.6 points.

Outside of the euro area, British business activity accelerated this month, driven by the fastest manufacturing growth in two years and high new orders. UK Composite PMI increased to 52.7 in July from 52.3 in June, a half-year low.

Corporate and macroeconomic calendars

Corporate news in focus: Quarterly figures from Stellantis, AstraZeneca, Anglo American, TotalEnergies, Sanofi, Unilever, Nestlé, Julius Bär, Lonza, British American Tobacco, Roche, Honeywell, STMicroelectronics, Enel, Vinci, Hermes.

Economic data in focus: Swedish Producer Price Index, Germany’s ifo Business Climate Index, US gross domestic product, US durable goods orders, US weekly initial jobless claims, European Central Bank President Christine Lagarde speaks in Paris.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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