Stocks retreat on weak company results; dollar declines vs majors

Crude oil drops 2 pct, hits 3-month lows

NEW YORK, July 28, (Agencies): Global stock markets fell on Thursday in the wake of disappointing US and European corporate results while the dollar took its biggest tumble in almost two months after the US Federal Reserve left unclear when it will raise interest rates.

Expectations of further stimulus in Japan have dominated currency trading in recent weeks and overshadowed the US central bank’s policysetting statement on Wednesday, when the Fed indicated it was in no rush to raise interest rates.

Equity markets retreated after Royal Dutch Shell in Europe reported a more than 70 percent fall in quarterly profit that was well below analysts’ estimates.

On Wall Street, the S&P 500 was dragged down by Ford Motor , which posted poor second-quarter profit.

Investors are struggling to determine whether earnings will be strong enough to warrant stock prices that are close to being fully valued, said Rick Meckler, president of hedge fund Liberty View Capital Management LLC in Jersey City, New Jersey.

Ford reported weaker-than-expected profit and declared the US auto industry’s long recovery was at an end, sending its stock and shares of other auto companies into a tailspin. Ford’s stock fell 9.65 percent to $12.51.

However, Facebook opened at an alltime high of $128.31 after the company reported quarterly results that handily beat analysts’ estimates on Wednesday.

MSCI’s all-country stock index slid 0.07 percent and the pan-regional FTS Eurofirst 300 index in Europe fell 0.75 percent to 1,341.65.

The Dow Jones industrial average fell 74.03 points, or 0.4 percent, to 18,398.14. The S&P 500 slid 3.51 points, or 0.16 percent, to 2,163.07 and the Nasdaq Composite added 1.62 points, or 0.03 percent, to 5,141.43.

The yen gained against the dollar as investors feared the Bank of Japan will not meet high expectations for a large stimulus package when it concludes a two-day meeting on Friday.

Concerns about volatility around the BOJ’s announcement have sent the price of hedging against big swings in the dollar/yen exchange rate over the next 24 hours above 50 percent for the first time since late 2008.

The dollar fell 0.58 percent to 104.78 yen. The dollar index, which tracks the greenback against a basket of six major rivals, fell 0.46 percent to 96.611. The euro rose 0.28 percent to $1.1086.

In Europe, investors bought more than 8 billion euros of new debt from Italy, a day before Rome faces a crunch health check of its banks.

Oil prices fell nearly 2 percent, hitting three-month lows, after a fresh stock build at the delivery hub for US futures added to concerns that producers were pumping more than needed.

Brent crude oil fell 69 cents to $42.78 a barrel. US light crude declined 65 cents at $41.27.

US

The S&P 500 index and the Dow edged lower on Thursday as investors fretted about weak economic data and disappointing earnings from Ford.

The carmaker reported weak China sales and declared that the US auto industry’s long recovery was at an end, triggering a 9.6 percent fall in its shares. The stock was the biggest drag on the S&P 500 index.

Ford’s dismal forecast rattled the automobile market, with shares of General Motors falling 4 percent and Fiat Chrysler 6 percent.

Energy shares took a hit after oil prices fell 2 percent. Exxon and Chevron dropped more than 1 percent.

However, gains in Amazon.com, ahead of its results on Thursday, helped the Nasdaq limit losses.

Strong economic data had put Wall Street on a record-setting run in the past weeks, with the S&P 500 breaking its alltime high six times in 13 days.

“When you’ve got a one-way market, which we’ve had for several weeks, it is bound to consolidate or rest a bit,” said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.

“You also have some negative earnings reports and oil prices are back on people’s mind as it approaches the $40 level.”

At 12:38 pm ET (1638 GMT), the Dow Jones Industrial Average was down 74.71 points, or 0.4 percent, at 18,397.46.

The S&P 500 index was down 4.28 points, or 0.2 percent, at 2,162.3.

The Nasdaq Composite index was down 2.58 points, or 0.05 percent, at 5,137.23.

Eight of the 10 major S&P 500 sectors were lower, with the telecom services index falling the most. Consumer staples and utilities indexes were flat.

Declining issues outnumbered advancing ones on the NYSE by 1,538 to 1,298. On the Nasdaq, 1,639 issues fell and 1,096 advanced.

The S&P 500 index showed 25 new 52-week highs and no new lows, while the Nasdaq recorded 90 new highs and 22 new lows.

Europe

European shares fell on Thursday with Lloyds leading a weaker financial sector lower and disappointing earning updates from firms including oil major Royal Dutch Shell also weighing.

The pan-European STOXX 600 index fell 0.9 percent, while the FTS Eurofirst 300 index slid 1 percent.

Lloyds fell 5.8 percent after the British bank warned of a likely drop in demand caused by Britain’s vote last month to quit the European Union, adding that it would accelerate cost-cutting.

Despite an unexpected second-quarter net profit, Credit Suisse fell 5 percent, reflecting the cautious note struck by its CEO Tidjane Thiam, who is trying to turn around Switzerland’s second-biggest bank.

Even though the bank boosted its core capital to within its own target, some analysts remain unconvinced.

“We believe Credit Suisse will still need to raise another round of capital next year,” Bernstein, who rates the stock “underperform”, said in a note.

Shell declined by 2.9 percent after it reported a profit slump, while Dialog dropped 3 percent after the German supplier of Apple cut its 2016 sales outlook.

The STOXX 600 has rebounded by around 10 percent from a low point reached on June 27 after the shock Brexit vote, but it remains down by around 7 percent so far in 2016.

Equity strategists at Credit Suisse said that many investors remained pessimistic about European equities.

The bad debts of Italian banks remain a cause of concern, and the Credit Suisse strategists said Brexit had reawakened fears among U.S clients over the euro zone, with valuations at levels last seen during the Greek economic crisis of 2011.

“Outflows are close to record highs, valuations are back to Greek crisis lows on P/E relatives, yet earnings and economic momentum are showing signs of relative stability,” they wrote.

Roche Brune Asset Management fund manager Gregoire Laverne saw some positive signs from the corporate results season.

Finnish refiner Neste surged 9.9 percent to a record high after its secondquarter profit beat forecasts, while engineer Rolls Royce jumped 13.5 percent after forecasting an improvement in profit.

“European companies are generally looking to be on the right sort of path. Even if sales are not necessarily increasing, margins are increasing,” said Laverne.

Asia

The dollar sank Thursday after the Federal Reserve indicated it would take a slow, measured approach to any interest rate hikes, while Tokyo led most Asian markets lower on worries over the size of the Bank of Japan’s expected stimulus.

The strong yen sent Japan’s Nikkei tumbling as the country’s central bank began its own two-day policy meeting. Traders are worried the bank will not deliver Friday a big enough stimulus to kickstart the world’s number three economy.

The Japanese government’s announcement Wednesday of a 28 trillion yen stimulus — without releasing details — was unable to provide much excitement in Tokyo, where the Nikkei index ended 1.1 percent lower.

Elsewhere, Hong Kong slipped 0.2 percent by the close and Singapore was 0.9 percent off in the afternoon while Seoul ended down 0.2 percent and Manila dived 1.4 percent. Sydney, however, added 0.3 percent, while Shanghai edged up 0.1 percent after suffering a hefty loss Wednesday.

“Investors are wary that the BoJ will disappoint and it’ll lead to a bout of selling,” Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management, told Bloomberg News.

“The bar has already been raised too high for the BoJ’s policies. Unless there’s some sort of policy that crosses that line ... Japanese stocks will be sold and the yen will be bought.”

Tokyo — Nikkei 225: DOWN 1.1 percent at 16,476.84 (close)

Hong Kong — Hang Seng: DOWN 0.2 percent at 22,174.34 (close)

Shanghai — Composite: UP 0.1 percent at 2,994.32 (close)

Oil

Oil prices steadied just above threemonth lows on Thursday as producers continued to pump more than needed, filling inventories, and economic growth prospects darkened.

Brent crude oil was down 35 cents at $43.12 a barrel by 1335 GMT, after touching $42.88, its lowest since April 20. US light crude was down 15 cents at $41.77.

US government data on Wednesday showed a surprise rise in crude and gasoline inventories. The build added to an already huge global refined product glut just as slowing economic growth dents the demand outlook.

“US commercial stocks are a good reflection of the oversupplied nature of the global oil market,” said Tamas Varga, lead oil analyst at London brokerage PVM Oil Associates.

Oil markets have been dogged by oversupply for the last two years and fell by as much as 70 percent between 2014 and early 2016, when Brent hit the lowest in more than a decade at around $27 per barrel.

Markets have since recovered some ground but oil remains very weak and low refining margins are hurting energy companies.

Gold

Gold rose on Thursday after the Federal Reserve stopped short at this week’s policy meeting of indicating that a further increase in US interest rates is on the cards for later this year.

Spot gold was 0.2 percent higher at $1,341.81 an ounce at 1340 GMT, having ended Wednesday up 1.5 percent in the wake of the Fed statement. US gold futures for August delivery were up 1.1 percent at $1,341.10.

“The gold price reacted quite positively to the news that there was no rate hike, and that a September rate hike is not certain,” Capital Economics analyst Simona Gambarini said. “But this is probably short-term volatility.”

The dollar slid by the most in almost two months on Thursday and stocks slipped from nine-month peaks as the Fed’s cautious tone switched attention to the next round of money-printing measures from Japan.