Weak corporate reports undermine market sentiment - 26.10.2016

US stocks fall as reports disappoint

US stocks retreated on Tuesday after weaker than expected economic reports and earnings undermined investor confidence. The dollar ended little changed underpinned by Fed rate hike expectations. The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, closed at 97.820 Tuesday.

The Dow Jones industrial average declined 0.3% to 18169.27 led by shares of Home Depot and 3M, down 3.2% and 2.9% respectively. The S&P 500 lost 0.4% settling at 2143.16 weighed by consumer-discretionary and materials stocks. The Nasdaq index dropped 0.5% to 5283.40. Corporate earnings have been better than expected with 75.3% percent of the 150 companies that have reported so far beating analyst expectations, above the long-term average of 63.5%. At the same time lowered annual outlooks by a number of companies have raised concerns about prolonged earnings decline after 4 quarterly declines in a row. Bigger than expected decline in consumer confidence in October also weighed on market sentiment: consumer confidence dropped to 98.6 from 103.5 in September as reported by the Conference Board. In other economic news US home prices rose in August 5.1% over year according to the S&P Case-Shiller 20-City index. Today at 13:00 CET Mortgage applications will be released by the Mortgage Bankers’ Associations in US. At 15:45 CET October preliminary Services and Composite PMIs will be released by Markit. The tentative outlook is positive. At 16:00 CET September New Home Sales will come out. The tentative outlook is negative.

ASX 200

Earnings misses weigh on European stocks

European stocks European stocks closed lower on Tuesday with weak earnings reports undermining market sentiment despite strong readings of October business sentiment by German Ifo institute. The euro rose against the dollar after European Central Bank President Mario Draghi said in Berlin the central bank doesn’t want rates to stay negative for a protracted period.

The British Pound continued the slide paring earlier losses after Bank of England Governor Mark Carney told parliament that fiscal stimulus measures by the British government are needed to boost economic growth. The Stoxx Europe 600 index fell 0.4%. The DAX 30 ended down less than 0.1% at 10757.31 after earlier touching a new high for 2016 on reports Ifo institute’s business climate index hit its highest level since April 2014. France’s CAC 40 lost 0.3% while UK’s FTSE 100 outperformed closing 0.5% higher at 7017.64 helped by gains in mining stocks. Despite recent improvement in expectations Investors are concerned about the outlook for European stocks given the increased uncertainty after Brexit decision: in Europe 40% of companies have missed quarterly earnings expectations this season, compared to just 22% on the US S&P 500, according to Thomson Reuters. Today German GfK Consumer Confidence survey results for November came in at 9.7 while no change was expected from previous month’s level of 10. At 10:30 CET September Loans For House Purchases will be released by British Banker’s Association in UK. The tentative outlook is positive for Pound.

Australian stocks sell off on rising Australian dollar

Asian stocks are falling today with Australian stocks underperforming regional peers: Australia’s All Ordinaries Index fell 1.5% with Australian dollar gaining 0.6% after consumer prices rebounded by more than forecast in the third quarter, making another rate cut by the central bank this year less likely. The Shanghai Composite Index is 0.5% lower with investors wary tighter central bank scrutiny over banks’ wealth management products will result in tighter liquidity, Hong Kong’s Hang Seng index is down 1.0%. Nikkei pared earlier losses closing 0.15% higher at 17391.84 with weaker yen against the dollar lifting exporter stocks.

Oil prices retreat on expected US inventory build

Oil futures prices are extending losses today after the American Petroleum Institute industry group reported the 4.8 million barrels buildup in US crude stockpiles was bigger than the 1.7 million barrels increase expected. Market participants are also concerned major oil producers will not be able to come to agreement about output cuts after Iraq, the second biggest producer in OPEC after Saudi Arabia, said it should be exempt from any deal cut production as it needs the oil revenue to fund its continuing war against Islamic State militants. There have been reports Iraq is only willing to freeze output at its September production level of 4.78 million barrels a day. December Brent crude finished 1.3% lower at $50.79 a barrel on London’s ICE Futures exchange on Tuesday. Today at 16:30 CET US Energy Information Administration will publish US Crude Oil Inventories.

Precious metals rise

Gold prices are steady today as stronger physical demand for the precious metal ahead of late-October festival season Dhanteras and Diwali when gold is traditionally given as a gift offset negative impact from strong US dollar. Among other precious metals, platinum is 0.36% higher at $964.25 an ounce after rallying 2.5% the previous day. Silver is up 0.48% to $17.77 an ounce following 0.7% gain in the previous session.