European shares and US stock futures rose on Wednesday, helped by gains for Microsoft in pre-market trading, as a bullish forecast from the tech group lifted sentiment after a bruising session on Wall Street.
The regional Stoxx 600 share index was up 0.7 per cent by late morning in London, having dropped almost 1 per cent earlier in the day. Exporters were boosted by the euro hitting a fresh five-year low against the dollar of below $1.06 on bets of aggressive interest rate rises in the US.
Germany’s Dax edged 0.2 per cent higher and London’s FTSE 100 added 0.7 per cent. But implying further turbulence ahead, an index of the expected volatility of large-cap European stocks rose to a reading of 32, far above its long-run average of about 20, as traders struggled to assess the economic outlook against a backdrop of weak market sentiment.
European stocks were also supported on Wednesday by futures trading that implied Wall Street would recoup some losses from the previous day. Contracts tracking the benchmark S&P 500, which closed 2.8 per cent lower on Tuesday, added 1 per cent, as did those tracking the technology-heavy Nasdaq 100.
The broader Nasdaq Composite gauge lost almost 4 per cent in the previous session, in its worst daily drop since September 2020.
Google parent Alphabet reported a $1.5bn drop in quarterly profits after the closing bell, citing a slowdown in European advertising spending at its YouTube division, driven by Russia’s invasion of Ukraine. But at the same time, Microsoft topped analysts’ expectations for revenue and earnings in the latest quarter, with chief executive Satya Nadella predicting that tech spending would remain strong even if economic growth slowed.
Microsoft, which has a market value of $2tn, rallied 5 per cent in pre-marketing trading in New York, while Alphabet fell about 3 per cent.
Ahead of this earnings season, with Apple and Amazon yet to report results, some investors had hoped the dominance of big tech groups would secure their finances and relatively high valuations against the economic pressures of the war, and the impact of surging inflation on household finances.
“This sector was priced for perfection and set up to fail,” said Julian Howard, lead investment director for multi-asset solutions at fund manager GAM. “Anything that is short of a really good [earnings] beat is going to be severely punished by the market.”
Government debt markets mostly drifted, with the yield on the US 10-year Treasury note flat at 2.77 per cent after a bout of haven buying earlier in the week.
US Federal Reserve chair Jay Powell has signalled the central bank is poised for a string of rate rises to battle surging consumer prices. But strict social restrictions in China, stemming from the nation’s zero Covid policy, have muddled investors’ inflation forecasts.
“Markets are trying to sort out the economic consequences of lockdowns in China,” said Gergely Majoros, investment committee member at Carmignac, citing the risk of snarled up manufacturing supply chains exacerbating inflationary pressures from Russia’s invasion of Ukraine, which has boosted fuel and food prices.
But Chinese authorities having permitted the nation’s tightly controlled currency to weaken — the renminbi has dropped 3.4 per cent against the dollar this month — would also lower the cost of importing goods from the world’s workshop, which “could be deflationary”, Majoros said.
Brent crude, the international oil benchmark, rose 0.9 per cent to $103 a barrel. Gas futures linked to TTF, Europe’s wholesale natural gas price, were up almost 8 per cent to €106 per megawatt hour after surging by a fifth earlier in the day, after Russia’s Gazprom froze supplies to Poland and Bulgaria.
Credit: Source link
