Market report: Negative sentiment hits, disappointing earnings, Standard Chartered plunges and decision day for ECB
- Wave of negative sentiment hits amid disappointing results and geo-political concerns.
- Standard Chartered takes a $1 billion hit due to struggling Chinese real estate sector.
- US Treasury yields rise as fresh data lifts expectations that rates will stay higher for longer.
- Brent crude hovers around $90 a barrel on supply fears over Middle East violence.
- Caution ahead of the ECB decision on interest rates.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’A sharp pullback on Wall Street and some disappointing earnings results are triggering another wave of negative sentiment. It comes amid caution ahead of a key interest rate decision from the European Central Bank and ongoing violence in the Middle East. The FTSE 100 has opened in the red as geopolitical and economic concerns collide.
Standard Chartered falls sharply
Standard Chartered, the Asia-focused bank, is one of the biggest fallers on the index, dropping like a stone after its pre-tax profits fell 33% in the third quarter. Shareholders are clearly very disappointed by this sharp reversal of fortunes compared to the second quarter. Its exposure to China, where it’s expanded rapidly, is its weakest link, with the real estate sector buckling under a mountain of debt. It’s been forced to write down the value of its assets, in real estate, and its stake in China Bohai Bank, to the tune of $1 billion. This is a very discordant note for the Bank and its hard to see how the music will change much soon, given the property sector’s ongoing woes as the Chinese economy struggles to grow. There may be hopes that the big stimulus plan announced will provide the medicine needed but authorities have been at pains to point out it’s not designed to prop up the troubled property sector.
US Treasury yields rise
A fresh jump in Treasury yields is also causing ripples across wider bond markets and diminishing appetite for stocks, because when high guaranteed returns from investments in government debt beckons investors away from equities. Yields moved higher after US home sales rebounded, taken as further evidence of the resilience of the US economy and the need for interest rates to linger for longer to bring down the price spiral. However, Alphabet’s results have also contributed to the broader mood of caution. Disappointing revenues in its Google Cloud business suggest spending caution from companies, despite the frenzy for all things AI. Microsoft appears to be doing a better job of hoovering up any demand, with its Azure cloud business growing rapidly in the third quarter, leaving Alphabet behind.
Oil hovers around $90
Nerves are still on edge about the potential for conflict in the Middle East to widen. There has been no let-up in the bombing of the Gaza strip as Israel prepares for a ground invasion, and a lack of agreement on a pause in fighting for more aid to get through. Brent crude prices are hovering around $90 a barrel as concerns continue that supply could be disrupted across the oil-rich region if other countries are drawn into the conflict.
Caution ahead of ECB decision
Elevated energy prices will be playing on the minds of European central bank policymakers. Nevertheless the ECB is expected to join the pause party and keep interest rates on hold. They are already at historically high levels, and with economies showing more signs of fragility, and the services sector expected to slow into the winter months, policymakers are expected to adopt a wait and watch policy for previous rate hikes to take full effect.’’
