Stocks fall on weak earnings report, yen at seven-week high

By Lawrence White

LONDON (Reuters) – Global stocks fell on Wednesday as earnings from Tesla, Alphabet and European luxury brands disappointed, while the yen rose to a seven-week high ahead of a central bank meeting next week.

The U.S. dollar remained broadly stable, with investors awaiting inflation data on Friday and the Federal Reserve’s meeting next week.

The pan-European STOXX 600 index was down 0.8% at 512.3 points by 0800 GMT, dragged down by a 2% decline in the personal and household goods sector after the world’s largest luxury group LVMH reported slower sales growth as Chinese consumers rein in spending.

MSCI’s broadest index of Asia-Pacific shares (excluding Japan) lost 0.4%, while Japan’s Nikkei fell 1%.

The gloomy mood looks set to continue in the U.S. Nasdaq futures fell 1% and S&P 500 futures fell 0.7% after Tesla reported its lowest profit margin in more than five years, weighing on other EV stocks.

“The earnings season is upon us on both sides of the Atlantic and so far investors have been disappointed with what they have seen,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.

Shares of Google owner Alphabet fell after the close of trading despite the company beating revenue and profit forecasts.

“Investors have wondered whether the huge amounts of money being invested in Google’s AI capabilities are actually delivering a return,” Clayton said.

Subdued trading in stocks around the world was a sign that markets were searching for direction, with investors focusing on a range of themes including the US election, interest rate cut expectations and weak corporate earnings reports.

U.S. GDP data released on Thursday and consumer spending data (the Fed’s favorite inflation indicator) released on Friday could help investors calibrate expectations about when interest rates might be cut.

Markets are pricing in 62 basis points of monetary policy easing this year, with a cut in September priced in at 95%, according to the CME FedWatch tool.

A growing majority of economists in a Reuters poll said the Federal Reserve would likely cut interest rates twice this year, in September and December, as resilient U.S. consumer demand requires a cautious approach despite falling inflation.

“The US consumer remains incredibly strong … but we’re starting to see some fragility in some of the data,” said Luke Browne, head of Asia asset allocation at Manulife Investment Management.

RIDE ON A JEN

The yen rose to a seven-week high of 154.36 per dollar, up almost 1% on Tuesday after hovering near a 38-year low of 161.96 earlier this month. It was last up 0.56% at 154.73.

Traders are focusing on the Bank of Japan’s meeting next week, where the probability of a 10 basis point rate hike is 44%. (FRX/)

Traders suspect Tokyo intervened in the currency market in early July to prop up the yen. Estimates from Bank of Japan data suggest authorities may have spent about 6 trillion yen ($38 billion) on the measure.

Suspicions of intervention have prompted speculators to pull out of popular and lucrative carry trades, in which investors borrow yen at low interest rates to invest in dollar-denominated assets for higher returns.

The yen also strengthened against other currencies, reaching a more than one-month high against the pound and the euro, and a two-month high against the Australian dollar. (AUD/)

The dollar index, which measures the U.S. currency against six other currencies, was unchanged at 104.53. The index is down 1.3% this month.

In commodities, oil prices rose on a drawdown in U.S. crude inventories. Brent crude futures for September rose 0.51% to $81.52 a barrel, while U.S. West Texas Intermediate crude for September gained 0.65% to $77.46 a barrel.

(1 dollar = 155.3600 yen)

(Reporting by Lawrence White in London and Ankur Banerjee in Singapore; Editing by Christopher Cushing, Sam Holmes and Edwina Gibbs)