2. Stocks Get Hammered on Weaker Earnings
- Global stocks dipped on Wednesday in response to mixed corporate earnings that could be the first hint of trouble as companies look to downsize and demand starts to decline.
- In government debt markets, the yield on the 10-year US Treasury note rose 0.13% to 4.13% as bonds were hammered (yield increases when bond prices fall).
With interest rates and inflation soaring, it was only a matter of time before earnings got compressed and investors started seriously considering the prospect of a recession.
Which is why global stocks dipped on Wednesday in response to mixed corporate earnings that could be the first hint of trouble as companies look to downsize and demand starts to decline.
Reporting third-quarter earnings on Wednesday, consumer groups Procter & Gamble (+0.93%) and Nestlé (-0.32%) became the latest companies to fall victim to inflation with both groups experiencing falling sales volumes in the three months to September while simultaneously having to grapple with higher energy and labor costs and the strength of the dollar.
Central banks led by the U.S. Federal Reserve have been aggressively tightening monetary policy this year in an effort to rein in price rises but, the speed and scale of interest rate hikes have raised fears that economies will be pushed into recession.
In the U.S, the Fed has increased borrowing costs by 0.75% at each of its past three meetings and is expected to do the same again at its next meeting with inflation still running white hot.
Meanwhile, annual inflation in the United Kingdom accelerated in September to 10.1%, up from 9.9% in August, on the back of higher food prices, and putting continued pressure on the Bank of England and the current government.
In government debt markets, the yield on the 10-year US Treasury note rose 0.13% to 4.13% as bonds were hammered (yield increases when bond prices fall).
Yield on the equivalent 10-year UK instrument fell to 3.88% but mainly thanks to expectation of intervention by the Bank of England.
The pound shed 0.9% against the dollar to US$1.12, while the greenback added 0.7% against a basket of six peers and the yen touched a new 32-year low against the US currency of ¥149.89, just a whisker away from the psychologically-important 150 level.
The risk-reward outlook for markets has become unfavourable in the near term, reflecting a combination of persistent inflation, rising rates, falling growth estimates, and heightened financial stress.
And many of the themes already challenging markets appear to be in overdrive, with the war in Ukraine dragging on, few signs that China has paved a path out of the pandemic and continued inflation and interest rate hikes in the U.S.