Global Markets – Stocks struggle on mixed earnings, high Treasury yields

Global stock markets saw a decline on Thursday as US Treasury yields remained close to 5%, the country’s economy grew faster than anticipated, and corporate earnings were mixed.

According to data, the third quarter saw the fastest rate of growth in the US economy in almost two years. This was despite persistent recession warnings from 2022, as consumer spending was driven by rising wages in a tight labour market.

The selloff in the US Treasury market has been attributed to the unexpected strength of the US economy. The benchmark 10-year yield closed the day at 4.913%, down a little from earlier. Earlier in the week, it had reached 4.989%, just below 5.021%, the highest since 2007.

Market worries about the possibility of another rate hike by the Fed before the end of the year to control inflation have been sparked by the US economy’s growth.

The Fed’s job isn’t done and it does not appear that higher interest rates are doing the job for them. Friday’s personal consumption expenditure (PCE) price index, which is the Fed’s preferred inflation gauge, is also in focus.

The Dow Jones Industrial Average fell 0.15% to 32,986, the S&P 500 lost 0.5% to 4,164 and the Nasdaq Composite dropped 1% to 12,690.99.

Meta Platforms fell 3.8% on a weaker outlook, while megacaps Tesla and Microsoft fell 1.2% and 2.7% respectively, dragged by high interest rates.

Those declines came after Alphabet shares logged their worst session since March 2020, dropping 9.5%, as investors were disappointed with growth stalling in its cloud division. Amazon.com reports its results after the closing bell Thursday.

In Europe, the European Central Bank broke the longest streak of interest rate hikes in its 25-year history on Thursday, leaving its main rate at a record high of 4.0%, and saying the latest data continued to point to inflation slowly coming down to its 2% target.

There was limited market reaction to the decision, and the euro was down 0.25% on the day.

Europe’s broad STOXX index was down 0.43%, near a seven-month low hit earlier in the week.

European banks were the big earnings story on Wednesday, with Standard Chartered down 11.5% after the group announced its third-quarter profit unexpectedly plunged by a third due to a nearly $1 billion combined hit from its exposure to China’s real estate and banking sectors. Shares in BNP Paribas also fell, down about 3% after results.

MSCI’s broadest index of Asia-Pacific shares outside Japan hit an 11-month low, down about 1.15%.

High yields are reflecting concerns that rates will have to stay high for longer, and that won’t be good for the economy longer term; high yields are also competing for equity market investment; and the start of the earnings season has been a mixed bag, but generally on the negative side.