Equity Markets Fall Despite Positive US Session
Equity markets in the Asia-Pacific region faced a challenging day on Tuesday, with most indices falling despite a positive session in the US. In Europe, indices also struggled, opening lower amid ongoing economic uncertainties.
One factor behind the volatility in global markets is the strength of the US dollar. The dollar basket, which measures the value of the US dollar against a basket of other currencies, reached a new 10-month high on Monday afternoon. This surge is driven by resilient economic data and a hawkish stance from the Federal Reserve (Fed). The central bank’s rhetoric, combined with a more than 45 basis point increase in ten-year treasury yields in September, has pushed yields above 4.5% for the first time since 2007.
The potential for a US government shutdown later this month is another concern. Credit rating agency Moody’s warned that such an event would negatively impact the country’s rating. In a statement, Moody’s highlighted that a shutdown would “underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns that we have highlighted in recent years.” It is worth noting that Moody’s is the last of the three major credit agencies to assign the US a pristine rating.
Turning to earnings, clothing retailer ASOS reported a 15% decline in sales, in line with expectations. The company noted that its recovery is progressing, but it anticipates full-year earnings before interest and taxes (EBIT) to be at the lower end of the guided range.
In contrast, British technology group Smiths Group experienced a 20% rise in operating profit for the 12 months ending in July. The company benefitted from increased demand for scanners, valves, and connectors, driven by decarbonisation trends.
Air France-KLM Group also made headlines as it announced plans to renew its widebody fleets. The airline group will order 50 Airbus A350s to replace its aging Boeing 777s and Airbus A330s.
Looking forward, Costco Wholesale is expected to report solid earnings growth. Analysts predict a 13% rise in earnings per share to $4.79 for the fourth quarter, with revenue expected to increase by 7.8% to $77.78 billion. This performance is notable considering the current economic climate and the fact that Costco posted a 15% revenue increase last year. Investors have already recognized the company’s resilience, as reflected in its share price, which has risen by 22% so far in 2023.
In conclusion, despite a positive session in the US, equity markets in Asia-Pacific faced a downturn, while European indices opened lower. The strength of the US dollar, concerns about a potential government shutdown, and various corporate earnings reports are contributing to market volatility. Investors will be closely monitoring these factors as they navigate the ever-changing landscape of global equities.