Comment: Anxious markets pause for breath ahead of Goldman Sachs & Morgan Stanley Q1 earnings
April 17, 2014 7:16 am
Equity markets trading on the soft side Thursday, pausing for breath following the previous session’s sharp gains with investors gearing up for another raft of high profile US earnings later from the likes of Goldman Sachs, Morgan Stanley, PepsiCo and GE. Poor numbers out of Bank of America and Credit Suisse on Wednesday reaffirmed the continuing deterioration in fixed income and trading divisions for heavyweight global investment banking giants.
No doubt, today’s releases from both GS and MS will be closely scrutinised by investors who will pick apart the earnings to get a read of the health of the US banking sector. Expect ongoing pressure in the bank sector with market participants likely to punish banks which are failing to restructure, deleverage appropriately to churn profitability and more importantly, are unable to settle litigation issues swiftly.
Staying on earnings, Stoxx600 tech index under pressure following poor earnings from Google and IBM with both shares in both companies sliding in after-hours trading in New York. Google reported Q1 revenues missed expectations while IBM suffered more than 20% drop in net income during the period on the back of huge restructuring costs. These numbers will only serve to exacerbate the ongoing rout in the tech sector on the back of bloated valuations for some large-cap tech names such as Facebook, Amazon and Netflix.
With huge amounts of liquidity pumped through global markets over the past 5 years due to central bank activism [namely the Fed’s QE] now being scaled back, traders are contending with the prospects of a raising interest rates in the year ahead which means there is now a sudden rush to re-adjust asset portfolios. Tech and biotech stocks were some of the biggest beneficiaries of this bull market period but with the party soon coming to an end, traders are taking stock and expressing their distaste with the inflated valuations which do not reflect true earnings potential for many major tech companies across the world. That’s also led to upcoming IPOs being either shelved or entering the market in a rather more measured and cautious manner; Weibo, China’s answer to Twitter for example, priced its shares at the bottom end of its range for its New York listing on the back of the selloff in the US tech space.
Moving away from US earnings, the immediate focus for financial markets is of course the ongoing crisis in the Ukraine; investors are set to pay a close attention to the meeting of senior diplomats from the EU, the US, Ukraine and Russia in Geneva due later today. That’s ahead of news that pro-Russian rebels have been killed by Ukrainian security forces and 13 have been injured in the eastern Ukraine.
This latest incident is likely to fuel further violence and aggression from Russian rebels who are looking to seize eastern Ukraine which will most certainly lead to a possible military response from the US who will support Ukrainian forces. That’s a worrying prospect for market participants who so far have dealt with the geopolitical tensions in good character on the notion that this crisis is mostly a war of words between the West and Russia. That however could all change quickly with military action as a possible prospect in forthcoming days unless the situation is destabilised and Russia withdraws its forces from the eastern Ukraine – markets are pensive and fearful that the worst case scenario of another ‘cold war’ could be on the cards.
Overnight in Asia, stock indices struggled as investors dissected earnings from Google and IBM as well as digesting China’s State Council saying it will cut the reserve requirement ratio for some rural banks. In the US on Wednesday, Fed head Yellen’s dovish comments at the Economic Club of New York warmed up investors who were worried that she turned hawk in recent weeks – her comments suggest otherwise. Yellen reckons it could take as long as two years for the US to reach full employment and low inflation risk remains significant which means the US would require low interest rates for some time. Looking ahead, with no release of major domestic economic data during the day, market participants will keep an eye on US weekly jobless claims and Philadelphia-area manufacturing activity data to get further market direction.
Equity markets trading on the soft side Thursday, pausing for breath following the previous session’s sharp gains with investors gearing up for another raft of high profile US earnings later from the likes of Goldman Sachs, Morgan Stanley, PepsiCo and GE. Poor numbers out of Bank of America and Credit Suisse on Wednesday reaffirmed the continuing deterioration in fixed income and trading divisions for heavyweight global investment banking giants.
No doubt, today’s releases from both GS and MS will be closely scrutinised by investors who will pick apart the earnings to get a read of the health of the US banking sector. Expect ongoing pressure in the bank sector with market participants likely to punish banks which are failing to restructure, deleverage appropriately to churn profitability and more importantly, are unable to settle litigation issues swiftly.
Staying on earnings, Stoxx600 tech index under pressure following poor earnings from Google and IBM with both shares in both companies sliding in after-hours trading in New York. Google reported Q1 revenues missed expectations while IBM suffered more than 20% drop in net income during the period on the back of huge restructuring costs. These numbers will only serve to exacerbate the ongoing rout in the tech sector on the back of bloated valuations for some large-cap tech names such as Facebook, Amazon and Netflix.
With huge amounts of liquidity pumped through global markets over the past 5 years due to central bank activism [namely the Fed’s QE] now being scaled back, traders are contending with the prospects of a raising interest rates in the year ahead which means there is now a sudden rush to re-adjust asset portfolios. Tech and biotech stocks were some of the biggest beneficiaries of this bull market period but with the party soon coming to an end, traders are taking stock and expressing their distaste with the inflated valuations which do not reflect true earnings potential for many major tech companies across the world. That’s also led to upcoming IPOs being either shelved or entering the market in a rather more measured and cautious manner; Weibo, China’s answer to Twitter for example, priced its shares at the bottom end of its range for its New York listing on the back of the selloff in the US tech space.
Moving away from US earnings, the immediate focus for financial markets is of course the ongoing crisis in the Ukraine; investors are set to pay a close attention to the meeting of senior diplomats from the EU, the US, Ukraine and Russia in Geneva due later today. That’s ahead of news that pro-Russian rebels have been killed by Ukrainian security forces and 13 have been injured in the eastern Ukraine.
This latest incident is likely to fuel further violence and aggression from Russian rebels who are looking to seize eastern Ukraine which will most certainly lead to a possible military response from the US who will support Ukrainian forces. That’s a worrying prospect for market participants who so far have dealt with the geopolitical tensions in good character on the notion that this crisis is mostly a war of words between the West and Russia. That however could all change quickly with military action as a possible prospect in forthcoming days unless the situation is destabilised and Russia withdraws its forces from the eastern Ukraine – markets are pensive and fearful that the worst case scenario of another ‘cold war’ could be on the cards.
Overnight in Asia, stock indices struggled as investors dissected earnings from Google and IBM as well as digesting China’s State Council saying it will cut the reserve requirement ratio for some rural banks. In the US on Wednesday, Fed head Yellen’s dovish comments at the Economic Club of New York warmed up investors who were worried that she turned hawk in recent weeks – her comments suggest otherwise. Yellen reckons it could take as long as two years for the US to reach full employment and low inflation risk remains significant which means the US would require low interest rates for some time. Looking ahead, with no release of major domestic economic data during the day, market participants will keep an eye on US weekly jobless claims and Philadelphia-area manufacturing activity data to get further market direction.
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