Tech giants’ market cap dips on rising bond yields, AI caution

Oct 3 – Global technology giants faced the biggest drop in their market capitalization in September, hit by a rise in US bond yields and waning enthusiasm over artificial intelligence (AI).

The market cap of Apple Inc (AAPL) shed about 9% to 2.67 trillion at the end of September, while Microsoft Corp (MSFT) and Alphabet Inc’s (GOOGL) market cap declined about 4% each to USD 2.3 trillion and USD 1.6 trillion, respectively.

US economic data released last month showed a tight labor market and a resilient economy, feeding concerns inflation levels would stay elevated and that the Federal Reserve would need to keep interest rates higher for an extended time to curb inflation.

Those worries pushed US 10-Treasury yields to hit a 16-year high last month, tarnishing the allure of riskier assets.

Tech stocks were particularly impacted, as the rise in Treasury yields, which are regarded as risk-free rates, diminished the value of the future cash flow of tech firms.

The market cap of Nvidia Corp, which benefitted from a boom in AI earlier this year, dropped nearly 12% to USD 1.07 trillion. Still, the company’s market cap has risen almost 200% this year.

Still, Goldman Sachs was optimistic about the outlook for mega-cap stocks, saying the consensus sales and earnings expectations for the largest US tech stocks have been upgraded since the start of August.

“The divergence between falling valuations and improving fundamentals represents an opportunity for investors: On a growth-adjusted basis, the mega caps trade at the largest discount to the median S&P 500 stock in over six years,” it said.

On the other hand, Exxon Mobil Corp (XOM) and UnitedHealth Group Inc (UNH) climbed about 6% each to USD 470.7 billion and USD 467 billion, respectively.

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Bernadette Baum)

European futures point to second day of losses

European shares look likely to fall for a second day on Tuesday, as investors grow uneasy about a rapid surge in long-term bond yields and continued dollar strength as they ponder the interest rate outlook in the United States.

Fed Governor Michelle Bowman said on Monday she was willing to support another rate hike if upcoming data shows progress on inflation is stalling or proceeding too slowly.

EuroSTOXX50 and FTSE futures fell 0.5% and 0.2%, while S&P contracts eased 0.1% following a flat day on Monday, when gains across tech offset a big drop in rate-sensitive utilities.

European corporate news was quiet as companies prepare for the fourth quarter earnings season.

Among the stocks to watch, Boohoo could come under heavy pressure after the British online fashion retailer warned a slower-than-expected recovery in sales would see revenue for the year fall by 12%-17%. Peers like Zalando could also take a hit.

UK baker Greggs instead kept its FY outlook as underlying sales rose in the third quarter and it won market share, while on a more upbeat note, Swiss construction chemicals maker Sika nudged up its sales growth target to 6-9% per year.

Finally, Thyssenkrupp was also one to watch. Its top shareholder expects involved stakeholders to soon decide on the future of the German conglomerate’s steel division, its head told a German newspaper.

Japan’s Nikkei slumps to 4-month low as US yield spike crushes sentiment

TOKYO, Oct 3 – Japan’s Nikkei share average slumped to a four-month low on Tuesday as sentiment soured amid higher US yields and the Federal Reserve’s pledge of an extended period of tight financial conditions.

The Nikkei extended losses in the afternoon, dipping as low as 31,157.40 for the first time since June 1 before closing 1.64% lower at 31,237.94.

Of the index’s 225 components, 211 fell, with 11 gaining and three flat.

The broader Topix slipped about 1.68%.

The benchmark 10-year Treasury yield marched to a fresh 16-year peak above 4.7% overnight after Fed Governor Michelle Bowman and Fed Vice Chair for Supervision Michael Barr reiterated the higher-rates-for-longer refrain at separate events.

The rise in long-term US yields helped push the yen to the lowest in a year at close to 150 per dollar, but that failed to help lift Japanese exporter shares.

Toyota Motor sagged 3.05% and Mazda sank 6%.

“Normally yen weakness would be a reason for stocks to rise, particularly the exporters, because it boosts overseas profits,” said Nomura Securities strategist Maki Sawada.

“But because the background for the move is a rise in long-term yields, it’s a weight on the Nikkei.”

The promise of extended tight financial conditions also weighed on crude oil, which tumbled 2% overnight.

As a result, resource shares were the worst performers. Among the Tokyo Stock Exchange’s 33 industry groups, mining paced declines with a 6.26% plunge, followed by a 5.47% drop for oil and coal producers.

Refiner Inpex was the worst-performing Nikkei stock, sagging 6.49%. Peer ENEOS Holdings lost 5.86%, while JGC Holdings, an engineering company also involved in the oil business, dropped 5.79%.

Tech stocks provided some relief, helped partly by the Nasdaq’s outperformance overnight on Wall Street.

Online services providers LY Corp and Recruit Holdings rose 1.31% and 0.33% respectively, while Nintendo gained 0.49% and Sony Group added 0.45%.

(Reporting by Kevin Buckland; Editing by Sohini Goswami)

Oil rebounds from 3-week low, settles up despite stronger dollar

NEW YORK, Oct 3 – Oil prices recovered to settle slightly higher on Tuesday after sinking to three-week lows, pressured by a stronger US dollar and darkening global economic signals but supported by tightening crude supply.

Brent crude oil futures settled 21 cents higher at USD 90.92 a barrel, after falling to a session low of USD 89.50, the lowest since Sept. 8.

US West Texas Intermediate crude (WTI), settled up 41 cents at USD 89.23 per barrel. The session low was USD 87.76, the weakest since Sept. 12.

Prices sank early as the US dollar rose to a 10-month high against a basket of major peers after US job openings data pointed to a still-tight labor market that could prompt the Federal Reserve to raise interest rates next month.

“We have seen an incredible increase in the yields and the dollar and that’s raised concerns about demand going forward,” said Phil Flynn, an analyst at Price Futures Group.

Higher interest rates and a stronger dollar make oil more expensive for holders of other currencies, which could dampen oil demand.

Investors kept an eye on any supply updates following last month’s decision by Saudi Arabia and Russia to extend output cuts to the end of the year. The two countries belong to OPEC+, the Organization of the Petroleum Exporting Countries and allies.

The producer group is expected to keep output policy unchanged when it meets on Wednesday, keeping supplies tight.

Saudi Arabia is expected to raise its November official selling price of Arab Light crude to Asia for a fifth straight month, according to a Reuters survey.

Russia is setting no time frame for a fuel export ban it introduced last month, and which will remain in place as long as necessary to stabilize prices and address shortages on the domestic market, Interfax cited Deputy Prime Minister Alexander Novak as saying.

Talks to restart Iraqi oil exports via a crude oil pipeline that runs through Turkey are still ongoing, an Iraqi oil official told Reuters, a day after Turkey said operations would restart this week after nearly a six-month stoppage.

“In theory, under the terms of the OPEC+ deal, production (outside the Gulf Cooperation Council) should remain flat over Q4. However, Iraq’s compliance has been somewhat spotty in the past and export levels should be expected to rise, assuming the pipeline resumes operations as planned,” BMI Research analysts said.

Iraq, OPEC’s second-biggest producer, also said it would award 30 new oil and gas projects in its fifth and sixth licensing rounds.

In US supply, industry data showed crude stocks fell by about 4.2 million barrels in the week ended Sept. 29, according to market sources citing American Petroleum Institute figures on Tuesday.

US government data on stockpiles is due on Wednesday. Eight analysts polled by Reuters estimated on average that crude inventories fell by about 500,000 barrels in the week to Sept. 29.

(Reporting by Stephanie Kelly, Natalie Grover, Laura Sanicola and Trixie Yap, Editing by Marguerita Choy, Mark Potter, Paul Simao, and David Gregorio)

New quarter, same old market dynamics

Oct 3 – Yet another surge in the dollar and US bond yields on Monday suggests the momentum in these assets – which set the tone for markets around the world – is not about to slow down just because the final quarter of the year is underway.

If anything, it is accelerating. Asian markets could be in for a rocky ride on Tuesday after the 10-year US Treasury yield leapt above 4.70% to its highest level since 2007 and the dollar spiked to its highest in almost a year.

Investors in Asia are also awaiting the Reserve Bank of Australia’s latest policy decision and guidance on Tuesday. But it is the relentless rise in US Treasury yields and the dollar that will set the tone across the region.

From an Asian FX perspective, these moves can quickly snowball. Higher US yields boost the dollar, which pushes Asian currencies lower, raising speculation that countries with particularly weak exchange rates might intervene by selling FX reserves, thereby pushing up US yields. Repeat to fade.

Japan is in or around this kind of territory. The dollar is a whisker from 150.00 yen – the yen is at its weakest in over 50 years on a real effective exchange rate basis – and Tokyo could intervene at any moment, potentially selling some of its huge stash of US Treasuries.

But the Bank of Japan is also fighting on the domestic bond market front, announcing on Monday that it will conduct extra bond-buying operations as the 10-year yield reached its highest in a decade at 0.78%.

A closely watched BOJ survey on Monday showed that Japan’s business sentiment improved in the third quarter, with big non-manufacturers’ mood brightening to levels not seen since 1991. This would strengthen the view that the BOJ is closer to ditching 30 years of ultra-loose monetary policy, hence the rise in domestic yields.

But the yen continues to slide, suggesting it is still being driven by US yields and the dollar side of the equation. Something has to give.

Australia’s central bank is expected to keep its key interest rate steady at 4.10% on Tuesday, according to a Reuters poll, but hike it to a peak of 4.35% by the end of this year as inflation remains above target.

All but two of 32 economists in a Sept. 27-28 poll expected the RBA to hold its official cash rate steady. The two outliers forecast a 25 basis-point hike.

Like nearly every currency in the world on Monday, the Aussie dollar got crushed under the wave of US dollar-buying, falling more than 1% to USD 0.6363. It was its steepest one-day fall in a month.

Here are key developments that could provide more direction to markets on Tuesday:

– Reserve Bank of Australia rate decision

– Australia, Japan services PMIs (September)

– South Korea manufacturing PMI (September)

(By Jamie McGeever; Editing by Deepa Babington)

S&P 500 ends near flat; utilities drop, focus on rate outlook

NEW YORK, Oct 2 – The S&P 500 ended nearly flat on Monday with utilities falling sharply and investors weighing the likelihood the Federal Reserve will need to hold interest rates higher for longer.

The Nasdaq rose, and shares of Nvidia (NVDA) gained 2.9% after Goldman Sachs added the chipmaker to its conviction list of top stock picks.

Fed Governor Michelle Bowman said she remains willing to support another increase in the central bank’s policy interest rate at a future meeting if upcoming data shows progress on inflation is stalling or proceeding too slowly.

The US central bank said last month it may hike rates again as it struggles to bring inflation closer to its 2% annual target.

“We ended September with a market that was enveloped by uncertainty,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina. All three major indexes posted losses for September and the last quarter.

“Coming into this month, it’s a market that needs confirmation that earnings are working their way higher. And, what’s crucial for the market is to ascertain where the Fed is headed,” she said.

Investors continue to keep a close eye on rising Treasury yields, she said, but Monday’s advance in yields was tied to an agreement to avert a partial US government shutdown, which reduced demand for the debt before this week’s key jobs data.

Rate-sensitive utilities was the day’s worst-performing S&P sector, falling 4.7% in its biggest one-day percentage decline since April 2020.

Energy also fell sharply along with lower oil prices, while technology was up 1.3%.

The Dow Jones Industrial Average fell 74.15 points, or 0.22%, to 33,433.35, the S&P 500 gained 0.34 points, or 0.01%, at 4,288.39 and the Nasdaq Composite added 88.45 points, or 0.67%, at 13,307.77.

Tesla (TSLA) shares ended up 0.6% even as the electric vehicle maker missed market estimates for third-quarter deliveries.

Economic data showed US factory activity decreased at a shallower-than-expected pace in September, while US construction spending increased in August. Investors anxiously await the monthly US jobs report due on Friday.

S&P 500 companies begin to report third-quarter results later this month, with analysts expecting earnings to have risen 1.6% from the year-ago quarter after falling 2.8% in the second quarter, according LSEG IBES data Friday.

Among S&P utilities, shares of NextEra Energy (NEE) fell 9% and hit their lowest level in about 3-1/2 years.

Volume on US exchanges was 10.84 billion shares, compared with the 10.49 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancers on the NYSE by a 4.61-to-1 ratio; on Nasdaq, a 2.43-to-1 ratio favored decliners.

The S&P 500 posted two new 52-week highs and 52 new lows; the Nasdaq Composite recorded 24 new highs and 327 new lows.

(Reporting by Caroline Valetkevitch in New York; additional reporting by Shubham Batra and Shashwat Chauhan in Bengaluru; Editing by Vinay Dwivedi, Maju Samuel, and Richard Chang)

Strong earnings will reverse decline in megacap tech stocks: Goldman Sachs

NEW YORK, Oct 2 – Strong upcoming earnings results could reverse the decline in mega-cap technology and growth stocks, which have been hammered by the rise in Treasury yields and are trading at their cheapest levels in six years by one measure, according to Goldman Sachs strategists.

The so-called Magnificent Seven group of megacap stocks -Apple, Microsoft, Amazon.com, Alphabet, Nvidia, Tesla, and Meta Platforms – have fallen 7% over the last two months, compared with a 3% decline in the broad S&P 500, as Treasury yields jumped more than 60 basis points to 16-year highs.

Those declines have pushed mega-cap forward price-to-earnings ratios down by a collective 20% over the last two months, leaving them trading at their largest discount to the market based on long-term growth since January 2017, Goldman Sachs said in a note dated Oct. 1. At the same time, the group is expected to post sales growth of 11% in the third quarter, compared with a 1% improvement for the S&P 500, the firm noted.

The mega caps in aggregate have beaten consensus sales growth expectations 81% of the time and have outperformed in two-thirds of earnings seasons since the fourth quarter of 2016, Goldman’s strategists said.

“The divergence between falling valuations and improving fundamentals represents an opportunity for investors,” they wrote.

The bullish call on tech stocks comes as investor sentiment for equities overall has flatlined, which historically has been a contrarian indicator of more gains ahead, Savita Subramanian, equity and quant strategist at BofA Global Research, wrote in a note Monday.

The average recommended allocation to equities in balanced funds remained unchanged at 53% in September, below the benchmark of 60%, Subramanian noted. Falling sentiment has historically been a signal of broad gains over the following 12 months, she noted.

The S&P 500 has dropped nearly 5% over the last 10 trading days but remains slightly more than 11% up since the start of the year.

“We expect the S&P 500 to rally into year-end, with more upside in the equal-weighted index,” Subramanian wrote.

(Reporting by David Randall; Editing by Ira Iosebashvili and Mark Potter)

Oil prices climb as risk appetite grows, focus returns to supply outlook

TOKYO, Oct 2 – Oil prices edged up on Monday, recouping some of the losses suffered at the end of last week, as investors focused on a tight global supply outlook while a last-minute deal that avoided a US government shutdown restored risk appetite.

Brent December crude futures rose 49 cents, or 0.5%, to USD 92.69 a barrel by 0645 GMT after falling 90 cents on Friday. Brent November futures settled down 7 cents at USD 95.31 a barrel at the contract’s expiry on Friday.

US West Texas Intermediate crude futures gained 55 cents, or 0.6%, to USD 91.34 a barrel, after losing 92 cents on Friday.

Both benchmarks rallied nearly 30% in the third quarter on forecasts of a wide crude supply deficit in the fourth quarter after Saudi Arabia and Russia extended additional supply cuts to the end of the year.

The Organization of the Petroleum Exporting Countries with Russia and other allies, or OPEC+, is unlikely to tweak its current oil output policy when the panel called the Joint Ministerial Monitoring Committee meets on Wednesday, four OPEC+ sources told Reuters, as tighter supplies and rising demand drive an oil price rally.

“Oil prices started the week on a strong note amid supply concerns with no policy change by OPEC+ expected, while the avoidance of a U.S. government’s shutdown over the weekend gave some relief,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

“Still, whether or not the market will rise further will depend on future demand trends,” he said.

While OPEC+ is not expected to change its output policy given the recent strength in the market, Saudi Arabia could start to ease its additional voluntary supply cut of 1 million barrels per day (bpd), said ING analysts in a note on Monday.

“The Saudis have said that there is still concern over Chinese demand. However, PMI data out over the weekend will provide some confidence with China’s manufacturing PMI returning to expansion territory in September for the first time since March.”

Official data on Saturday showed that China’s factory activity expanded for the first time in six months in September, adding to a run of indicators suggesting the world’s second-largest economy has begun to stabilise.

However, a private-sector survey on Sunday was less encouraging, showing the country’s factory activity expanded at a slower pace in September.

Indeed, a durable recovery in China’s economy is being delayed by a deep property slump, falling exports and high youth unemployment, raising fears of weaker fuel demand.

Elsewhere, a last-minute decision by Republican House of Representatives Speaker Kevin McCarthy to turn to Democrats to pass a short-term funding bill pushed the risk of shutdown to mid-November, meaning the U.S. federal government’s more than 4 million workers can count on continued paychecks for now.

Amplifying supply fears, the US oil and gas rig count, an early indicator of future output, fell by seven to 623 in the week to Sept. 29, the lowest since February 2022, energy services firm Baker Hughes BKR.O said in its closely followed report on Friday.

Brent is forecast to average USD 89.85 a barrel in the fourth quarter and USD 86.45 in 2024, according to a survey of 42 economists compiled by Reuters on Friday.

(Reporting by Yuka Obayashi in Tokyo and Emily Chow; Editing by Jamie Freed, Shri Navaratnam and Kim Coghill)

Oil tumbles 2% to 3-week low on strong dollar, profit taking

NEW YORK, Oct 2 – Oil prices fell about 2% on Monday to a three-week low as a higher-priced Brent contract expired, the US dollar strengthened and traders took profits, concerned about rising crude supplies and pressure on demand from high interest rates.

On its first day as the front-month, Brent futures for December delivery settled at USD 1.49, or 1.6%, lower at USD 90.71 a barrel, or down about 5% from where the November contract expired on Friday. That was the Brent front-month’s biggest daily percentage decline since early May.

US West Texas Intermediate crude (WTI), meanwhile, fell USD 1.97, or 2.2%, to settle at USD 88.82 per barrel.

Analysts said some traders took profits after crude prices rose nearly 30% to 10-month highs in the third quarter.

Before the crude price pullback that started on Sept. 28, US speculators boosted their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges to the highest since May 2022, according to the US Commodity Futures Trading Commission.

It is “highly likely that profit-taking by speculators is currently playing a role (in the recent price decline) and should cease weighing on markets as the days pass,” analysts at energy consulting firm Gelber and Associates said in a note.

On Monday, the US dollar rose to a 10-month high against a basket of other currencies after the US government avoided a partial shutdown and economic data fuelled expectations the US Federal Reserve will keep rates higher longer, which could slow economic growth.

Higher interest rates along with a stronger dollar, which makes oil more expensive for holders of other currencies, could dent oil demand.

“The global outlook is quickly taking a turn for the worse and that is both driving the king dollar trade again and weighing on the crude demand outlook,” said Edward Moya, senior market analyst at data and analytics firm OANDA, noting that soaring bond yields were also pressuring crude prices.

In Europe, manufacturing data showed the eurozone, Germany, and Britain remained mired in a downturn in September.

In China, the world’s biggest oil importer, the World Bank maintained its forecast for 2023 economic growth at 5.1%, but trimmed its prediction for 2024, citing persistent weakness of its property sector.

MORE OIL COMING

Pumping more crude supply into the system, Turkey’s energy minister said the country will restart operations this week on a pipeline from Iraq that has been suspended for about six months.

Additionally, Saudi Arabia could start to ease its additional voluntary supply cut of 1 million barrels per day (bpd), ING analysts said in a note.

OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) plus Russia and other allies, will meet on Wednesday but is unlikely to tweak its current oil output policy.

A Reuters survey showed OPEC oil output rose for a second straight month in September despite cuts by Saudi Arabia.

(Reporting by Scott DiSavino in New York, Paul Carsten in London, Yuka Obayashi in Tokyo, and Emily Chow; Editing by Marguerita Choy and David Gregorio)

US recap: Quarter-end dollar pullback fizzles on inflation updates

Sept 29 – The dollar’s quarter-end pullback versus the euro, yen, and sterling fizzled on Friday at daily tenkan supports after inflation data from Japan, the eurozone and the US weighed more on short-term bund and gilts yields than Treasury yields and as US spending data remained solid versus German sales 1.2% dive.

Final Michigan consumer sentiment came in above forecast and final 1-year and 5-year inflation expectations were 0.1% higher than the preliminary, though still down from August.

New York Fed President John William reiterated officials’ data-dependent posture and high-for-longer rates guidance on Friday. The market isn’t pricing in further hikes, but neither is it for the ECB, with both seen likely to begin cutting rates by July.

The net result was that 2- and 10-year Treasury yields found support near 5% and 4.5%, bouncing slightly off the lows and helping the dollar recoup its earlier losses.

EUR/USD was flat, but was well off the 1.0617 high by the 10-day moving average and tenkan. Subsiding period-end squaring of September’s 4% slide, and what is set to be the eleventh consecutive week of losses, helped cap prices. But prices now need to break this week’s 1.0488 trend low by 2023’s 1.0482 trough on EBS to resume the downtrend.

With a US government shutdown seen quite possible on Sunday, markets and the Fed may be without key government economic data such as Friday’s employment report. That might leave the highly Treasury-yield sensitive USD/JPY uptrend to trade off of Monday and Wednesday’s US PMI reports, while dealing with the potential for MoF intervention to support the yen above 150 and toward 2022’s 32-year peak at 151.94.

USD/JPY’s early dip to tenkan and other support was scooped up by traders happy for any discounts while Fed-BoJ policy divergence remains immense.

Sterling fell slightly and was well off its 1.2271 Friday high by the daily tenkan and 10-DMA.

Aussie and USD/CNH were little changed, though seasonals might favor riskier assets and high-beta currencies in the fourth quarter.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

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