The European economy was showing continued signs of weakness with the Composite Purchasing Managers’ Index (PMI) for the eurozone coming in at its lowest value in nearly three years on Tuesday. The drop fuelled speculation that the European Central Bank (ECB) could pause its interest rate hiking cycle when it announces its next monetary policy decision on Thursday. The euro fell versus the US dollar on Tuesday, while European equity markets made gains alongside Wall Street.
Composite PMI for the euro area fell to 46.5 in October from 47.2 a month earlier. That’s the lowest PMI for the eurozone since November 2020 and far below the 50-mark, signalling a contracting business activity. PMI in the bloc’s largest economy, Germany, fell for a fourth straight month in October. Germany has been struggling to produce economic growth this year after slipping into a recession late in 2022 and the signs are mounting that it may be in for a double-dip recession this year. A separate survey released on Tuesday showed that German consumer sentiment is still falling and not expected to recover this year. The GfK Consumer Sentiment Index fell to minus 28.1 points from last month’s minus 26.7 points. Despite the weak economic data, Germany’s DAX ended Tuesday’s session up 0.5% and the Euro Stoxx 50 gained 0.6%.
On the other side of the Atlantic, the US economy continued to surprise to the upside. Composite PMI for the US came in at 51 points in October, up from September’s 50.2 reading and signalling expansion in business activity. In New York, stock indices finished Tuesday’s session strong not only due to the positive macroeconomic data, but also thanks to positive earnings reports. The Dow Jones Industrial gained 0.6% and the S&P 500 shot up 0.7%. The Nasdaq-100 led gains, closing up 1%.
Earnings season was in full swing on both sides of the Atlantic on Tuesday. Tech giants Microsoft and Google parent company Alphabet both presented earnings after the bell that beat market expectations. However, investors focused on the companies’ cloud computing results, which sent the share prices going in two different directions. Microsoft shares were trading up 3.9% in after-hour trading, while Alphabet stock plummeted 6.1%. Meta reports earnings figures on Wednesday followed by Amazon on Thursday. The four companies together - Alphabet, Amazon, Meta and Microsoft - make up nearly a quarter of the weighting in the S&P 500.
Looking beyond US Big Tech, Logitech shares were up more than 10% after the Swiss hardware manufacturer reported Q2 results well ahead of its own guidance and analysts’ expectations. Shares of Swiss generics pharmaceuticals company Sandoz dropped 6.8% Tuesday after presenting its first nine-month figures as an independent company following its spin-off from Novartis. And shares of German sportswear company Puma gained 7.6% after reporting third-quarter profit margin above market expectations and confirming it’s full-year outlook.
In the Asia-Pacific region, stock markets were mixed with Hong Kong and Tokyo posting solid gains. Hong Kong's Hang Seng Index soared 1.4% with tech and consumer cyclicals driving gains. In mainland China, the Shanghai Composite was up 0.5%. Japan’s Nikkei 225 gained 1.2%. Shares of semiconductor equipment manufacturer Kokusai Electric spiked on its first day on the Tokyo Stock Exchange, trading about 30% higher than its initial public offering price. In South Korea, the Kospi was down 0.3%. In Australia, the S&P/ASX 200 closed marginally lower after inflation came in at 5.4% year-on-year for the third quarter, higher than market expectations.
Corporate news in focus: Q3 figures from Kuehne & Nagel, Banco Santander, Deutsche Bank, DWS, Sulzer, Beiersdorf, Heineken, Porsche AG, Traton, Reckitt Benckiser, Lloyds Banking Group, Kone Oyj, IBM, Meta; Q3 revenue from Air Liquide.
Economic data in focus: Germany’s ifo Business Climate Index (10:00 CET), Switzerland’s SECO economic forecast (10:00), US new residential sales (16:00), Bank of Canada interest rate decision (16:00), weekly US EIA Petroleum Status Report (16:30), ECB President Christine Lagarde speaks at Bank of Greece dinner (19:00), Fed Chair Jerome Powell speaks at an event in Washington, D.C. (22:35).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.