Marketmind: Tech tonic and Sunak salve

[October 25, 2022]  A look at the day ahead in U.S. and global markets from Mike Dolan.

A massive week for top technology firms worldwide pits U.S. mega cap earnings against the withering slide in China tech shares amid domestic political and economic fears.

Microsoft Corp and Google-parent Alphabet report earnings after the bell on Tuesday, with Apple, Meta and Amazon completing updates later in the week from the group of five huge tech companies that collectively make up a fifth of the market cap of the S&P500.

Microsoft is set to post its slowest quarterly revenue growth in over five years, with some doubts about its outlook in the face of PC market slowdowns and a strong dollar.

But the decimation of Chinese tech stocks this week was more worrying. There was no bounce in Hong Kong stocks on Tuesday after they plunged more than 6% in the previous session as President Xi Jinping introduced the new Politburo Standing Committee stacked with loyalists.
 

China's yuan also extended its decline to a near 15-year low as Chinese assets continued to slide amid investor concerns about Beijing's policy direction, forcing the country's foreign exchange regulator to survey banks about their positioning in the currency market.

U.S.-listed shares of Chinese companies such as Pinduoduo, JD.com and Baidu Inc plunged between 12% and 25% in New York on Monday. And JPMorgan chief Jamie Dimon said on Tuesday that fractious geopolitics right now were even more concerning than a possibility of a U.S. recession.

Gloomy soundings about China's economy also weighed, with high-frequency readouts on travel, shipping, consumption and commerce in the world's second-largest economy showing an early speed bump in the fourth quarter as COVID curbs bite.

HSBC's shares fell almost 7% in London, meantime, as investors digested a sudden management change and rising bad loan charges. HSBC named Georges Elhedery as its new chief financial officer on Tuesday in a surprise shift that puts the former head of its investment bank in pole position to eventually succeed Noel Quinn as chief executive.

The change came as HSBC reported a 42% slide in third quarter profit, hit by loan losses and charges from the sale of its French business as it seeks to placate investors including its largest, China's Ping An Insurance Group.

The move contrasted with the 5% surge in UBS shares after the Swiss bank logged a smaller-than-expected 24% slide in quarterly net profit amid robust client inflows, lower costs and financial trading that helped offset a hit to investment banking from this year's market volatility.

A Wall Street sign outside the New York Stock Exchange in New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri//File Photo/File Photo/File Photo/File Photo

Some calm returns to British markets more generally as former finance minister Rishi Sunak becomes British prime minister on Tuesday and sets about tackling a mounting economic problems with a new cabinet and a fresh budget plan on Oct 31.

Long-dated UK government bond yields at the center of the firestorm caused by last month's botched mini-budget have almost returned to where they were before the release of the fiscal plan on Sept. 23. The expected peak Bank of England interest rate next year slipped back below 5%.

As investors awaited the European Central Bank's latest interest rate rise on Thursday, German business readings were above forecast for October. But Germany's Ifo research institute said it saw a 'winter recession' coming and the ECB's latest survey showed euro zone banks expect to tighten access to credit further in the fourth quarter.

Key developments that should provide more direction to U.S. markets later on Tuesday:

* U.S. Oct consumer confidence, Richmond Fed Oct business surveys, Philadelphia Fed Oct non-manufacturing index. U.S. Aug House prices

* U.S. Treasury auctions 2-year notes

* U.S. Federal Reserve Board Governor Christopher Waller participates in a discussion in Las Vegas

* U.S. corp earnings: Microsoft, Alphabet, UPS, Visa, General Motors, Halliburton, Raytheon Technologies, Texas Instruments, General Electric, Chubb, Moody's, MSCI, Invesco, Ameriprise Financial, Biogen, Universal Health Services, Synchrony, Boston Properties, Equity Residential, Teradyne, Sherwin Williams, Pultegroup, Illinois Tool Works, Valero Energy, FirstEnergy, Enphase Energy, Coca Cola, Kimberly-Clark, Chipotle Mexican Grill, Centene, Juniper Networks, Pentair, Archer-Daniels-Midland, 3M, F5, Paccar, CoStar.

* Bank of England Chief Economist Huw Pill speaks in London

(By Mike Dolan, [e-mail]. Twitter: @reutersMikeD)

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