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Screens at the London Stock Exchange in London, the UK. Picture: BLOOMBERG/LUKE MACGREGOR
Screens at the London Stock Exchange in London, the UK. Picture: BLOOMBERG/LUKE MACGREGOR

London — Amazon and Apple earnings took the froth out of US stock futures and world equities on Friday, though the euro held near one-month highs on eurozone rate rise hopes.

Amazon.com reported a slump in profit after the bell on Thursday that it expects will continue through the holiday quarter, as higher pay to attract workers and other operational disruptions diminish the company’s windfall from online shopping.

Supply chain woes cost Apple $6bn in sales during the company’s financial fourth quarter, which missed Wall Street expectations, and CEO Tim Cook said that the impact would be even worse during the holiday sales quarter.

“Amazon and Apple are suggesting demand is strong but wage pressure is there, they won’t be able to deliver what they want for Christmas,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “That’s affecting equities somewhat negatively.”

S&P E-mini futures dropped 0.41% and Nasdaq futures were down 0.73%, after the indices hit record closing highs on Thursday.

The tech gloom hit European stocks, which were down 0.5%.

The MSCI world equities index dipped 0.15% to 745.81, but broader optimism about economic recovery has put it on course for gains of 5% in October, within sight of record highs of 749.16 set last month.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.6% and was heading for a weekly loss of 1.6%. But the benchmark was still up 2% in October, on track for its best month since April.

Chinese blue chips bucked the trend, gaining 0.92%, but an index of Chinese real estate firms lost 3.5%, and was down nearly 12% on the week, the most since February 2018.

Chinese developers are struggling with liquidity problems, and proposals to trial a property tax is not helping sentiment even as regulators seek to contain the fallout centred on embattled China Evergrande Group.

Evergrande’s shares lost 2.9% on Friday despite news it had met its second dollar-bond repayment obligation this month.

Japan’s Nikkei rose 0.25% ahead of Sunday’s lower house election in which the ruling party is expected to lose seats but the coalition government should remain safe.

Inflation watch

The euro was steady at $1.1669 near a one-month high hit on Thursday after comments by European Central Bank (ECB) president Christine Lagarde were interpreted in some quarters as not going far enough in affirming the central bank’s dovish stance.

Markets are pricing in two ECB rate hikes by December 2022.

“The European Central Bank has finally shifted its official communication on inflation from the broad denial of the summer months towards a much more balanced assessment,” said ING analysts.

Eurozone bond yields jumped, with Italian 10-year yields hitting five-month highs of 1.0895% on Friday.

There is also growing speculation the Reserve Bank of Australia (RBA) will struggle to stick to its guidance that rates are unlikely to rise until 2024 after it did not intervene to defend its 2024 bond yield target on Friday.

Markets had expected the RBA to buy its key April 2024 bond to defend its 0.1% target, as it had done last week, after a sharp bond-sell off took the yield to over 0.5% early on Friday.

As a result, Aussie bonds continued this week’s sharp sell-off, with yields on three-year bonds hitting 1.28% on Friday, their highest since mid-2019.

Benchmark US 10-year yields rose 3.6 basis points to 1.6049%.

The gap between five year and 30-year Treasury yields last stood at 79.8 basis points. It narrowed as far as 73.4 basis points overnight, its tightest since March 2020, due to heightened expectations the Federal Reserve will raise rates next year.

Oil prices edged up but were headed for their first weekly losses in at least eight weeks after US oil stocks rose more than expected and Iran flagged it was resuming talks with Western powers which could lead to an end to sanctions.

Brent crude was up 0.28% at $84.57 a barrel. U.S. West Texas Intermediate (WTI) crude futures gained 0.24% to $83.02 a barrel.

Spot gold slipped 0.2% to $1,794/oz.

Ether, the world's second largest cryptocurrency, hit an all-time high of $4,400, before trimming gains.



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