US stocks drop before earnings amid inflation worries
Stocks fell as traders awaited the start of the earnings season amid concern about inflation and supply disruptions that have wreaked havoc on industries around the globe.
In late trading, the USD184b exchange-traded fund tracking the Nasdaq 100 dropped as Bloomberg News reported that Apple (AAPL US) is likely to cut its projected iPhone 13 production goals for 2021 due to chip shortages. Federal Reserve Bank of Atlanta President Raphael Bostic said the inflation surge is lasting longer than officials expected, while Vice Chair Richard Clarida noted that the conditions required to begin tapering the bond-buying programme have “all but been met”.
A key test of market confidence will be the start of the earnings season Wednesday (13 October). Quarterly guidance, which improved in the runup to the past four reporting periods, is now deteriorating. Analysts project profits at S&P 500 firms to climb 28% to USD49.00 a share, according to data compiled by Bloomberg Intelligence. That is down from an eye-popping clip of 94% in the previous quarter, marking the onset of a slowdown that has historically signalled weakening returns for stocks.
The S&P 500 Index dropped for a third day, by 0.24% to 4,350.65, the Dow Jones Industrial Average shed 0.34% to 34,378.34, and the Nasdaq Composite index slipped 0.14% to 14,465.92. West Texas Intermediate held above USD80.00 a barrel on speculation that a global energy crunch will continue to boost demand. Treasury 10-year yields dropped, while the dollar was little changed.
The International Monetary Fund warned of the risk of sudden and steep declines in global equity prices and home values as global central banks withdraw the support they have provided during the pandemic. – Bloomberg News.
French President Emmanuel Macron unveiled a EUR30b (USD35b) plan to create the high-tech champions of the future and reverse years of industrial decline in the Euro Area’s second largest economy.
The plan, dubbed “France 2030”, foresees investing the funds over five years in sectors including nuclear and renewable energy sources, electric cars, semiconductors, and robotics.
“I want us to look ahead and see our weaknesses and strengths,” Macron said in a speech at the Elysee Palace on Tuesday (12 October). “We need the country to produce more.”
France 2030 is the latest in the country’s long history of pumping public money into a hoped-for industrial renaissance. After the Global Financial Crisis, then President Nicolas Sarkozy launched a EUR35b future investment programme, which has been replenished three times. Macron said this plan is different because it will take greater risks and not rely on well-established industrial firms.
Despite the various efforts by successive governments, the share of industry in the French economy has declined almost without interruption and France has not recorded a goods trade surplus since 2002. Six months before the presidential election, Macron is under pressure to show he can reverse those fortunes, particularly in former industrial heartlands, where he struggled to win votes in 2017. – Bloomberg News.
On Tuesday, the Stoxx Europe 600 Index slipped 0.07% to 457.21.
Japan’s new prime minister, Fumio Kishida, wants to succeed where Abenomics fell short, by boosting worker wages and creating a new type of capitalism that distributes wealth more widely.
Speaking on TV Tokyo late Monday (11 October), Kishida said he will raise pay for public workers and strengthen an income tax break for companies that boost wages, although he put off an idea floated earlier to raise capital gains taxes.
“We should prioritise policy measures that raise people’s incomes,” Kishida said.
Kishida faces a national election later this month. Whether or not his plans qualify as strong economic medicine, he may have a good diagnosis of what ails Japan, where the middle class has foundered while stocks soared under the policies of former Prime Minister Shinzo Abe.
Better corporate profits were supposed to trigger a virtuous cycle that fed into higher wages, inflation, and faster growth. But the benefits of higher company incomes accrued mostly to shareholders without filtering down to workers.
Weak wages have been a multi-decade issue in Japan. In recent years, companies have been hoarding cash because they have been so shell shocked by crisis after crisis. To unlock that cash, Kishida says he wants to strengthen tax incentives for firms that raise wages, a policy introduced by Abe, although there are no new numbers on Kishida’s plan. – Bloomberg News.
The Nikkei 225 Index opened 0.62% lower at 28,055.50 on Wednesday, extending the previous session’s -0.94% fall to 28,230.61.
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