U.S. stock index futures were subdued on Thursday as investors paused after a two-day rally, while chip stocks remained under pressure ahead of fresh economic reports and another batch of quarterly results.
Chip stocks extended declines from the previous session when investors rotated into megacap technology names and banks following strong results from major lenders.
U.S.-listed shares of TSMC fell 3.2 per cent in premarket trading, even after the advanced AI chipmaker reported a 77-per-cent jump in second-quarter profit that topped market expectations. The company also said it would invest an additional $100 billion in the United States.
Memory-chip makers were among the biggest decliners, with Western Digital and Seagate Technology down 3.9 per cent and 3.3 per cent, respectively.
Wall Street’s main indexes rose for a second straight session on Wednesday after a softer-than-expected Producer Price Index reading eased inflation concerns and reduced worries over tighter Federal Reserve policy. The report followed benign consumer inflation data earlier in the week.
A strong start to the second-quarter earnings season also supported sentiment, even as U.S.-Iran tensions simmered in the background.
“While geopolitical dynamics may trigger setbacks, earnings should remain the key driver of performance for the remainder of the year,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
“In fact, with the U.S. second-quarter earnings season kicking off with solid beats, we expect another strong set of results in the coming weeks.”
At 5:18 a.m. ET, Dow E-minis were down 9 points, or 0.02 per cent, and S&P 500 E-minis were down 1 point, or 0.01 per cent. Nasdaq 100 E-minis were down 63.75 points, or 0.21 per cent.
Moving ahead in the day, investors will be looking to retail sales data and jobless claims at 8:30 a.m. ET for further signs of whether the economy is slowing enough to keep inflation under control without sparking growth concerns.
Markets are currently pricing in a 10.2 per cent likelihood that the Fed will implement a 25-basis-point rate hike at this month’s monetary policy meeting, according to CME’s FedWatch tool.
The benchmark S&P 500 has climbed more than 10 per cent this year and remains near its June record close, leaving the rally vulnerable to any disappointment in data or earnings.
United Airlines fell 2.3 per cent as a renewed surge in oil prices weighed on its third-quarter and full-year profit outlooks.
Further on the earnings front, UnitedHealth will report its results before the bell and Netflix is scheduled to report its after the market’s close.
European markets edged lower following more overnight volatility in Asia’s tech-dominated indexes, while benign U.S. inflation data helped keep the dollar and government bond yields under control, as the U.S.-Israeli war on Iran nudged oil prices up again.
Despite stellar results from TSMC, South Korea’s KOSPI fell 6 per cent. The index doubled in value during the first half of the year, but has now slumped nearly 20 per cent this month as doubts have crept in.
Europe’s STOXX 600 also moved lower. The tech bulls were putting up a fight thanks to gains for ASML in Amsterdam. That was more than offset by declines of 0.5 per cent to 1 per cent in other sectors like utilities and telecoms .
Oil prices eased on Thursday as traders weighed escalating tensions between the United States and Iran and the risks to oil supplies moving through the Strait of Hormuz.
Brent crude futures were down 0.68 per cent to US$84.37 a barrel at 0808 GMT, while U.S. West Texas Intermediate futures were down 0.23 per cent to US$79.42 a barrel.
“It’s hard, unfortunately, to take your eyes off the Iran war, Trump’s tweets and the oil price,” Marlborough fund manager James Athey said, given the potential implications for global interest rates.
STERLING SLIPS BACK
In the currency markets, Britain’s pound dipped from a two-month high reached on Wednesday following reports that soon-to-be British Prime Minister Andy Burnham would likely name fiscal conservative Shabana Mahmood as his new chancellor of the exchequer.
Data released on Thursday underscored the challenge they will face. Britain’s economy eked out only minimal growth of 0.1 per cent in May, the figures showed, in line with the median forecast of a Reuters poll of economists.
Sanjay Raja, chief U.K. economist at Deutsche Bank, said Britain was still likely to remain near the top of the Group of Seven growth table in the April-to-June period.
“In short, PM (Keir) Starmer hands over the economy to his successor on a much better footing,” he said.
For bond investors, two-year Treasury yields edged up 2 basis points to 4.1514 per cent, after falling 14 bps over the past two days. 10-year yields inched up 1 bp to 4.5594 per cent, having been down 7 bps over the past two days.
It has been a different story in Europe, however. Germany’s 10-year bond yield, the benchmark for the euro zone, was 1 basis point higher at 3.13 per cent on Thursday, its highest point since May 20.
It has risen 9 bps so far this week and 26 bps in July so far as traders fear the renewed climb in oil and gas prices will force the European Central Bank to raise interest rates more aggressively, while also weighing on the longer-term economic growth.
Britain’s 10-year gilt yield briefly touched 5 per cent again on Tuesday.
“The cooler (U.S.) PPI report fits with recent inflation data coming in below consensus, which should be welcomed by the Fed,” BCA Research strategist Felix Vezina-Poirier said. “We are past peak hawkishness.”
That view has pulled the dollar down, except against the beleaguered yen. The dollar index was steady at 100.52 in Europe, after falling 0.4 per cent on Wednesday to the lowest point since June 18. The yen hovered at 162.16, not far from the 40-year low of 162.84, as speculators remain wary of Japanese intervention.
- Reuters