US equities fall on bond yields and profit-taking

US equities finished in the red on Thursday, as strong economic data showed the resilience of the US economy, paving the way for the Fed to extend its tightening cycle in September.  The US GDP expanded by 2.4% in the second quarter, surpassing market expectations of a 1.8% increase, while durable goods orders surged, and jobless claims declined to multi-month lows.  The data triggered a surge in treasury yields, enough to send the Dow 238 points lower, snapping 13 straight sessions of gains.  Meanwhile, the S&P 500 and the Nasdaq 100 lost 0.6% and 0.5% respectively.  Elsewhere, European shares outperformed strongly, with the Euro Stoxx 50 Index ending the session with a gain of 2.3% as investors digested a huge number of earnings releases. 

Summary for 28.07.2023 

• Asian equity markets fell on Friday, with Japan’s Nikkei logging steep losses after somewhat hawkish messaging from the Bank of Japan, while Chinese shares outperformed on hopes of more stimulus measures. 
• European shares are poised to give up some of yesterday’s gains as investors take stock of the BOJ’s decision while US futures were somewhat looking steady in the early hours of Friday. 
• Oil prices opened lower this morning as traders locked in profits after strong gains this week, while a recovery in the dollar, on the back of strong US economic data, also weighed on crude markets.  Crude prices had surged to April peaks yesterday after data showed that the US economy grew more than expected in Q2, driving down fears of a recession that could potentially dent oil demand this year. 

• The Bank of Japan (BoJ) kept its key short-term interest rate unchanged at –0.1% and that of 10-year bond yields at around 0% in its July meeting by unanimous vote while deciding to make its yield curve control policy more flexible amid efforts to improve the sustainability of stimulus policy.  The board added the 0.5% ceiling on yield movements as a reference point rather than a rigid limit.  Meanwhile, in a quarterly outlook report, the BoJ viewed the economy is likely to recover moderately. 
• Christine Lagarde is confronting how tighter monetary policy is driving the euro-zone economy into the ground in her bid to bring inflation under control.  The ECB president yesterday offered a downbeat assessment of a “deteriorated” economic outlook as she delivered a ninth consecutive interest-rate increase and said that the Governing Council is open-minded on another potential hike in September.  
• The US economy expanded an annualised 2.4% QoQ in the second quarter of 2023, higher than 2% in the previous period and way above market expectations of 1.8%, the advance estimate showed.  Non-residential fixed investment accelerated sharply, led by a rebound in equipment and intellectual property products.  On the other hand, consumer spending slowed sharply but still, overshot market estimates as inflation eased but the labour market remained tight. 
• New orders for US manufactured durable goods jumped 4.7% mom in June, the most since July 2020, following an upwardly revised 2% rise in May and easily beating market expectations of a 1% increase.  It was the fourth straight month the durable goods orders rose. 
• Comcast jumped more than 5% yesterday after reporting better-than-expected quarterly results thanks to better theme park attendance and several successful movie launches.  Its Peacock streaming service posted another big loss, but the company’s domestic broadband service lost fewer subscribers than analysts had expected. 

• Meta Platforms was up about 4.6% Thursday after reporting its highest quarterly sales growth since 2021.  Revenue climbed 11%.  Company watchers had seen signs of an advertising rebound even back in June.  Meta CEO Mark Zuckerberg called it “a good quarter” in the company’s press release, citing “strong engagement across our apps” and new artificial intelligence products in the pipeline. 
• McDonald’s was also up yesterday, rising more than 1% after reporting better-than-expected quarterly results thanks to recovering sales in China and a boost from a marketing campaign focused on its Grimace character. 
• eBay was down nearly 11% on Thursday after offering a disappointing earnings forecast for the current quarter, despite delivering better-than-expected results for the second quarter. 
• Microsoft fell another 2% yesterday, extending its 4% drop post-earnings yesterday after the European Union launched an antitrust investigation into claims the company is unfairly bundling its Teams app with its Office software.  Separately, The Wall Street Journal reported that Senator Ron Wyden had called for the federal government to investigate the company over a hack targeting State Department Officials. 
• Royal Caribbean Group was up more than 8% in Thursday’s session after reporting better-than-expected quarterly results.  Fellow cruise operator Carnival was up 3% and Norwegian Cruise Line was up about 2.6%.