Stocks in Europe faded early gains and S&P futures fell after a mixed session in Asia as chip stocks were taken to the woodshed on poor guidance from Nvidia and Applied Materials sparked fears that the chip bull run is over, while investors wondered whether China and America can de-escalate their trade war after mixed signals by US officials just days before the G-20 summit.
The euro failed to rebound while the sterling halted its biggest drop in 2 years after some of the most dramatic 24 hours yet in the Brexit process and another turbulent week for world markets. With reports of a UK leadership coup still rife and fear that the country could crash out of the EU without an agreement, cable struggled to rise above $1.28.
Meanwhile, traders around the world were waiting for an outcome from the ongoing Brexit saga: “If and when a vote on the withdrawal agreement occurs is uncertain. Whether the withdrawal bill is passed by both houses of Parliament is uncertain,” Joseph Capurso, a senior currency strategist at CBA, said in a note. “Whether the Prime Minister resigns or is challenged for the leadership is uncertain. And, whether there is a second referendum and/or an election is uncertain.”
Fears over political turmoil in the UK and Italy dragged Europe’s Stoxx 600 back into the red, set for its first weekly drop in three, trimming Friday’s gain as AstraZeneca’s drop weighed on the gauge after a cancer-drug setback while telecom names were outperforming. Utilities started the session lower in the wake of yesterday’s ECJ decision which deemed the UK’s scheme for ensuring power supplies during the winter months as a violation of state aid rules. Other individual movers include Vivendi (+4.2%) sit at the top of the Stoxx 600 after posting impressive Q3 sales metrics and announcing a potential sale of part of their Universal Music Group division. Elsewhere, AstraZeneca (-2.3%) and Shire (-1.3%) have been seen lower throughout the session after both posting disappointing drug updates.
Not helping sentiment, ECB head Mario Draghi said the bank still plans to dial back its stimulus at the end of the year, but acknowledged the economy had hit a soft patch and inflation may rise more slowly than expected. “If firms start to become more uncertain about the growth and inflation outlook, the squeeze on margins could prove more persistent,” Draghi told a conference.
Earlier in the day, Asian shares ended the session in the red (MSCI Asia -0.2% to 151.52), led lower by declines in Japan, even as China and Hong Kong rose after initial reports the United States might pause further China tariffs were denied by Commerce Secretary Wilbur Ross who damped hopes of any imminent trade deal with China. The Nikkei fell 0.6% pressured by a drop in the USDJPY after China Mofcom began an investigation into alleged dumping of machine tools by Japanese firms. The Hang Seng (+0.3%) and Shanghai Comp. (+0.4%) swung between gains and losses after continued liquidity inaction by the PBoC which skipped Reverse Repos for a 16th consecutive occasion.
S&P futures were hit on fresh slowdown concerns, this time out of the semiconductor/chip space, after Nvidia gave a dire sales forecast, projecting a 20% drop in revenue while a disappointing outlook from Applied Materials indicated the chip industry is holding off on expansion plans in the face of a murky outlook for electronics demand. The chipmaking sector saw another bout of selling in Asia, wiping at least $11.2 billion in market value amid signals that demand for servers, personal computers, and mobile is falling.
