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Early Morning Call: equity markets down as recession fears remain

European markets are expected to open down after losses on Wall Street and APAC overnight as recession fears resurface, with tech stocks doing much of the damage.

Indices outlook

APAC indices mostly fell, following the negative session recorded on Friday. And, like in the US, tech stocks led the losses. In Europe, indices started the week in negative territory, amid renewed recession fears.

Currency markets

Today, only the Germany Ifo business climate could shake the currency market. Economists forecast a fall to 90.2 in July, after 92.3 the previous month. But currency traders are already bracing for the Federal Reserve (Fed) interest rate decision on Wednesday. Currency traders expect another 75-basis points (bps), after a similar decision at the bank’s previous meeting.

But what is next? According to a Bloomberg survey, the Fed’s hikes could slow down to peak at 4.75% in February next year.

Corporate news

Like last week, corporate news for the next five days will be dominated by US earnings with a focus on tech giants.

On Tuesday MicrosoftMicrosoft Corp (All Sessions) and Alphabet Inc - A (All Sessions) will publish their quarterly reports, followed by Meta Platforms Inc on Wednesday, and Amazon.com Inc (All Sessions), Apple Inc (All Sessions) and Intel Corp (All Sessions) on Thursday.

Markets will be particularly attentive to those depending on advertising. Last Friday, Snap Inc (All Sessions) stock slumped nearly 40% after signalling a slowdown in advertising revenue.

More traditional firms will also be represented this week. Markets await updates in the consumer staples sector, with reports from Coca-Cola Co (All Sessions), The Kraft Heinz Company, and Colgate-Palmolive Co.

The automotive sector will be represented by General Motors Co (All Sessions) and Ford Motor Co (All Sessions). Oil firms, Exxon Mobil Corp (All Sessions) and Chevron Corp (All Sessions) will conclude the week.

European earnings also gather pace this week. This morning Vodafone Group PLC said its first quarter (Q1) group service revenue rose by 2.5%, a performance supported by an acceleration of growth in the UK market, up by 6.5%, more than offsetting a decline of 0.5% in Germany, its biggest market.

Elsewhere in Europe, Ryanair Holdings PLC (LSE) posted its first profit for the June quarter in three years, but is still well below pre-pandemic levels. Its CEO, Michael O'Leary, warned investors the “any guidance is subject to a very rapid change from unexpected events which are well beyond our control during what remains a very strong but still fragile recovery."

Philips reported a worse-than-expected fall in second quarter (Q2) earnings. Adjusted EBITA came in at €216 million, less than half the €532m recorded in the same quarter a year ago. Philips says its Q2 performance was impacted by supply chain issues and China lockdowns. The Dutch group insists that its order book remains strong, and expects its profitability to improve in the second half of this year onwards.

This week, the UK banking sector will take centre stage, with half-year earnings expected from Lloyds Banking Group PLC on Wednesday, Barclays PLC on Thursday, and NatWest Group PLC and Standard Chartered PLC (LSE) on Friday.

Commodities

Finally, after three weeks of decline, the oil sector starts the week on the back foot. On Friday, Baker Hughes total rig count rose by two to 758, an increase solely due to the number of gas rigs in operation, up by two to 159. Oil rigs in operation remained at 599.


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