Stocks turned lower on Thursday as investors grew wary that rising inflation would curb corporate profits, following cautionary comments on demand from electric carmaker Tesla.
Futures contracts for the US benchmark S&P 500 and Nasdaq 100 were down 0.2 per cent and 0.5 per cent in pre-market trading, putting further pressure on indices in Europe.
The regional Stoxx 600 fell 0.6 per cent, while the FTSE 100 and Germany’s Dax index lost 0.2 per cent and 0.5 per cent respectively.
In Asia, Hong Kong’s Hang Seng index slipped 1.8 per cent, falling to its lowest level in more than 13 years, after the city’s leader John Lee unveiled measures to attract international business to Hong Kong but did not scrap inbound travel or social distancing restrictions.
Discussing the company’s third-quarter earnings, Elon Musk, Tesla’s chief executive, said demand was high. However, he warned that deflationary forces in the economy were gathering strength, with China and Europe experiencing “a recession of sorts”. Shares in Tesla, one of the world’s biggest companies by market capitalisation, fell 5.8 per cent in pre-market trading.
The declines in Europe and Asia came after declines in the previous session for US stocks, as bellwether consumer companies reported on the effects of inflation in third-quarter earnings on Wednesday.
Investors have been watching corporate earnings season closely for signs that inflation is hitting business activity and consumer confidence. On Wednesday, consumer goods groups Nestlé and Procter & Gamble reported falling sales volumes, and Nestlé chief executive Mark Schneider warned of higher prices.
Central banks, including the US Federal Reserve, have raised interest rates aggressively to tame rising prices this year. The speed and size of the rises have sparked concerns that central banks will push the global economy into an economic downturn.
“The honeymoon rally of the last few days petered out yesterday . . . as investors turned their focus back to central banks and how fast they’ll hike rates,” wrote Jim Reid, a strategist at Deutsche Bank.
Investors will look for further clues on the health of the US economy when groups including American Airlines and cigarette maker Philip Morris International report on Thursday.
In currency markets, the yen briefly traded above ¥150 against the dollar, a fresh 32-year low.
The Bank of Japan’s ultra-loose approach to monetary policy and the contrasting interest rate rises from other global central banks has led the Japanese currency to fall more than 20 per cent this year. The dollar slipped 0.1 per cent against a basket of six peers, with the pound down 0.2 per cent against the greenback.
Elsewhere, UK government bonds recovered from earlier losses on Thursday, with the yield on the 10-year gilt slipping 0.02 percentage points to 3.85 per cent as the price of the asset rose. Thirty-year gilt yields also fell 0.09 percentage points to 3.90 per cent, having also fallen in the previous session after the Bank of England decided to exclude longer dated debt when it begins bond sales next month.
