Stocks Fall Amid Tech-Sector Blues While Sterling Steadies -- 2nd Update
October 12 2016 - 7:53AM
Dow Jones News
By Riva Gold
Stocks tilted lower Wednesday amid lingering concerns about the
strength of corporate earnings, while the British pound began to
stabilize following its sharp swings.
Futures pointed to a 0.1% opening loss for the S&P 500,
while shares in Europe and Asia were under pressure after a
downbeat start to the U.S. earnings season sparked a modest selloff
on Wall Street on Tuesday.
Shares of Illumina dropped 25% after the gene-sequencing company
cut its revenue guidance while aluminum giant Alcoa fell around 11%
after reporting third-quarter earnings, leaving some investors
worried about the rest of the earnings season.
In the three quarters where Alcoa fell more than 10% after its
report, the S&P 500 traded down 7.5%, 2.6%, and 6.5% for the
remainder of those three earnings seasons, according to Bespoke
Investment Group.
The Stoxx Europe 600 was little changed by midday as investors
weighed a modest bump in the oil and gas sector against losses in
technology companies. Brent crude oil was up 0.6% at $52.72 a
barrel.
Europe's technology sector was down 2%, leading declines, after
Ericsson AB issued a profit warning for the third quarter, a week
after it announced plans to slash almost 20% of its domestic
workforce. Shares in the Swedish company fell over 17%, while
Nordic rival Nokia fell 4.6%.
In currencies, the British pound was last up 0.2% at $1.2277
after four consecutive days of losses. The pound touched a historic
low against a basket of currencies on Tuesday, according to Bank of
England data released Wednesday morning.
The British currency had fallen sharply late Tuesday, but
recovered during Asian trading hours, rising more than 1.5% against
the dollar, after media reports suggested that U.K. Prime Minister
Theresa May had agreed to hold a parliamentary vote on her plans
for taking Britain out of the European Union.
Analysts said that could limit her ability to push for a "hard
Brexit," spurring some traders to lift their short positions on the
currency.
Still, analysts warned that the news is unlikely to reverse the
broader downward trend for sterling.
The pound right now is a barometer of the government's thinking
on its exit negotiations, said Russ Mould, investment director at
AJ Bell. "It's very difficult to know exactly what will come out of
government at the moment," he said.
London's export-heavy FTSE 100 index, which touched its highest
level in decades on Tuesday, pulled back 0.3% as the British
currency recovered.
In other currencies, the euro fell 0.4% against the dollar to
$1.1015, while the dollar rose 0.2% against the yen to
Yen103.5820.
The WSJ Dollar index, which measures the dollar against a basket
of 16 currencies, was little changed after its biggest daily gain
since August. Expectations have grown recently for the U.S. Federal
Reserve to raise interest rates at its meeting in December,
supporting the dollar.
Fed-fund futures, used by investors to bet on central bank
policy, currently imply a nearly 70% chance of a rate rise by
December, according to CME Group.
"We're a market that is run by central banks right now," said
Bret Chesney, portfolio manager at Alpine Global, noting that
comments from Fed officials have driven most recent moves in the
stock market.
Minutes from the Fed's September meeting are due later
Wednesday. Policy makers voted to leave rates unchanged but three
officials dissented in favor of an increase, so investors will
watch closely for further insight into the debate.
In bonds, the yield on the U.S. 10-year Treasury note was up
slightly at 1.780% from 1.760% on Tuesday. The gap in yield between
the two-year Treasury note, last at 0.883%, and the two-year German
note, last at minus 0.665% is around its highest in a decade,
according to Brown Brothers Harriman.
Earlier, shares in Asia mostly followed Wall Street lower as
expectations rose of U.S. rate increase in December. Japan's Nikkei
Stock Average fell 1.1% while the Hang Seng Index fell 0.6%.
Hiroyuki Kachi and
Matthias Verbergt
contributed to this article.
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
October 12, 2016 07:38 ET (11:38 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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