Middle East tension weighs on Wall St; IBM, Amex disappoint

Stocks on Wall Street were broadly weaker as the stalemate in Iran showed no sign of easing, while earnings from International Business Machines and American Express fell short of expectations.

Investors cooled on software-as-a-service companies again, with Salesforce leading the Dow Jones Industrial Average lower and SAP sliding in Germany, as Tesla flagged big capital spending plans for its artificial intelligence and robotics plans while Microsoft and Meta Platforms announced shakeups to their respective workforces.

The kiwi dollar declined against a broadly stronger greenback after New Zealand finance minister Nicola Willis’s warning that the government couldn’t keep increasing its debt in the wake of the Moody’s Ratings downgrading its outlook on the nation’s credit rating.

And Australian futures are pointing to a marginally positive start for the ASX when trading opens across the Tasman today, with the S&P/ASX 200 index and New Zealand’s S&P/NZX 50 index both heading for weekly declines.

No relief

Brent crude oil futures rose 3.6% to US$105.9 a barrel at 7am in Auckland and the volatility index, known as Wall Street’s fear gauge, gained 2.7% to 19.43 as the Middle East conflict remains strained, with US President Donald Trump ordering the US Navy to shoot any boats laying mines in the Strait of Hormuz.

The Polymarket prediction market is pricing in a 33% chance of a lasting peace by the end of May and a 53% chance by the end of June.

“Risk sentiment has weakened with only bad news emanating from the Middle East conflict and the Strait of Hormuz remaining effectively closed,” Bank of New Zealand senior market strategist Jason Wong said in a note.

The greenback was broadly stronger in the subdued environment, with the dollar index up 0.5% at 98.66. The kiwi dollar fell to 58.61 US cents at 7am from 58.85 cents yesterday.

The local currency fell against all of its major trading partners after Moody’s Ratings put the nation’s Aaa credit rating on a ‘negative’ outlook as the global environment heightened the risk of New Zealand’s rising national debt, and finance minister Nicola Willis talked down expectations for more debt-funded spending in next month’s budget.

Stocks on Wall Street declined, with the S&P 500 down 0.6% in late trading, while Dow fell 0.5% and the tech-heavy Nasdaq Composite dropped 1.1%.

Softening software

Salesforce led the Dow lower, sliding 8.4% as SaaS companies fell out of favour again, with IBM and American Express falling 7.9% and 4.6% respectively after their earnings both missed analysts’ expectations.

Tesla declined after outlining plans to spend US$25 billion this year on its AI and robotics programmes, while Meta fell amid news it plans to cut its staff numbers by 10% and Microsoft slipped as it unveiled voluntary retirement plans as it reshapes its workforce to speed its AI efforts.

European markets were less muted, with the UK’s FTSE 100 and Germany’s DAX both dipping 0.2%, while France’s CAC 40 advanced 0.9%, with L’Oreal among the bigger gainers on a strong quarterly earnings result.

Australian futures are pointing to a marginal gain for the ASX200 when trading opens, with the index on track for a 1.7% decline this week. New Zealand’s NZX50 is down 0.2% so far this week.

On the data radar today is the Reserve Bank’s six-monthly credit conditions report.

Meanwhile, The Australian’s DataRoom column reported T&G Global’s break-up structure has complicated its sale process, discouraging private equity firm Roc Partners from bidding for the fruit exporter.

Reporting by Paul McBeth. Image from Bradley Andrews on Unsplash.