Wall Street falters as banks kick off earnings season

Stocks on Wall Street drifted lower as earnings season stepped up a gear with Goldman Sachs, JPMorgan Chase & Co, Wells Fargo and Citi posting increased profits to a tepid response, while healthcare stocks declined despite Johnson & Johnson and UnitedHealth Group beating analysts’ earnings forecasts.

Semiconductor firms remained under pressure, with investors unnerved by Chinese memory chipmaker ChangXin Memory Technologies closing in on its rivals.

Oil prices remained elevated as Iran escalated its attacks on tankers in the Strait of Hormuz and as the Organisation of Petroleum Exporting Countries trimmed its forecast for global demand, while government bond yields pushed higher ahead of US inflation data.

And Australian futures are pointing to a soft start to the trading day for the ASX, with mining giant Glencore poised to join Australia’s stock exchange in addition to its London and Johannesburg listings, while Statistics New Zealand’s travel and migration figures and the Real Estate Institute of NZ’s housing data are due.

Choppy markets

Investors had a mixed response to increased profits from the major US banks, as turbulent bond markets knocked lenders’ fixed income trading desks. Goldman Sachs was the only bank to gain in late trading, while JPMorgan posted a rare miss against forecasts.

“JPMorgan, Goldman Sachs, Citigroup and Wells Fargo reported higher third-quarter profits and revenue, supported by strong equity trading, financing activity and resilient consumer spending,” Moomoo market strategy consultant Greg Boland said in a note. “However, bond-trading revenue disappointed and higher borrowing costs remain a concern.”

Meanwhile, Johnson & Johnson posted the steepest decline on the Dow Jones Industrial Average, with the healthcare products maker beating analysts’ forecasts, but missed their expectations on guidance. UnitedHealth beat forecasts but dipped in late trading.

And the Federal Trade Commission accused ‘pharma bro’ Martin Shkreli of violating his life ban in the pharmaceutical industry by trading stocks and discussing his opinions about companies in the sector. The FTC and seven states filed papers in a district court in New York seeking a contempt ruling and fine.

Dating app maker Bumble surged 56% after the Wall Street Journal reported the firm was in talks to be taken private in a deal valuing it at US$1 billion.

Tech troubles

Tech stocks were mixed as investors continued to digest the advance in Chinese rivals, with Micron Technology sinking 5.1%, while Nvidia nudged up 0.5%. Across the Atlantic, Dutch chipmaking equipment supplier ASML dropped 6.3%.

The Dow was down 0.5% in late trading, with J&J, Caterpillar and Merck & Co at the bottom of the leaderboard. The S&P dipped 0.1% and the tech-heavy Nasdaq Composite slipped 0.3%.

Across the Atlantic, the UK’s FTSE 100, Germany’s DAX and France’s CAC 40 were all down 0.1%.

Brent crude oil futures slipped 0.9% to US$105.66 a barrel at 7am in Auckland, with energy prices remaining elevated as Bloomberg reported that Iran was stepping up attacks on tankers.

Meanwhile, OPEC cut its global demand forecast to grow by about 180,000 a day from 380,000 barrels previously. Still, the group increased its forecast demand for next year on the need to rebuild depleted oil inventories.

The yield on US 10-year treasuries rose 3 basis points to 5.23% as US cash bond markets returned from the long weekend, with US inflation data expected to show consumer prices rose 0.2% in September. New Zealand’s equivalent bond yield was at 4.98%.

Jason Wong, market strategy at Bank of New Zealand, said that pace was seen as modest enough to keep the Federal Reserve on hold at this month’s policy review.

Meanwhile, New York Fed president John Williams told Bloomberg he saw the need for one more rate hike this year, but didn’t think the central bank would need to raise rates next year.

The soft lead is set to flow through to Australia, with futures pointing to a 0.4% decline for the resources-heavy S&P/ASX 200 index. Mining giant Glencore is due to start trading on the ASX today in addition to its existing listings, which is seen as helping the firm close its valuation gap with BHP.

The kiwi dollar rose to 56.13 US cents at 7am from 55.93 cents yesterday, ahead of Stats NZ’s travel and migration figures and the monthly REINZ house prices and sales data.

Reporting by Paul McBeth. Image from Chris Li on Unsplash.