Stocks Slump On Poor Google, Samsung Earnings; China Slowdown Fears Return

US futures were flat, while European equity markets and Asian stocks slipped on Tuesday as weak Chinese business surveys dampened appetite for risk,. A disappointing outlook and earnings at Samsung, the world’s biggest phone maker, and an ad revenue slowdown at Google sent tech stocks lower.

European shares followed Asian peers into the red after surveys on China manufacturing and services missed forecasts - another sign that Beijing’s efforts to spur growth n the world’s second biggest economy had yet to bear fruit, and that the rebound indicated by the spike in China's PMI print last month was premature. As reported overnight, both official and private business surveys suggested slower Chinese factory growth this month, dashing hopes for a steady reading or even a faster expansion. Data also showed a slower expansion in its services sector. The full details again:

  • Chinese Manufacturing PMI (Apr) 50.1 vs. Exp. 50.5 (Prev. 50.5).
  • Chinese Non-Manufacturing PMI (Apr) 54.3 vs. Exp. 55.0 (Prev. 54.8)
  • Chinese Caixin Manufacturing PMI (Apr) 50.2 vs. Exp. 51.0 (Prev. 50.8)

And visually:

Asian markets fell after the poor Chinese data amid thin trading. MSCI’s index of Asia-Pacific shares outside Japan was off 0.5%. Bourses in South Korea and Hong Kong both fell.apan’s financial markets are closed throughout the week as Japanese Emperor Akihito prepares to abdicate in favor of his elder son, Crown Prince Naruhito.

The latest Chinese data underscored questions over prospects for the Chinese economy despite a record credit injections who impact appears to have fizzled early, while investors across the world are on edge over growing signs of a two-speed global economy where a robust United States outpaces its peers.

Adding to China's economic disappointment were tech stocks, which slumped following Alphabet’s worse-than-expected results after the Monday close, and after Korean smartphone giant Samsung Electronics’s profit missed analysts’ recently reduced estimates and shared a worse than expected outlook. Equities in Hong Kong, South Korea and Australia all dropped, though trading was quieter than usual thanks to a holiday in Japan. As usual, bad news was good news, and shares rose in Shanghai despite poor Chinese manufacturing data.

The Asian weakness initially spread to Europe, where the Stoxx 600 index was off 0.2%, with British shares down 0.2% and bourses in Germany and France down 0.1 and 0.4% respectively in early trading, while futures on the S&P 500 also pointed to a soft open in New York.

The Stoxx Europe 600 nudged into the red, led by declines in telecommunication and mining shares, as futures on the S&P 500 also pointed to a soft open in New York. France reported steady growth for the first quarter, while Spain’s economy also grew faster than expected. Chipmaker AMS jumped 16% after beating forecasts for first-quarter profit. AMS is a supplier to Apple, which is due to report its results later. Banks dragged heavily on the Stoxx 600. Danske Bank, hit by money-laundering scandals, fell more than 6 percent after lowering its outlook for 2019, while No. 1 euro zone bank Santander also slipped after first-quarter net profit. In contrast, Standard Chartered climbed after unveiling plans for share buybacks of up to $1 billion, its first in at least 20 years. The euro added to gains after regional GDP beat estimates and inflation in some of Germany’s regions accelerated in April.

Tech stocks were hit following Alphabet’s worse-than-expected results after the Monday close, and after Korean giant Samsung Electronics’s profit missed analysts’ recently reduced estimates. Equities in Hong Kong, South Korea and Australia all dropped, though trading was quieter than usual thanks to a holiday in Japan. Shares rose in Shanghai despite poor Chinese manufacturing data.

“It’s not a stellar reporting season -- I don’t think anyone expected that,” said Nick Nelson, head of European equity strategy at UBS, on Bloomberg television. “But it’s certainly better than the fourth quarter. And that fits with some of the stabilization in the broader data in the euro zone, in emerging markets and in China.”

Emerging-market stocks and currencies were weaker Tuesday following the disappointing Chinese PMI data and as investors awaited further news on progress in trade talks between the U.S. and China. Still, MSCI’s gauge of developing-nation equities remained on track for a fourth successive monthly gain, the longest streak since January 2018. The currency index, however, is set for a third consecutive drop. Seasonal data complied by Bloomberg suggests both measures may retreat in May, as they have in seven of the past 10 years.

In FX, the euro strengthened for a third day as the euro-area economy expanded more than forecast in the first quarter. The pound shrugged off a report that said U.K. Prime Minister Theresa May faces a challenge from activists within her own party opposing her leadership, and GBPUSD rose above 1.30 for the first time in a week. AUDUSD swung to a loss after an official release showed Chinese manufacturing PMI missed. 

Elsewhere, South Korea’s won led currency declines, falling to a two-year low after a weak earnings report from Samsung. The Philippine peso was firmer after the country’s credit score was lifted one step at S&P Global Ratings. Turkey’s lira fluctuated as investors pondered the latest statements by central-bank chief Murat Cetinkaya. The focus now turns to the Federal Reserve policy meeting on Wednesday.

In rates, Treasuries unexpectedly reversed direction around the time Europe opened, and reversed gains that came on the back of weaker-than-forecast China manufacturing growth.

In commodity markets, oil prices reversed losses after Saudi Arabia said a deal between producers to withhold output, in place since January, could be extended beyond June to cover all of 2019. Brent crude futures were last at $71.25 per barrel, down 0.4 percent.

In overnight geopol news, North Korea's Vice Foreign Minister said that their resolve for denuclearisation is unresolved, adding that denuclearisation will be possible only if the US changes their current calculations. If the US fails to present new positions the US will then see unwanted consequences.

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