International stock markets are currently experiencing a period of volatility, influenced by persistent geopolitical tensions, evolving monetary policy expectations, and a mixed bag of corporate earnings reports. While some regions show resilience, others are grappling with renewed trade concerns and inflationary pressures.
Stock Market Highlights from Abroad
United States: Wall Street concluded its third winning week in the last four with a somewhat quiet finish on Friday.1 The S&P 500 edged down marginally after setting an all-time high the previous day, while the Dow Jones Industrial Average saw a slight dip.2 The tech-heavy Nasdaq Composite, however, managed a minimal gain, also reaching a new record.3 Positive earnings reports from companies like Charles Schwab, Regions Financial, and Comerica buoyed sentiment, though Netflix saw profit-taking despite beating expectations. Treasury yields eased amid reports suggesting consumers are feeling less concerned about future inflation.
Earlier in the week, US markets saw mixed performance. A rally in technology shares, particularly Nvidia after it received approval to sell its H20 AI chips to China, helped lift the Nasdaq.4 However, concerns over inflation and mixed bank profitability reports (JPMorgan Chase slightly below expectations, Citigroup exceeding) weighed on the Dow and S&P 500. Consumer prices rose 2.7% in June year-on-year, the highest since February, with tariffs on imported goods cited as a contributing factor.5
Asia: Asian markets displayed a mixed picture. South Korea's Kospi and Japan's Nikkei 225 generally finished lower in recent days, while Shanghai's SSE Composite and Hong Kong's Hang Seng saw positive closes at times. Export data from China has been a supportive factor. Japan's Nikkei 225 dipped ahead of Sunday's upper house election.6
Europe: European markets have shown a somewhat positive trend. Germany's DAX and France's CAC 40 saw modest gains on Tuesday, while the UK's FTSE 100 has been aided by its separate trade deal with the US post-Brexit.
Geopolitics and its Market Impact
Geopolitical events continue to be a significant factor in market sentiment.
US-EU/Mexico Trade Tensions: President Donald Trump's announcement of new tariffs on goods from the European Union and Mexico has raised concerns about renewed trade tensions.7 While the August 1 deadline for these tariffs approaches, hopes for a negotiated resolution persist. Analysts warn that full implementation could increase recession risks and impact consumer demand.
Middle East Conflicts: The ongoing conflict involving the U.S., Israel, and Iran, along with Israel's battle with Hamas and the Russia-Ukraine war, remain key geopolitical flashpoints. While markets initially reacted to the Israel-Iran conflict with some stability and then a positive uptick, any direct involvement or escalation could diminish investor risk appetite and negatively impact stocks in the short term, particularly through a potential rise in oil prices.8 Oil markets have shown sensitivity to these developments, although recent movements have been contained.9
Impact of Tariffs: Beyond direct conflicts, tariffs imposed by major economies are causing ripples across global supply chains and affecting inflation.10 This uncertainty can lead to caution among investors.
Historically, geopolitical shocks often lead to short-term market declines as investors digest potential risks. However, the market tends to recover over the long term, with other fundamentals like corporate earnings and interest rates becoming more dominant influences.
Company News in Focus
Earnings season is a major driver of individual stock performance.11
Banking Sector: Major US banks like JPMorgan Chase, Wells Fargo, and Citigroup have been reporting quarterly results, providing insights into consumer demand and credit trends in the current interest rate environment.12 Mixed results have been observed, with some banks exceeding profit estimates while others fell short on key profitability metrics.
Tech Giants: Nvidia's approval to sell its high-performance AI chips to China was a significant positive for the tech sector.13 Other tech companies like Infosys and Tech Mahindra in India also saw their shares fluctuate based on their quarterly earnings.14
Merger & Acquisition Activity: Merger talks between Norfolk Southern and Union Pacific, which could create North America's largest railroad network, have generated buzz, though regulatory scrutiny is anticipated.15 Chevron's acquisition of Hess, securing a stake in the Stabroek Block oil field, also made headlines following a favorable arbitration ruling.16
Individual Company Performance: Netflix, despite strong profits, saw its shares drop due to profit-taking after a significant year-to-date gain.17 American Express also saw a decline despite beating profit reports, with analysts pointing to slowing growth in underlying trends.18
Global Market Trends (Excluding Greece)
A notable trend this year is the outperformance of many international equity markets compared to the U.S. stock market. While the S&P 500 has seen a 7% year-to-date gain, the MSCI All-World ex U.S. Index (ACWX) is up 17%. This shift is attributed to factors such as cheaper valuations abroad, the U.S.'s "higher-for-longer" interest rate policy, and the appeal created by a weaker U.S. dollar, which boosts the dollar value of foreign earnings. Capital has been observed flowing into undervalued international markets, particularly in Europe and emerging Asia.19
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