European stocks close lower with earnings in focus; tech giant SAP hits all-time high

Stocks fell for a second day Tuesday as a jump in U.S. government bond yields overshadowed a solid start to the third-quarter earnings season.

The Dow Jones Industrial Average shed 0.3%, the S&P 500 slipped 0.3% and the Nasdaq Composite pulled back by about 0.1%.

It comes as cautious commentary from Federal Reserve officials on the path of interest rate cuts has pushed yields higher.

The U.S. 10-year Treasury note yield briefly climbed above 4.2% earlier in the day for the first time in three months before pulling back slightly.

– Ryan Browne

The International Monetary Fund on Tuesday raised its 2024 growth outlook for the United Kingdom, saying declines in interest rates and inflation would boost domestic demand.

The IMF now sees 1.1% growth for the U.K. economy this year, up from a July forecast of 0.7%. The agency also reiterated its forecast for a 1.5% expansion in 2025.

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— Jenni Reid

U.S. crude oil futures extended gains on Tuesday, after rising nearly 2% in the previous session.

Oil prices have bounced back somewhat after selling off steeply last week. Traders increasingly view a supply disruption in the Middle East due to Israel-Iran tensions as unlikely.

Weak demand in China has also weighed on prices recently. Beijing cuts its benchmark lending rates on Monday, lending some support to the futures market.

West Texas Intermediate November contract was trading at $71.22 per barrel, up 66 cents, or 0.94%, while Brent December contract was at $74.85 per barrel, up 56 cents, or 0.75%.

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— Spencer Kimball

Gold prices climbed on Tuesday after hitting an all-time intraday high on Monday, as analysts said the precious metal had entered a “new bullish phase.”

“Central bank buying, rising U.S. debt and a potential peak in the U.S. dollar” will continue to support prices, Paul Wong, market strategist at Sprott Asset Management, said in a note Monday.

Spot gold was trading up 0.7% at $2,738.59 per ounce at midday in London, reaching towards Monday’s record of $2,740.37. Gold futures dated to December were 0.5% higher at $2,752.90.

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— Jenni Reid, Lee Ying Shan

The U.K. is likely to see interest rates drop at a faster pace than previously expected, according to economists who said several data releases last week indicated inflationary pressures are finally easing.

As of Tuesday, money markets had fully priced in a quarter-percentage-point rate cut for the Bank of England’s next meeting in November, and put a high probability on a cut of the same size at its December meeting.

That would take the central bank’s key rate from its 16-year-high of 5.25% at the start of the year, to 4.5% by the end. Pricing then suggests a further decline to 4% by the May 2025 meeting, and to 3.5% by December 2025.

Economists at Goldman Sachs in a Monday note forecast rate cuts “notably below market pricing.”

They see consecutive 25 basis point cuts taking the Bank Rate to 3% as early as September 2025, and to 2.75% in November next year.

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— Jenni Reid

HSBC on Tuesday announced a major restructuring and named Pam Kaur — currently group chief risk and compliance officer — as the lender’s first female finance chief.

Kaur will assume the CFO post on Jan. 1, taking over from interim Chief Financial Officer Jon Bingham.

The bank meanwhile announced plans to streamline its businesses in a bid to “reduce the duplication of processes and decision making.” From January, it will operate through four divisions: Hong Kong, U.K., international wealth and premier banking, and corporate and institutional banking.

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Swedish defense firm Saab topped Stoxx 600 gains in morning trade, rising 6.8% after beating analyst expectations for earnings.

The former car company, which now makes military products and services including the Gripen fighter jet, reported operating income that jumped 38% year-on-year to 1.187 billion Swedish kronor ($112.8 million), versus an estimate of 1.14 billion kronor.

Saab saw order bookings increase 41% in the quarter and reiterated its full-year outlook.

“We continue to see increasing demand as European nations need to replenish their defence stocks, which will require long-term efforts,” CEO Micael Johansson said in a statement. “We are growing to meet this increasing demand, for example by investing in capacity, automating our production and building new plants.”

Analysts have previously flagged that Sweden’s accession to NATO earlier this year would provide a tailwind for the company.

European stock markets were mixed in early trade, with the benchmark Stoxx 600 index, which fell 0.66% on Monday, down another 0.1% at 8:35 a.m. in London.

The U.K.’s FTSE 100 and France’s CAC 40 were lower by 0.28% and 0.11%, respectively. Germany’s DAX managed a 0.55% gain.

— Jenni Reid

Frankfurt-listed shares of SAP jumped 5% at the market open to an all-time high, after the German software firm raised its full-year outlook in third-quarter results published after the market close Monday.

The company reported total revenue up by 9% year-on-year to 8.47 billion euros ($9.17 billion), and operating profit up by 29% to 2.21 billion euros, higher than expected. Revenue in its cloud business rose 25%, versus 11% for both cloud and software.

It also nudged its full-year guidance for cloud and software revenue higher, to 29.5 billion euros to 29.8 billion euros, up from a previous forecast of 29 billion euros to 29.5 billion euros.

“We are very happy with the results we announced yesterday night,” SAP CEO Christian Klein told CNBC’s “Squawk Box Europe” on Tuesday.

“It’s definitely cloud, but SAP is more than cloud. We are embedding AI, we are running the operating system of the world, so for us it’s all about cloud, plus AI gives customers a faster business model transformation, resilient supply chains,” Klein said.

“It’s all about decarbonization, especially for many large companies here in Europe, and this is what we are doing, we are selling software which runs business processes, and that is in times like that, very important for our customers.”

The company has been conducting a restructuring this year to focus on business AI. SAP is also listed on the New York Stock Exchange.

— Jenni Reid

U.K. net borrowing rose to £16.6 billion ($21.59 billion) in September, the Office for National Statistics said Tuesday, up £2.1 billion from the year before.

It was also higher than the £15.1 billion forecast by the government’s independent advisory group, the Office for Budget Responsibility, and the third highest September borrowing since monthly records began in January 1993.

It comes as the Labour government prepares to deliver its first budget on Oct. 30.

Analysts say policymakers are in a difficult spot, having pledged to reduce debt as a share of GDP within the next five years and balance the budget so revenues meet costs, while also promising not to increase several major taxes, including on income, sales and corporations. U.K. Finance Minister Rachel Reeves, who took her post in July, has meanwhile accused the previous administration of leaving a £22 billion financing shortfall for the coming year.

Reports suggest she may use the budget to change the way debt is calculated by the Treasury in order to create more room for capital expenditure.

The latest borrowing figures “highlight the limited scope the [Finance Minister] has to increase day-to-day spending without raising taxes,” Alex Kerr, U.K. economist at Capital Economics, said in a note.

“That said, if she tweaks her fiscal rules, she will still have room to raise public investment,” Kerr said, predicting Reeves would raise current spending — which excludes investment — by a net £25 billion a year funded by tax rises.

A change in debt rules would allow for borrowing for public investment by an additional £53 billion, Kerr added.

— Jenni Reid

Shipping giant Maersk raised its full-year 2024 guidance Monday citing strong third-quarter performance along with “strong container market demand and the continuation of the Red Sea situation.”

The Danish company posted preliminary, unaudited earnings before interest, taxes, depreciation, and amortization (EBITDA) of $4.8 billion, above an analyst consensus of $3.7 billion.

Maersk hiked its full-year EBITDA forecast to $11 billion to $11.5 billion, up from a previous forecast of $9 billion to $11 billion, and said it now sees free cash flow of at least $3 billion, up from at least $2 billion previously.

The outlook for global container market volume growth for the year has risen to around 6% from 4%-6% previously, it added in a trading update published after the market close Monday.

The Red Sea crisis has this year seen shipping companies divert trade around the southern coast of Africa, avoiding the Red Sea and Gulf of Aden following attacks on its vessels by Houthi rebels. That has added to journey times, taking capacity out of the global container market.

Citi analyst Sathish Sivakumar said in a Monday note that Maersk’s full-year consensus upgrade was “mostly driven” by the improved third-quarter results, and that he also expected an increase in fourth-quarter consensus along with more detail in the full company results due on Oct. 31.

Sivakumar, who has a sell rating on the stock, said there were upside risks to Maersk falling to his target price, including improved consumer confidence, a favorable freight rate environment and ongoing tight supply chain conditions.

— Jenni Reid

European markets are expected to open in flat to mixed territory Wednesday.

The U.K.’s FTSE 100 index is expected to open 3 points lower at 8,304, Germany’s DAX up 8 points at 19,440, France’s CAC down 9 points at 7,529 and Italy’s FTSE MIB down 47 points at 34,490, according to data from IG.

It’s a busy day for earnings Wednesday, with Deutsche Bank, Roche, Heineken, Volvo, Swedbank and AkzoNobel among the companies reporting. On the data front, Europe consumer confidence figures are due.

— Holly Ellyatt

Macroeconomic uncertainties, mounting geopolitical tensions and a desire to hedge against inflation have given gold — the classic “safe haven” asset — a blistering rally.

Spot gold prices have soared above $2,700 an ounce, rallying for the fifth day on Monday to hit another record high of over $2,733 an ounce. Year-to-date, spot gold is up over 30%.

And Michael Widmer, head of metals research at Bank of America, says it has further to go.

‘If gold doesn’t rally now, then I’m not sure when it ever will. Actually, I think the fundamental backdrop looks actually quite good,” he told CNBC’s “Squawk Box Europe” on Monday.

Others like John Reade, senior markets strategist at the World Gold Council, urge some caution.

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— Amala Balakrishner

Despite a tight U.S. presidential election remaining too close to call, UBS remains constructive on equities and does not think any uptick in volatility could harm a strong market.

“As neither party holds a clear advantage in any of the key swing states that could decide the outcome, the race remains too close to call, and we expect volatility to pick up in the coming weeks amid elevated uncertainty,” UBS Global Wealth Management chief investment officer Solita Marcelli wrote Monday. “But we also think the potential volatility is unlikely to derail positive equity fundamentals, and remind investors not to make dramatic portfolio changes based on expected election outcomes.”

— Brian Evans

Scotiabank has highlighted three biotechnology companies as their “top picks,” each with the potential to more than double in stock price over the next 12 months.

The bank believes interest rate cuts are a notable tailwind that will likely reignite wider investment interest in the biotech sector.

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— Ganesh Rao