European markets opened cautiously on Thursday, with investors digesting a mixed bag of earnings from US tech giants that has left global equities and futures in a state of flux. The spotlight fell on Alphabet, Google's parent company, whose quarterly revenues disappointed despite the ongoing artificial intelligence boom, raising doubts about whether the company can justify its massive AI investments.
Alphabet's shares tumbled about 10% in after-hours trading on Wednesday, a stark contrast to Microsoft, which saw its stock climb nearly 3% after reporting better-than-expected results. The divergence underscores the high stakes in the AI race, where investors are scrutinising every dollar spent on data centres and model training.
Wall Street's mixed close and bond market moves
On Wednesday, Wall Street's benchmark S&P 500 edged up 0.3%, while the Dow Jones Industrial Average gained 0.2%. The technology-heavy Nasdaq composite also rose 0.3%, but the after-hours reaction to Alphabet's earnings suggests a rocky start for tech stocks on Thursday.
In the bond market, the yield on the 10-year US Treasury eased to below 5.00% after briefly spiking to around 5.04% earlier in the day. The two-year yield also steadied at 4.68%, down from more than 4.77% on Wednesday, offering some relief to rate-sensitive sectors.
Oil prices slide amid geopolitical tensions
Oil prices fell more than 1% in early trading, with Brent crude dropping to $110.32 per barrel and US benchmark crude slipping to $101.46. Despite the decline, prices remain significantly elevated compared to pre-war levels of around $72 per barrel, reflecting ongoing geopolitical risks in the Middle East. US officials have warned that renewed military action against Iran could follow the 3 November midterm elections, keeping energy markets on edge.
Central bank watch: ECB and Bank of Japan
Investors are also turning their attention to the European Central Bank, which concludes its policy meeting later today. While no change in interest rates is expected, markets will be listening for signals on future moves, particularly as inflation in the eurozone remains stubbornly high. The Bank of Japan is also set to wrap up its meeting on Friday, with expectations that it will maintain its ultra-loose monetary policy.
The Federal Reserve held rates steady on Wednesday, as anticipated, but two officials voted for a hike. Analysts suggest a December rate increase is likely if inflation does not cool further, a scenario that could have ripple effects across European markets.
Asian markets mixed, tech stocks under pressure
In Asia, Japan's Nikkei 225 edged up 0.2%, while SoftBank Group, a major investor in OpenAI, saw its shares fall 0.5%. South Korea's Kospi index lost 2.2%, dragged down by Samsung Electronics, which sank 5.4% despite strong quarterly results, as its shareholder return policy disappointed some investors. Memory chipmaker SK Hynix rose 1.6%, following a 10.9% surge the previous day on better-than-expected earnings.
Taiwan's Taiex index, which has benefited from the AI boom, declined 1.9%, while Hong Kong's Hang Seng edged up less than 0.1%. The Shanghai Composite shed 0.9%.
The mixed performance in Asia and the US sets a cautious tone for European bourses, with technology and energy sectors likely to be in focus. As the ECB meeting concludes, investors will also be watching for any commentary on the strength of the euro, which was trading at $1.1146, slightly down from $1.1154.
For European investors, the AI-driven volatility in US tech stocks is a reminder of the interconnectedness of global markets. While European tech companies have been less exposed to the AI hype, they are not immune to the broader sentiment. The recent rally in chipmaker earnings had lifted hopes, but Alphabet's miss has injected a dose of caution.
As the day progresses, all eyes will be on the ECB's press conference and any hints about the future path of monetary policy in the eurozone. With inflation still above target and growth concerns mounting, the central bank faces a delicate balancing act.
