IBM Plunges as ASML Faces High Investor Expectations

Summary

IBM plunged after warning it was losing ground as corporate spending shifted towards AI infrastructure, raising the bar for ASML ahead of its results. The US dollar weakened after softer-than-expected US inflation reduced expectations of a near-term Federal Reserve rate hike, while sterling and the euro strengthened. Brent crude remained above $85 a barrel as uncertainty over Strait of Hormuz shipping persisted. South Korea's KOSPI surged, while China's weaker economic growth had little market impact.

Equities

The FTSE 100 closed 0.3% higher at 10,529.39 on Tuesday, recovering from early losses after investors responded positively to softer US inflation data and a strong start to the US banking earnings season. The index had fallen as low as 10,422.98 earlier in the session before reversing course. The FTSE 250 finished broadly flat.

BP closed 2.2% higher on Tuesday after telling investors that stronger oil trading and improved refining margins are expected to support second-quarter earnings. Shell added 1.2% as Brent crude remained above $85 a barrel, close to its highest level in four weeks. Barclays and HSBC both gained 1.9%, while Lloyds Banking Group rose 1.0%, reflecting optimism following better-than-expected results from major US lenders.

Mining shares also moved higher on Tuesday as industrial metals strengthened. Rio Tinto climbed 3.3%, Glencore gained 3.0% and Anglo American advanced 2.4%. Debenhams Group rose 3.1% after saying positive trading momentum continued through June and into July.

Healthcare stocks moved in the opposite direction. AstraZeneca fell 2.0% on Tuesday and GSK lost 1.7%, making the sector one of the weakest performers on the London market.

In the US, the S&P 500 closed 0.38% higher at 7,543.89 on Tuesday, while the Nasdaq gained 0.90% to 26,107.01 as chip shares recovered. The Dow Jones Industrial Average edged up 0.02% to 52,508.66. Investors welcomed a cooler-than-expected June inflation reading, while attention also remained on Federal Reserve Chair Kevin Warsh's first congressional testimony.

Goldman Sachs delivered one of the strongest performances of the day, closing 9.0% higher on Tuesday after second-quarter profit comfortably exceeded expectations, helped by stronger dealmaking and trading revenue. JPMorgan Chase gained 2.5% after reporting record quarterly profit, while Bank of America added 1.9% following better-than-expected earnings.

IBM suffered the sharpest decline, closing 25.2% lower on Tuesday after warning that second-quarter revenue would miss market expectations. Citigroup fell 5.3% despite beating profit forecasts as investors focused on rising expenses, while Wells Fargo slipped 2.7% after its quarterly results.

Forex & Commodities

The US dollar weakened early on Wednesday after softer-than-expected US inflation reduced expectations of an immediate Federal Reserve interest rate increase. Sterling strengthened to $1.3403, while the euro rose to $1.1438. Against the Japanese yen, the dollar eased to 162.2, and the US dollar index slipped to 100.8 after recording its largest daily decline in almost two weeks on Tuesday.

Fresh US inflation data showed consumer prices rose 3.5% over the year to June, while prices fell on a monthly basis for the first time since April 2020 as energy costs retreated. The figures prompted investors to scale back expectations of a July Federal Reserve rate increase, although markets continue to expect the possibility of further tightening later this year. During congressional testimony on Tuesday, Federal Reserve Chair Kevin Warsh said the central bank had "no tolerance" for persistently high inflation and stressed it would act if price pressures remained elevated. Investors are now waiting for the latest US Producer Price Index figures due later today.

Spot gold slipped early on Wednesday to $4,028 per ounce after climbing above $4,100 on Tuesday following the weaker US inflation report. The retreat came as renewed geopolitical tensions pushed oil prices higher, increasing concerns that rising energy costs could complicate the inflation outlook and influence future interest rate decisions. Silver, platinum and palladium also traded lower.

Oil prices extended their advance early on Wednesday after closing around 2% higher on Tuesday. Brent crude rose to $85.72 a barrel, while US West Texas Intermediate traded at $79.98. Prices remained supported after President Donald Trump reimposed a naval blockade on Iranian ports and the US military launched fresh strikes linked to attacks on commercial shipping in the Strait of Hormuz. Iran also reported further military action against US positions, keeping supply concerns firmly in focus.