World stocks struggle to maintain four-month highs amid Facebook plunge

New York — World stock markets struggled to hold on to four-month highs as a massive sell-off in shares of Facebook offset optimism that the EU and the US would settle their differences on trade.

Facebook, the fifth-largest US stock by market capitalisation, collapsed 19.35% after the social media company, after earnings, showed slowing usage in the biggest advertising markets. Executives warned profits would plummet as the company improves privacy safeguards.

That countered optimism over news that US President Donald Trump agreed to refrain from imposing car tariffs while Europe and the US negotiated to cut other trade barriers.

MSCI’s gauge of stocks across the globe gained just 0.05% after earlier rising to its highest since March 16. On Wall Street, the Dow Jones Industrial Average rose 136.92 points, or 0.54%, to 25,551.02; the S&P 500 lost 5.15 points, or 0.18%, to 2,840.92; and the Nasdaq Composite dropped 64.68 points, or 0.82%, to 7,867.56.

“It’s going to be hard for markets today with such a massive market cap stock down so much,” said Michael Antonelli, MD, institutional sales trading at Robert W Baird. “It is possible that easing tensions could outweigh something like Facebook, because that has been the biggest concern of markets for weeks and Facebook is a one-off negative event.”

Concerns about Facebook’s major earnings miss in an otherwise largely positive US corporate results season did little to support bonds, which lost value as yields resumed their climb higher. Benchmark US 10-year notes last fell 5/32 in price to yield 2.9542%, from 2.936% late on Wednesday.

Trade is by no means removed from a slate of issues facing investors, with the US still to finalise an agreement with Europe, while it remains in negotiations with China as well as with Canada and Mexico.

China’s blue-chip shares lost 1.1%. Qualcomm dropped its $44bn bid for NXP Semiconductors after a deadline for securing Chinese regulatory approval passed. The breakdown of the deal leaves “investors fearing that the trade war has just turned even more so on China”, Citi analysts told clients.

Still, the heat has eased somewhat, over US and European trade issues. “The lifting of the threat of tariffs on the automotive sector, in particular, is a major development. We’ve not seen a lot of actual measures implemented but it should lift the confidence of manufacturers,” said Royal Bank of Canada European economist Cathal Kennedy. This allowed markets to return their attention to central banks and their plans to withdraw stimulus.

The euro, which initially received the US-EU trade news warmly, sharply lost ground after European Central Bank (ECB) president Mario Draghi re-affirmed a commitment to keep interest rates on hold “through” next summer, even though he saw inflation picking up by the end of the year.

The dollar index rose 0.31%, with the euro down 0.62% to $1.1655.

Reuters