Microsoft, Amazon earnings weighing on world markets as rally loses steam

Microsoft, Amazon weighing on world markets

LONDON — European and U.S. stock markets fell Friday as downbeat U.S. earnings news from Microsoft Corp. and Amazon Inc. prompted caution among investors after a two-week rally that has sent many indexes around the world to 2009 highs.

In Europe, the FTSE 100 index of leading British shares was down a minuscule 0.54 point at 4,559.26 while Germany’s DAX index fell 33.57 points, or 0.6 percent, at 5,213.71. France’s CAC-40 was down 5.67 points, or 0.2 percent, at 3,368.05.

And in the U.S., the recent run of big gains appeared to have run its course as the Dow Jones industrial average was down 28.80 points, or 0.3 percent, at 9,040.49 while the broader Standard & Poor’s 500 index fell 7.81 points, or 0.8 percent, to 968.48.

Analysts said it was unsurprising that the markets were taking a breather after recent big gains in the wake of better than expected U.S. earnings pushed some of the world’s leading indexes to 2009 highs.

Disappointing earnings from Microsoft and Amazon after Thursday’s close helped provide some cause for reflection — volumes are incredibly low.

Microsoft reported a 29-percent drop in second-quarter net profit and a 17-percent slide in revenue amid continuing weakness for personal computers around the world. Meanwhile, retailer Amazon reported a 10-percent fall in net profit for the second quarter, partly related to a $51 million payment to settle a long-standing dispute with former partner Toys R Us. Microsoft shares were down 9 percent in early trading, making it the biggest faller on the Dow, while Amazon slid more nearly 6 percent — one of the biggest fallers on the S&P.

“I suspect that the 9-day equity rally…will be closed out today in the wake of disappointing results from Amazon and Microsoft; both failed to deliver the results expected after hours, which gave credence to the fact that the recession is far from over and it is not out the question that the U.S. could well be in for a double-dip recession,” said David Buik, markets analyst at BGC Partners.

While most of the focus this week has centered on U.S. earnings, the European reporting season is slowly kicking into gear, too, providing investors with crucial insights about whether the recession is easing as much as it apparently is in the U.S. Among others, steel company Arcelor Mittal, Deutsche Bank AG, carmaker Daimler AG, chemical company BASF SA and France Telecom SA will report their earnings next week and investors will be interested to see if the recent improvement in forward-looking surveys is being felt in the real world.

Jeremy Batstone-Carr, director of private client research at Charles Stanley stockbrokers, said the pan-European earnings season is likely to support the near-term improvement in risk appetite.

“The improvement in macro economic data releases through Q2 is likely to result in an earnings season which exceeds expectations in terms of positive surprises relative to negative surprises,” he said.

The wider economic picture emerging in Europe on Friday was mixed though.

While the British economy contracted by a bigger than expected 0.8 percent in the second quarter of the year from the previous three month period, the respected Ifo Institute indicated that business optimism in Germany, Europe’s biggest economy, improved for the fourth month running. Its main business climate index rose to a nine-month high of 87.3 points in July from 85.9 points in June. The rise was bigger than anticipated, with economists projecting an increase to 86.5.

Earlier in Asia, Japan’s Nikkei 225 stock average rose 151.61 points, or 1.6 percent, to 9,944.55 and Hong Kong’s Hang Seng advanced 165.09, or 0.8 percent, at 19,982.79.

South Korea’s Kospi was 0.4 percent higher after figures showed the economy grew 2.3 percent in the second quarter as increased government spending and record low interest rates helped to insulate it from the global recession. Singapore and China have also released stronger growth figures in recent weeks.

Elsewhere, Australia’s market gained 0.6 percent, Singapore was 1.7 percent higher while Taiwan’s benchmark edged lower by 0.1 percent.

China’s Shanghai market gained 1.3 percent, shrugging off fears that a construction company’s massive share sale could weigh on stock prices. China State Construction Engineering Corp., the company that built the “Water Cube” swimming center for the Beijing Olympics, said Friday that it raised $7.3 billion in the world’s biggest initial public offering this year.

Oil prices hovered above $67 a barrel, adding to big gains made overnight. Benchmark crude for September delivery was up 5 cents to $67.21 a barrel. On Thursday, the contract added $1.76 to settle at $67.16.

The dollar fell 0.2 percent to 94.83 yen while the euro rose 0.5 percent to $1.4230.

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AP Business Writer Stephen Wright in Bangkok contributed to this report.