Global stock markets steadied near recent highs on Monday ahead of this week’s corporate earnings results to reveal which economic sectors helped the higher rate boom and which suffered. US banks including JP Morgan, Citigroup and Wells Fargo reaped windfalls from higher interest payments, they said in their first-quarter earnings reports on Friday. That helped lift European shares to 14-month highs in early trade on Monday, but the pan-European STOXX 600 index was last up 0.1% by 1225 GMT.
Dan Izzo, founder of investment management firm Blackbird Capital, said that while banks are seen as a bellwether for US earnings, today’s markets are different. “Banking stocks were down all-time on Friday, but it’s important to note that all major U.S. indexes closed that day, including the Dow, S&P, Nasdaq and Russell,” Izzo said.
Stock futures based on the S&P, the Nasdaq and the Dow Jones Industrial Average were up slightly around 0.1%. What was worth watching was how some companies in different economic sectors were able to move through the high-price environment from the higher-rate environment and which were struggling, Izzo said.
“For the second month in a row, US retail sales fell in March, signaling a slowdown in household spending,” said Bruno Schneller, CEO of INVICO Asset Management. But he said consumer confidence was stable, although inflation expectations for the next 12 months rose to 4.6% in April from 3.7% in March. He added that news of improved earnings for banks and large corporations could reduce the likelihood of a rate cut later this year.
Markets also saw a shift in sentiment on the outlook for US interest rates, with CME futures suggesting an 81% chance the Federal Reserve will raise rates by a quarter point to 5.0-5.25% in May. At least eight top Fed officials are speaking this week, including three governors, and could generate plenty of headlines to push the numbers further.
Global stocks and Japan’s Nikkei traded flat. Chinese blue chips rose 1.4% ahead of data on retail sales, industrial output and gross domestic product due on Tuesday, with analysts questioning risks to the upside given the recent strengthening of trade.
Figures over the weekend showed new home prices in China rose at the fastest pace in 21 months, supporting consumer demand and confidence. KEY TO INCOME
Other big US names reporting earnings this week include Johnson & Johnson, Netflix and Tesla. Analysts expect the S&P 500’s Q1 earnings to fall 5.2% from a year earlier, although analysts at Bank of America (BofA) had expected the S&P’s earnings per share to remain in the $200 range. 9% below consensus estimates.
“We are cautious on equities because of the lagged impact on monetary policy. For example, you have the tightening of lending standards, household lending is already declining,” said Michele Morganti, senior equity strategist at Generali Investments. A shift in Fed expectations in bond markets pushed the two-year U.S. yield to 4.14%, up 38 basis points last week.
German, French and Italian two-year yields were little changed on Monday. Markets tighten by 37 bps at the May ECB meeting and by 82 basis points in October.
That rise in interest rate hike expectations saw the euro gain 0.8% last week. The single currency held steady at $1.09775 on Monday, after hitting a one-year high of $1.1075 last week. The dollar has outperformed the yen as the Bank of Japan sticks to its ultra-easy monetary policy, at least for now. The dollar rose to 134.22 yen against the yen on Monday, the highest level since March 15. It was last up 0.22 percent at 134 yen.
The dollar’s bounce took some of the shine off gold, which returned to $2,008 an ounce from last week’s high of $2,048. Oil prices, meanwhile, were steady as investors eyed economic data from China for signs of recovery in demand from the second-largest oil consumer.
Brent crude futures were down 0.38% at $85.97 a barrel, while U.S. West Texas Intermediate crude CLc1 was at $82.18 a barrel, down 0.4%.
(This story was not edited by Devdiscourse staff and was automatically generated from a syndicated feed.)