Global equity markets struggled for direction as traders parsed the latest commentary from central bankers for clues on the path for interest rates.
(Bloomberg) — Global equity markets struggled for direction as traders parsed the latest commentary from central bankers for clues on the path for interest rates.
At the start of another busy week of earnings, Heineken NV slumped as much as 6.4% after the Dutch brewer reduced its earnings forecast, with consumption waning as consumers react to price increases. Apple Inc. and Amazon.com Inc. are among companies reporting in the coming days. European stocks and US equity futures were steady following a rally Friday that pushed the Nasdaq 100 nearly 2% higher amid optimism that a soft landing for the world’s biggest economy is within reach.
European Central Bank President Christine Lagarde told Le Figaro newspaper the ECB could hike again, even if it pauses at its next meeting. In the US, Federal Reserve Bank of Minneapolis President Neel Kashkari described the inflation outlook as “quite positive,” despite the likelihood of job losses and slower growth. Yields on German bonds and US Treasuries climbed.
“The narrative that markets will be focused on is if it’s going to be a soft landing or not,” said Vivek Paul, senior portfolio strategist at BlackRock Investment Institute. “We’ll learn more about that once the upcoming data indicate if rapidly cooling inflation is indeed the start of a broader trend or it continues to be volatile.”
The yen dropped against the dollar after the Bank of Japan announced unscheduled bond-purchase operations to buy debt. The BOJ was seeking to contain a selloff after it said Friday it will allow yields to rise above a 0.5% cap.
This year’s advance on Wall Street suggests that US equities are tracking the same path they did in 2019, which was one of the best years for the S&P 500 over the past decade, according to Morgan Stanley strategist Michael Wilson. The benchmark is set to close out a fifth month of gains, the longest such winning streak since August 2021.
“The data we have today suggests to us that we are in a policy-driven, late-cycle rally,” Wilson, a staunch equities bear, wrote in a note. The latest example of such a period occurred in 2019 when the Federal Reserve paused and then cut rates and its balance sheet expanded toward the end of the year. “These developments fostered a robust rally in equities that was driven almost exclusively by multiple and not earnings, as has been the case this year.”
Meanwhile, investors aren’t rushing to buy shares of companies that beat second-quarter profit estimates. These firms are still underperforming the S&P 500 Index by the most in 18 years on the day after results, according to Goldman Sachs Group Inc. strategists led by David Kostin.
“Investors have not rewarded stocks posting positive surprises,” Kostin wrote in a note.
In other individual stock moves, Johnson & Johnson slipped in premarket trading after a federal judge ruled it cannot use a unit’s bankruptcy case to press cancer victims to drop lawsuits and accept an $8.9 billion settlement. Ford Motor Co. dropped after a downgrade at Jefferies.
MetLife Inc. gained after Bloomberg News reported that Singapore insurer Great Eastern Holdings Ltd. is in talks to buy the company’s Malaysian venture. Carvana Co. fluctuated after analysts at Jefferies turned bearish on the online used-car dealer.
Japan remains a focus for traders. On Friday, BOJ Governor Kazuo Ueda said the central bank would allow 10-year bond yields to rise above a ceiling it now calls a point of reference. That potentially paves the way for a future normalization of policy that has implications for a wide range of global assets heavily exposed to Japanese money.
“We had the BOJ today making sure yields remained capped,” said Jane Foley, head of currency strategy at Rabobank. “They clearly don’t want yields rising too much, so today’s action drove home the point it was perhaps more of a technical adjustment than a change in policy.”
Key events this week:
- Australia RBA rate decision, Tuesday
- Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Tuesday
- UK S&P Global/CIPS UK Manufacturing PMI, Tuesday
- US construction spending, ISM Manufacturing, job openings, light vehicle sales, Tuesday
- China Caixin Services PMI, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
- UK BOE rate decision, Thursday
- US initial jobless claims, productivity, factory orders, ISM Services, Thursday
- Eurozone retail sales, Friday
- US unemployment rate, non-farm payrolls, Friday
Some of the main moves in markets:
- S&P 500 futures were little changed as of 6:44 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.1037
- The British pound was little changed at $1.2859
- The Japanese yen fell 0.9% to 142.46 per dollar
- Bitcoin rose 0.4% to $29,381.1
- Ether rose 0.1% to $1,868.35
- The yield on 10-year Treasuries advanced three basis points to 3.98%
- Germany’s 10-year yield advanced two basis points to 2.52%
- Britain’s 10-year yield advanced two basis points to 4.34%
- West Texas Intermediate crude rose 1% to $81.39 a barrel
- Gold futures fell 0.3% to $1,994.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Sujata Rao and Sagarika Jaisinghani.
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