Stock trends showed global markets are recovering from recent losses.
Financial markets – including bonds and currencies – held up on Wednesday after Fitch downgraded its view of China’s economic prospects, as investors focused on eagerly awaited US inflation data, set for release later in the day.
Europe’s STOXX 600 index rose 0.6%, taking it close to a record high, after an earlier fall, while MSCI’s index of Asia-Pacific shares outside Japan rose 0.65%.
Meanwhile, US stock futures were flat on April 10.
Stock trends: Higher Economic Performance in USA
Higher economic signs, particularly in the U.S., and the pending rate cuts by central banks should stimulate global stock markets in the short term.
But there is rising concern that inflation in the U.S. may delay the Federal Reserve rate cut until later this year, a development that could be damaging.
Stock trends: March CPI
The March CPI data from the US, essential for market trend forecasting, will be released this week.
As of April 10, according to Bloomberg – which tracks 65 economists’ comments – the probability of the Federal Reserve’s first cut in rates in June is running at 50%, down from earlier suggestions of 60%.
Market strategists tend to focus on interest rate paths, particularly for the US, because the economy is so strong, and they question why these rates need to be cut so soon.
Stock trends: Rate cuts likely
The bottom line is that some easing of rates is likely this year, although it should be at a moderate pace, according to Federal Reserve Chair Jerome Powell.
As markets waited for the release of new inflation data in the US, yields on the benchmark 10-year Treasuries were edging higher slightly, keeping close to a four-month peak.
Stock trends: Eurozone in focus
Eurozone bonds were little changed amid expectations the European Central Bank will announce it will begin tapering its asset purchases at a mounting meeting on Thursday.
In Europe, defence stocks retreated a little after selling off heavily the day before, as the sector’s recent rally looked to be wearing thin as well as overvalued.
Stock trends: China Outlook Negative
China’s financial prospects attracted attention with Fitch reaffirming the ‘A +’ rating of China but revising the outlook downward to negative on the grounds that economic growth was slowing. Chinese stock markets reacted mixed — down for onshore blue chips but up for the Hong Kong Hang Seng index.
Stock trends: Japanese Yen hits Inflation wall
The Japanese yen remained well-bid against the dollar, as there have been some reports of possible interventions by the Japanese authorities to keep their currency weak.
Meanwhile, the dollar index itself remained steady, and aluminium prices reached high not seen in more than a year.
Stock trends: Commodities
U.S. and Brent crude oil price gained slightly, while gold, which hasn’t been spared by the rally in stock and commodity markets, lost little ground – still hovering at the all-time highs.
Ahead of the first-quarter windfall for US banking behemoths reporting their earnings on Friday, market watchers have every reason to believe the creamy profits they reaped last year will see a single-digit contraction.
The epidemic of what famed CEO PepsiCo CEO Indra Nooyi called Wall Street’s ‘excessive focus on the short-term’ is as infectious as ever on the complexion of industry titans poised to kick off their first-quarter results.
Stock trends: US Banks Huge Profits
Ahead of the first-quarter windfall for U.S. banking behemoths reporting their earnings on Friday, market watchers have every reason to believe the creamy profits they reaped last year will see a single-digit contraction.
JPMorgan Chase – which is set to announce an expected 4% dip in earnings per share (EPS), compared with last year, according to an LSEG survey; Citigroup, wholesaler of junk mortgages, down by 35%; the epicentre of the Wall Street derivatives virus, Goldman Sachs, down 13%; Wells Fargo, deadbeat lender, down 11%; Bank of America, financial juggernaut, $40 billion in settlements, down 18%; the tidy masterminds of Morgan Stanley, piteously up just 2%.
The focus this quarter is on the path of US interest rates and what they mean for banks’ net interest income, the margin between lending and deposits.
Stock trends: Profit Rally
Since the Federal Reserve began to raise interest rates in March 2022 to curb inflation, banks have been enjoying a boom in profits, with NII accounting for as much as 70% of the rally.
Investors are keen to hear what bank executives have to say about the outlook for NII as market expectations have shifted to reflect more limited rate cuts from the Fed.
Analysts at the investment bank Morgan Stanley have suggested that higher rates will benefit JPMorgan, Bank of America and Wells Fargo more than their competitors, boosting their NII outlooks.
Stock trends: High Interest Rate Squeezing Consumers
But continued high-interest rates could squeeze consumers’ budgets and lead to more defaults on loans, and banks might have to set aside more reserves to cover potential losses.
Banks with diverse consumer and commercial operations have proved more resilient than those exposed to Wall Street’s gyrating deal-making activities.
Among the S&P 500 banks group, Citigroup, Wells Fargo and JP Morgan have been outperforming so far this year, and their stock prices have jumped.
The jump in the first quarter also hinted at an uptick in mergers and acquisitions, a welcome sign for Goldman Sachs, Morgan Stanley and other investment banks that depend more on investment banking fees.
Stock trends: Banks Cashing it in
Bank CEOs – in particular, the heads of Wall Street’s major banks, who have been cautious about executing major M&A – will provide trading outlooks or strategic updates.
Citigroup’s Jane Fraser, who has already embarked on a wide-ranging reorganisation and downsizing effort, provides an example of a bank CEO likely to get questions about how she’s faring getting to the next level.
Leadership transitions, too, will be on the calendar as investors continue to pore over JPMorgan’s new CEO and growth strategy.
At Wells Fargo, investors will watch to see if the combined exit of its CEO and chairman at end of 2020 along with a plethora of high-profile departures get the bank any closer to resolving regulator-mandated issues that have hobbled its business and kept its asset cap in place.
This earnings season will show how US banks fare as shifting market conditions unfold in terms of stock market trends, competitive pressure from changing interest rates, and strategic responses.
US-focused stock index futures settled into a tight range on Wednesday in anticipation of a closely-watched report on inflation, a key gauge for the Federal Reserve’s next move on interest rates.
Back-to-back solid inflation readings earlier this year were partly due to ‘transitory’ factors including OPEC-led production cuts this year and last, as well as one-off increases to auto insurance premiums in California.
February’s Consumer Price Index (CPI) data will again be front and centre, with the markets looking for headline inflation to edge up to 3.4% year-over-year in March (compared with 3.2% in February) and the core inflation rate (excluding food and energy) to slip slightly to 3.7% of the previous 3.8% in February.
Stock trends: April CPI in Focus
UBS Global Wealth Management analysts say: March’s CPI is likely to see a smaller month-to-month increase than during the first months of the year.
Market expectations for cuts from the Federal Reserve, at its next meeting, wound back from 150 basis points in January to just 67.
But still, there’s more than a 50% chance of a 25-basis-point cut in June, according to the CME’s FedWatch Tool, slightly less than last week’s forecast.
Stock trends: Fed in Focus
Later today, minutes from the Federal Reserve’s March meeting will be released, which could give some clues on the central bank’s thoughts regarding raising or lowering interest rates.
The Nasdaq and the S&P 500 ticked up mildly in yesterday’s session, even as financial stocks weakened amid fears that the first quarter’s earnings season would start on a sour note.
Key banking players including JPMorgan Chase, Citigroup and Wells Fargo are slated to report quarterly financial results later this week.
In early trade, Dow e-minis were up 0.15%, S&P 500 e-minis rose 0.09%, while Nasdaq 100 e-minis climbed 0.05%.
Stock trends: Tech Titans
In premarket trading, tech titans here and there: Alphabet rallied 0.7%, Nvidia tumbled 1.1%.
Meanwhile, shares in Taiwan Semiconductor Manufacturing Co, the Taiwanese foundry that makes most of the world’s chips, rose 1.1%after the company beat revenue forecasts in its latest quarter.
Delta Air Lines rose 4.7% after reporting strong quarterly earnings with an upbeat outlook for future business due to strong travel demand.
Alibaba’s US-listed stock rose 2.9% after its co-founder Jack Ma spoke openly for the first time in almost a year about the company’s measures to restructure.
That makes it more likely that the quiet billionaire will soon speak up again.
Stock trends: European Equities on the rise
European equities rose at the open, with tech stocks leading the way, ahead of a key reading on US inflation. Shares in the chocolate maker Barry Callebaut rallied towards its biggest daily gain in more than five years after it reported strong numbers.
The pan-European STOXX 600 index was up 0.7% by the morning break, with tech stocks up 1.5% after positive quarterly earnings from TSMC, the world’s leader in the production of semiconductors.
The world’s tech stocks are continuing their upwards march, lifted by the euphoria around the breakthroughs in artificial intelligence.
Meanwhile, Barry Callebaut on the STOXX rose 6.8% after the Belgian chocolate and cocoa firm said half-yearly sales growth remained robust, with the price of cocoa prices helping its results. The wider food and beverages index rose 0.5%.
The benchmark index has been trading in a narrow range since early April and is still near the record highs reached last month as investors maintain a wait-and-see approach until US data on March consumer price index (CPI) gives a clue of the roadmap for interest rate adjustments by the US Federal Reserve.
Market watchers see a 53% chance that the Fed will cut rate in June from its current level following signs that the economy remained healthy.
Meanwhile, later this week, the spotlight will turn to the European Central Bank’s policy meeting, with market expectations pointing to a decision to hold rates steady.
Other interesting tips included an acquisition of shares of Koninklijke Philips – 2.8% has increased – after reaching an agreement with the US government about sales of new sleep apnea equipment.
Speaking of which, the war stocks Senior, Rheinmetall, SAAB and Leonardo snapped back with gains of between 0.5% and 2.0%, after Tuesday’s huge drubbing.
The share prices for producers of wind turbines, Siemens Energy and Nordex, jumped by 2.8% and 3.7% respectively in the days after the EU said it would investigate whether subsidies paid to Chinese suppliers were distorting the market.
The investigation was the latest EU attempt to shield the bloc’s industries from swooping on cheap, clean-tech imports.
Shares in Italgas fell by 1.1% after reports that it placed an initial bid of 4-5 billion euros to buy 2i Rete Gas, its main domestic rival.
Meanwhile, Norway’s benchmark index jumped 0.8% after data showed that core inflation adjusted for tax rose less than forecast in March and was broadly in line with what the central bank expected, paving the way for interest rate cuts later this year.
In other words, the moves in European markets suggest that investors are not yet expecting much change in monetary policy. They’re watching the tornados carefully.
