European stocks touch fresh highs ahead of U.S. earnings
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[April 17, 2023] By
Nell Mackenzie and Wayne Cole
LONDON/SYDNEY (Reuters) -European stocks rose to their highest in over a
year on Monday just as U.S. earnings season gets into full swing this
week and a raft of Chinese data is due to offer insight into how quickly
the world's second-largest economy is recovering.
Better than expected first-quarter earnings reports on Friday from JP
Morgan, Citigroup and Wells Fargo helped to buoy sentiment in markets,
whipped around last month by turmoil in the banking sector.
"Kicking off on a high note, the U.S. earnings season saw leading U.S.
banks disclose figures that exceeded expectations, even in light of the
sector's recent upheaval," said Bruno Schneller, a managing director at
INVICO Asset Management.
This upbeat news lessened the odds of a rate reduction later this year,
said Schneller.
Markets have also seen a mood shift on the outlook for U.S. interest
rates, with CME futures implying an 81% chance the Federal Reserve will
increase rates by a quarter point to 5.0-5.25% in May.
Resilience in core U.S. retail sales and a jump in inflation
expectations reported on Friday have led investors to trim the amount of
easing expected later this year to around 55 basis points (bps) in
total.
At least eight top Fed officials are speaking this week, including three
governors, and could generate plenty of headlines to move the dial
further.
The pan-European STOXX 600 index touched a fresh 14-month high and was
last up 0.14%, while the blue-chip STOXX50 index hit a new 22-year peak
and U.S. stock futures pointed to a flat to slightly positive open on
Wall Street.
World shares and Japan's Nikkei traded flat.
Chinese blue chips added 1.4% ahead of data on retail sales, industrial
output and gross domestic product due on Tuesday, where analysts suspect
the risks are for an upside surprise given recent strength in trade.
Figures over the weekend showed China's new home prices climbing at the
fastest pace in 21 months, supporting consumer demand and confidence.
EARNINGS KEY
S&P 500 futures climbed 0.1%, with Nasdaq futures mostly flat ahead of
earnings reports led by Goldman Sachs, Morgan Stanley and Bank of
America.
In Europe, financial shares underperfomed the broader market and were
last down about a third of a percent.
Other big U.S. names reporting earnings this week include Johnson &
Johnson, Netflix and Tesla.
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A man watches stock quotations on an
electronic board outside a brokerage, in Tokyo, Japan, March 20,
2023. REUTERS/Androniki Christodoulou
Analysts expect Q1 S&P 500 earnings to fall 5.2% from the
year-earlier period, though Bank of America (BofA) analyst Savita
Subramanian is more concerned about the outlook for 2023.
"Overall, we expect an in-line quarter, but big cuts for the
full-year," BofA warned. "Our 2023 EPS estimate for the S&P 500
remains $200, still 9% below consensus estimates."
"Demand for consumer goods has already softened and now we're
watching services," Subramanian said. "Airlines, hotels and
restaurants are feeling pressure from slowing macro, tough comps
(comparison periods) and no respite from wage pressure."
In bond markets, the shift in Fed expectations pushed U.S. two-year
yields up to 4.11%, having risen 11 basis points last week. [US/]
German, French and Italian two-year yields traded flat on Monday.
Markets are pricing 37 bps of tightening at the ECB's May meeting
and 82 basis points by October.
That ramp up in rate increase expectations saw the euro gain 0.8%
last week, even after a dip on Friday. The single currency was
holding at $1.09775 on Monday having hit a one-year high of $1.1075
last week.
The dollar has fared better on the yen as the Bank of Japan remains
committed to its super-easy monetary policy, at least for now. The
dollar climbed to a one-month high against Japan's yen on Monday
rising to 134.22 yen earlier in the session, the highest level since
March 15. It was last up 0.16% at 133.9.
The bounce in the dollar took some of the shine off gold which was
back at $2,009 an ounce, off last week's peak above $2,048. [GOL/]
Oil prices have enjoyed four straight weeks of gains, helped by cuts
to output and as the West's energy watchdog said global demand will
climb to a record this year on the back of a recovery in Chinese
consumption. [O/R]
The market was consolidating on Monday with Brent and U.S. crude
down 0.7% at $85.79 and $81.99 (at 1011 GMT) a barrel, respectively.
(Reporting by Nell Mackenzie, Wayne Cole; Additional grahics Harry
Robertson; Editing by Kenneth Maxwell and Jacqueline Wong)
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