LDN - Business

Stocks tread water ahead of earnings reality-check

[April 24, 2023] By Amanda Cooper

LONDON (Reuters) -Global shares held steady on Monday ahead of a week packed with economic data and central bank meetings, along with earnings from the tech giants that have kept the S&P 500 afloat this year.

The most recent data on global business activity shows a broad-based pick-up in the services sector that, in the United States at least, strengthens the case for interest rates to keep rising.

S&P 500 futures and Nasdaq futures were down around 0.1%, while in Europe, the STOXX 600 trod water, holding flat on the day.

The MSCI All-World index was steady. It's still up almost 1% in April and not far off one-year highs, thanks in large part to the strength in U.S. tech stocks.

Apple Inc and Microsoft Corp alone have accounted for nearly half of the S&P 500's gains in the last month, so there is much riding on their outlooks.

"Having seen off largely better-than-expected numbers from the U.S. banks last week, it’s now the turn of big Tech which has driven most of the U.S. market rebound so far this year," said Michael Hewson, chief market strategist at CMC Markets.

"With the likes of Microsoft, Alphabet, Meta Platforms, and Amazon all set to report this week, the outperformance that we’ve seen in the Nasdaq 100 so far this year is likely to face a key test," he said.

The U.S. House of Representatives could this week vote on a Republican plan to raise the debt ceiling in exchange for spending cuts. Weak tax receipts mean the government could run out of money earlier than expected, and, as a result, the cost of insuring against a U.S. sovereign default is at its highest in well over a decade.

BOJ's NEW BOSS

Markets are pricing in an 86% chance the Federal Reserve will increase rates by a quarter point in May, and fully expect a similar rise from the European Central Bank with some risk of a half-point move.

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A passerby walks past an electric monitor displaying recent movements of various stock prices outside a bank in Tokyo, Japan, March 22, 2023. REUTERS/Issei Kato

Central banks in Canada and Sweden meet this week, but most attention will be on the Bank of Japan for the first meeting chaired by its new governor, Kazuo Ueda.

Ueda on Monday said policy easing had to be continued since inflation was still under 2% in trend terms.

Only three out of 27 economists polled by Reuters expect the BOJ to start to scale-back its yield curve control policy (YCC) this soon.

"The consensus expects it is too early to see any adjustments yet to the BoJ's Yield Curve Control policy - though changes may be forthcoming at the June meeting," strategists at ING said in a daily note.

Meanwhile, the head of Belgium's central bank said in an FT article on Monday that investors are underestimating how much euro zone borrowing costs will rise.

Pierre Wunsch, an ECB policymaker, said he would only agree to pausing rate rises once there was evidence that wage growth was slowing.

The euro rose 0.2% to $1.1006 against the dollar The dollar was last up 0.4% against the Japanese currency at 134.69.

The confidence in the equity market hasn't translated into optimism in the oil market, where crude prices struggled to remain above $80 a barrel.

Brent crude fell 0.4% to $81.33 a barrel, as investors fretted about the outlook for energy demand in an environment of high interest rates and persistent inflation.

(Additional reporting by Wayne Cole in Sydney; Editing by Christopher Cushing and Lincoln Feast.)

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