LDN - Business

Wall Street holds gains ahead of earnings, jobs data

[August 01, 2023] By Lawrence Delevingne

(Reuters) -Wall Street and global stocks edged up on Monday while oil prices gained and the dollar was little changed, as traders looked ahead to corporate earnings and a key employment report due this week.

The Dow Jones Industrial Average rose 0.28% to 35,560.19, the S&P 500 gained 0.15% to 4,589.15 and the Nasdaq Composite added 0.21% to 14,346.02.

Apple Inc and Amazon.com both report on Thursday, while other well-known names with results due include Caterpillar Inc, Starbucks Corp and Advanced Micro Devices.

European shares gained modestly after euro zone inflation fell further in July seeing that most measures of underlying price growth also eased. Markets took this as a comforting sign for the European Central Bank (ECB) as it considers ending a brutal string of interest rate hikes.

The pan-European STOXX 600 index rose by 0.12%, a second consecutive monthly gain. MSCI's gauge of stocks across the globe gained 0.15%.

The modest gains came despite China's manufacturing activity falling for a fourth straight month in July, as demand remained weak at home and abroad, official surveys showed on Monday.

"Markets are treating information with a lot more sensitivity and people are looking into new information with a detailed eye," said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

EYES ON THE HORIZON

Economic indicators that investors will be watching this week include the U.S. ISM surveys on manufacturing and services, as well as the July payrolls report.

"Data out this week should remain superficially consistent with the 'soft landing' narrative," Citi market strategists wrote in a note. "But the potential return to upside surprises to job growth would raise questions about whether slowing inflation can coexist with tight labor markets."

All three main U.S. indexes have posted recent gains as signs of cooling inflation and a resilient economy have eased investor sentiment about the economy surviving amid higher rates for longer.

Upbeat quarterly earnings from megacap growth companies including Alphabet and Meta Platforms as well as chipmakers Intel and Lam Research have also boosted investor sentiment.

Almost 30% of the S&P 500 reports results this week. The index is now up nearly 20% for the year.

Paul Christopher, Wells Fargo Investment Institute's head of global investment strategy, urged caution given the potential for a weaker economy, slower disinflation and narrower corporate profits.

"This year's impressive equity rally has been driven by strong sentiment, without either the earnings growth or the directional improvement in economic data to justify current market multiples and valuations," Christopher wrote in a note.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 26, 2023. REUTERS/Brendan McDermid/File Photo

RISING RATES

Chicago Federal Reserve Bank President Austan Goolsbee on Monday said the U.S. central bank is "walking the line pretty well" on bringing inflation down without causing a recession, and will watch the data as September approaches to judge if more monetary tightening may be appropriate.

The Bank of England is widely expected to raise rates by at least a quarter point. Traders cut bets on a continuing rally in the pound by the most since mid-June ahead of the Bank of England rate decision on Thursday.

Sterling has surged 24% from a record low of $1.033 against the dollar in September after a disastrous budget, hitting a 15-month high of $1.314 in mid-July.

The dollar edged higher on Monday after a survey from the Federal Reserve showed U.S. banks reported tighter credit standards and weaker loan demand during the second quarter, a sign rising interest rates are having an impact on the economy.

The Japanese yen weakened about 0.8% versus the dollar. Investors continued to digest Friday's decision by the Bank of Japan (BOJ) to lift the lid on bond yields in a step away from its ultra-easy policies.

Japanese 10-year yields surged to a nine-year high up to 0.6% on Monday, and toward the new cap of 1.0%.

U.S. Treasury yields were marginally lower, with investors waiting for employment data to assess the impact of the Fed's monetary tightening campaign on the economy. The 10-year was down 1 basis point at 3.961%.

In commodities, gold prices rose, putting them on track for their best month in four, helped by a weaker dollar and expectations that major global central banks are nearing a peak with interest rate hikes. Spot gold added 0.3% to $1,965 an ounce [GOL/]

Oil prices rallied to a fresh three-month high and recorded their steepest monthly gains since January 2022, supported by signs of tightening global supply and rising demand through the rest of this year.

U.S. crude rose 1.63% to $81.89 per barrel and Brent was at $85.56, up 0.67% on the day.

(Reporting by Lawrence Delevingne in Boston and Nell Mackenzie in London; Editing by Nick Macfie, Will Dunham and Deepa Babington)

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