Stocks Eke Out Small Gains in Cautious Trading:
Greenback posts small gains versus most G-10 currencies
Treasury two-year yield is at 4.1% on rate-hike wagers
US and European share futures made small gains along with most Asian equity benchmarks on Monday as investors weighed the prospect of more rate hikes and an economic slowdown.
Shares in Hong Kong and Shanghai led the way higher ahead of data Tuesday that’s projected to show increases in industrial production and retail sales as China continues its recovery from Covid lockdowns. Meanwhile, the People’s Bank of China kept a key lending rate unchanged and made the smallest net injection of liquidity since November.
Indian information technology stocks plunged after software firm Infosys Ltd. slumped the most in three years on weak growth guidance. That weighed on the benchmark Nifty 50, which slid about 1%.
S&P 500 futures rose around 0.2%, as did those for the Euro Stoxx 50, while contracts for the Nasdaq 100 were marginally higher. The S&P 500 climbed 0.8% last week and Nasdaq 100 squeezed out a 0.1% gain as policy-sensitive technology names like Microsoft Inc. and Apple Inc. dragged on the tech gauge. Swaps traders upped bets for a rate increase by June and pricing suggests a quarter point hike has better than three-in-four odds for May.
The dollar trimmed small gains against some Group-of-10 counterparts. Treasury yields were little changed, with the rate-sensitive two-year hovering at around 4.1%. It was driven higher last week by a measure of March retail sales showing core readings declined less than estimated and comments from Fed officials. Yields on government bonds in Australia and New Zealand climbed.
Traders have upped wagers for at least one more interest rate increase from the Federal Reserve this year as inflation pressure persists in the US. At the same time, a gauge of market risk has dropped to the lowest in more than two months as volatility subsided across assets on easing concern over troubles in the banking sector.
The more likely scenario for the US is “a relatively shallow recession at this point in time and that is going to put pressure on the dollar,” Sonja Marten, chief foreign exchange strategist at DZ Bank AG, said on Bloomberg Television.
Looking further ahead this week, investors are awaiting the release of the Fed’s Beige Book and commentary from officials including John Williams, Raphael Bostic, Loretta Mester and Lisa Cook. Markets were rattled last week after Fed Governor Christopher Waller said he favored more policy tightening in the central bank’s battle with inflation.
“I don’t think all of the rate hikes have worked their way through the system and it looks as though the Fed is going to continue to tighten,” Frances Stacy, director of strategy at Optimal Capital Advisors, said on Bloomberg Television. “I don’t think we’re completely out of the woods yet, but that doesn’t mean that the risk is going to happen overnight, but when something does hit, markets can gap down pretty dramatically.”
Financials outperformed last week with JPMorgan Chase & Co. and Citigroup Inc. leading the charge after earnings and the sector will remain in the hot seat Monday when Charles Schwab Corp. and State Street Corp. report.
Investors will be looking for signs of health from Schwab, which has plunged nearly 40% this year as rising rates drove a spike in unrealized losses at the brokerage. Bank of America Corp. and Goldman Sachs Group Inc. will report later in the week as will Netflix Inc. and Tesla Inc.
AllianceBernstein regards it as unlikely for earnings to turn strongly positive in the US by the fourth quarter. “It’s much more likely that we’re going to hit an economic recession in the US over the next 12 months,” David Wong, senior investment strategist, said on Bloomberg Television.
In commodities, crude was little changed Monday after logging its fourth week of gains amid signs of a tightening global market. Gold rose and Bitcoin fluctuated around the key $30,000 level.
Key events this week:
- ECB President Christine Lagarde speaks at the Council of Foreign Relations in New York, Monday
- Fed’s Thomas Barkin speaks before the Richmond Association for Business Economics, Monday
- China GDP, retail sales, industrial production, Tuesday
- US housing starts, Tuesday
- Goldman Sachs and Bank of America release first-quarter earnings, Tuesday
- Fed’s Michelle Bowman discusses digital currency, Tuesday
- Eurozone CPI, Wednesday
- Fed releases Beige Book, Wednesday
- Fed’s John Williams gives a speech, Wednesday
- Fed’s Austan Goolsbee is interviewed on NPR, Wednesday
- China loan prime rates, Thursday
- Eurozone consumer confidence, Thursday
- US initial jobless claims, existing home sales, index of leading economic indicators, Thursday
- ECB issues report on March policy meeting, Thursday
- Fed’s Christopher Waller speaks at cryptocurrency-focused event, Thursday
- Fed’s Patrick Harker speaks on “monetary policy and housing”, Thursday
- Fed’s Loretta Mester discusses the economic and policy outlook, Thursday
- Fed’s Raphael Bostic discusses regional and national economic conditions, Thursday
- Fed’s Michelle Bowman and Lorie Logan speak at event, Thursday
- PMIs for Eurozone, Friday
- Japan CPI, Friday
- Fed’s Lisa Cook discusses economic research at an event, Friday