European stock markets moved higher with the Stoxx 50 up to the highest since November 2021, while the FTSE 100 rallied north of 7,900, up around 0.5 per cent. The DAX and CAC 40 both rose to their highest levels in a year, continuing the positive momentum from last week.
Wall Street finished higher on Friday, for a fourth straight week. A lot of the positivity is from US banking results on Friday. This has overcome recession fears and panic over interest rates to give everything a slight bump this morning. Futures show the S&P 500 will open around 0.3 per cent higher later on today.
However, it’s worth remembering the boost comes from a low bar. Expectations for earnings are on the floor, so beats can be expected. Wall Street’s big banks delivered strong earnings last week, but they are the stronger ones. Today is quiet ahead of Goldman Sachs and Netflix tomorrow.
US retail sales fell 1 per cent last month, double the 0.5 per cent drop expected, but core retail sales declined by just 0.3 per cent, cementing the view that the US Federal Reserve will hike in May. The dollar trades higher this morning after touching a one-year low on Friday. Markets now price a roughly 80 per cent chance the Fed raises rates next month with hawkish comments from the Fed’s Waller also a factor.
Inflation seesaw: University of Michigan’s year-ahead inflation expectations for the US rose from 3.6 per cent in March to 4.6 per cent in April. UoM said: “These expectations have been seesawing for four consecutive months, alternating between increases and decreases. Uncertainty over short-run inflation expectations continues to be notably elevated, indicating that the recent volatility in expected year-ahead inflation is likely to continue.”
Last week’s US core CPI inflation – up to 5.6 per cent from 5.5 per cent – indicates inflation is not going to die quietly. The long and short of it is, the Fed will hike more than the market thinks unless there is a significant credit crunch that emerges from the banking ‘crisis’...which so far seems less likely than it might have appeared a few weeks ago.
Markets are looking ahead to Chinese GDP data on Tuesday and a slew of PMI surveys on Friday. ECB boss Christine Lagarde speaks later, whilst the latest Empire State manufacturing index is due out. Click here for a full breakdown of this week’s news.
Neil Wilson is chief market analyst at Finalto
