Stock markets opened higher on Monday morning, picking up from Friday’s gains with more earnings in focus this week. The FTSE 100 added 0.5 per cent in early trade to a fresh record close to 8,200, retaining the risk-on profile that delivered a 3 per cent gain last week. Hong Kong was up again to extend its April rally to more than 7 per cent. Wall Street was up on Friday and for the week to pare some of its monthly losses even with Treasury yields ticking up.
Earnings in Europe are better. Here is Liberum this morning: “With 34 per cent of companies in the Stoxx Europe reporting, we see a marked improvement in the results to the previous earnings season. In particular, basic resources, telecom infrastructure and financials have shown surprisingly strong results. This, in turn, has been rewarded by better share price performance than in the US since the start of the current earnings season. While it is early days, there are clear signs that the earnings picture in Europe is improving, and European stock markets are catching up with the US.”
Fears that US inflation will remain too high for too long, and keep the Federal Reserve tighter for longer, didn’t have much effect on stocks: the S&P 500 rallied 2.7 per cent for its best week since November. Part of that seems to be down to a handful of megacap tech stocks. We know all about the way in which the index relies on a just a few companies. But what should we make of the data?
Growth slowed more than expected, but inflation was hotter than forecast. GDP expanded 1.6 per cent in the first quarter, well below the 2.4 per cent anticipated while core personal consumption expenditure (PCE) inflation accelerated to 3.7 per cent from 2 per cent. The word ‘stagflation’ has been bandied about a lot since – compared with peers it hardly seems fair. But the US is supposed to be in the peak of health; running a 6 per cent budget deficit and adding $1tn in debt every 100 days is delivering diminishing returns, however.
With inflation remaining sticky, the main focus this week is the Fed meeting. It is still expected to stand pat on rates at the meeting next week. In that sense, nothing has changed since the March meeting. But in every other way, things have become a lot more uncertain. Markets see virtually no chance of a change in rates. It is likely they will reiterate that cuts won’t come until policymakers have “greater confidence that inflation was moving sustainably toward 2 per cent”.
Today sees the latest round of German inflation data. CPI stood at 2.2 per cent in March 2024, down from 2.5 per cent in February and 2.9 per cent in January. The inflation rate in March was at its lowest level since May 2021. Falling energy prices, which declined 2.7 per cent year-over-year in March, are favourably impacting the data. More recent PPI data also showed promise at -2.9 per cent in March. This morning’s Spanish CPI print was in line at 3.3 per cent.
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The Trader is written by Neil Wilson, chief market analyst at Finalto
