Contracts on the technology-heavy US Nasdaq index slipped on Monday, as the possibility of further Federal Reserve policy tightening lifted Treasury yields and investors stayed on the sidelines ahead of a set of crucial bank earnings.
(Bloomberg) — Contracts on the technology-heavy US Nasdaq index slipped on Monday, as the possibility of further Federal Reserve policy tightening lifted Treasury yields and investors stayed on the sidelines ahead of a set of crucial bank earnings.
Contracts on the interest rate-sensitive Nasdaq 100 traded in the red and those on the S&P 500 flatlined, following moves lower on Friday when markets were unnerved by Fed Governor Christopher Waller’s comments favoring further policy tightening. His views caused investors to ramp up bets on another rate rise in June, following one in May, and also to scale back expectations for rate cuts later in the year. In Europe too, the Stoxx 600 Index erased an earlier gain.
Treasury yields ticked higher, with rate-sensitive two-year borrowing costs rising to around 4.14%, up more than 15 basis points in the past week.
Still, recent data points to inflation and employment markets steadily softening, encouraging some equity bulls. First-quarter earnings from JPMorgan Chase & Co. and Citigroup Inc. also outpaced expectations on Friday.
“After the data last week, there is a less pressing need to hike rates, plus there is an apparent easing in banking tensions,” said Peter Kinsella, head of FX strategy at Swiss asset manager UBP. “If we get a Fed rate hike in May, I think it will be one and done.”
Despite this, Kinsella predicts headwinds for equity markets from share valuations that remain expensive, especially in relation to a slowing economy. Investors are preferring to park their cash in money-market funds, he noted.
“The current season’s earnings profile is rather opaque,” Kinsella added. “The banks last week did better than expected, but we have to see what the reporting season will be like from everyone else. But the S&P is expensive at current levels so you have to ask yourself if there is really much material upside from here.”
On Monday, investors are awaiting reports on Monday from Charles Schwab Corp. and State Street Corp. The former will be in particular focus after a 40% share price plunge year-to-date, caused by rising interest rates. Later in the week, Bank of America Corp. and Goldman Sachs Group Inc. are due to deliver results along with Netflix Inc. and Tesla Inc.
Bank shares rose in premarket New York trading, with Charles Schwab gaining about 2.4%, though tech firms including Alphabet Inc., Nvidia Corp., and Meta Platforms Inc. slipped between 1% and 2%, pressured by the rates-repricing.
On currency markets, a gauge of the dollar steadied, supported by the additional rate-hike pricing. The index has just endured its longest stretch of weekly declines in almost three years and hedge funds are betting this is about to reverse.
Read more: Hedge Funds Go All In on Dollar for First Time in Over a Year
However, most strategists remain bearish on the greenback as rate hikes wind down and recession looms.
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.
Investors also await the release of the Fed’s Beige Book and commentary from officials including John Williams, Raphael Bostic, Loretta Mester and Lisa Cook.
Earlier in the day, shares in Hong Kong and Shanghai rose, lifted by expectations that data due on Tuesday will show China’s economic reopening gaining momentum.
In commodities, crude dipped after logging its fourth week of gains amid signs of a tightening global market. 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
Some of the main moves in the market:
Stocks
- S&P 500 futures were little changed as of 6:27 a.m. New York time
- Nasdaq 100 futures fell 0.1%
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.1% to $1.0977
- The British pound was little changed at $1.2403
- The Japanese yen fell 0.2% to 134.06 per dollar
Cryptocurrencies
- Bitcoin fell 1.7% to $29,850.53
- Ether fell 1.7% to $2,085.7
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.54%
- Germany’s 10-year yield advanced two basis points to 2.46%
- Britain’s 10-year yield declined one basis point to 3.66%
Commodities
- West Texas Intermediate crude fell 0.3% to $82.25 a barrel
- Gold futures rose 0.3% to $2,021.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric, Ritika Gupta and Tassia Sipahutar.
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