(Bloomberg) — Global stocks extended a rally as Federal Reserve officials cautioned against disruptive policy tightening and U.S. companies signaled another strong earnings season. U.S. index futures erased gains in line with volatile moves seen over the past several days.
Futures on the Nasdaq 100 Index dropped 0.1%, while those on the S&P 500 Index were 0.2% lower, after a two-day rally in New York led by dip-buying. Financial companies drove Europe’s Stoxx 600 gauge higher, with UBS Group AG posting the best performance. Treasuries climbed and the dollar weakened. Advanced Micro Devices Inc. rose in premarket trading amid expectations its results Tuesday will show market-share gains.
Four Fed officials said they would want to back interest-rate increases at a pace that doesn’t disrupt the economy, calming markets nervous over previous hawkish messages from the central bank. Investors are now debating whether a two-day stocks rally that pared the worst monthly rout in the S&P 500 since March 2020 will continue. They are also focusing on earnings releases to gauge the strength of the economic recovery.
“Good news is that some Fed officials are finally out trying to soothe investors’ nerves saying that they still want to avoid unnecessarily disrupting the US economy,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “But what will really make the difference is the quantitative tightening and given the steep rise in Fed’s balance sheet since March 2020, even halting the growth would be an abrupt change for market conditions.”
Waves of volatility have swept across markets after the Fed signaled swifter monetary-policy tightening to curb inflation than many had expected. Investors need to “get used to this up and down volatility” as there’ll likely be more of it, Nancy Davis, chief investment officer at Quadratic Capital Management, said on Bloomberg Television.
San Francisco Fed chief Mary Daly, who has been one of the more dovish officials at the central bank, cited a number of risks facing the economy in addition to the ongoing pandemic, including headwinds as fiscal support fades. Kansas City Fed President Esther George said it’s in “no one’s interest to try to upset the economy with unexpected adjustments.” San Francisco Fed chief Mary Daly said policy moves “have to be gradual and not disruptive.”
For optimists, the corporate-earnings outlook continues to underpin the case for stocks. Of the 174 companies in the S&P 500 that have reported so far this season, 81% have beaten or met projections.
“Investors should not lose sight of the fact that the economy remains strong, which should limit downside from current levels,” Solita Marcelli, Americas chief investment officer at UBS Global Wealth Management, wrote in a note.
Treasuries erased their losses, with the 10-year rate shedding two basis points. Bonds in Europe also rallied, with the German benchmark yield falling below zero again, after a report showed euro-area manufacturing was expanding at a slower-than-forecast pace.
AMD advanced in early New York trading. The second-biggest maker of computer processors, will report quarterly results Tuesday afternoon and provide its forecast for the year, giving investors a sense of whether the chipmaker can continue to make gains against larger rival Intel Corp. UBS jumped 6% in Zurich as earnings beat estimates.
For more market analysis, read our MLIV blog.
What to watch this week:
- Earnings are due from Alphabet, Amazon, Exxon Mobil, Ford Motor, Meta Platforms, Qualcomm, Sony, Spotify, UBS Group
- Manufacturing PMIs, including euro zone, Tuesday
- OPEC+ meeting on output, Wednesday
- Euro zone CPI, Wednesday
- Bank of England, European Central Bank rate decisions, Thursday
- Fed Board of Governors confirmation hearing, Thursday
- U.S. factory orders, initial jobless claims, durable goods, Thursday
- U.S. payrolls report for January, Friday
- Winter Olympics kick off in China, Russia’s President Vladimir Putin due to attend opening ceremony, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.8% as of 9:32 a.m. London time
- Futures on the S&P 500 fell 0.3%
- Futures on the Nasdaq 100 fell 0.1%
- Futures on the Dow Jones Industrial Average fell 0.3%
- The MSCI Asia Pacific Index rose 0.4%
- The MSCI Emerging Markets Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.3% to $1.1264
- The Japanese yen rose 0.3% to 114.74 per dollar
- The offshore yuan was little changed at 6.3698 per dollar
- The British pound rose 0.3% to $1.3487
Bonds
- The yield on 10-year Treasuries declined two basis points to 1.75%
- Germany’s 10-year yield declined two basis points to -0.01%
- Britain’s 10-year yield declined three basis points to 1.28%
Commodities
- Brent crude fell 0.8% to $88.52 a barrel
- Spot gold rose 0.5% to $1,806.02 an ounce
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