(Bloomberg) — European stocks opened higher and U.S. index futures rose as some Federal Reserve officials cautioned against faster-than-necessary policy tightening and U.S. companies signaled another strong earnings season.
Futures on the S&P 500 and Nasdaq 100 indexes advanced at least 0.1% each, signaling that a rally in New York equities underpinned by dip-buying may continue. Europe’s Stoxx 600 gauge was driven higher by financial and commodity companies. The dollar weakened and emerging-market assets gained, showing a risk-on mood firmly in place, at least for the moment.
Investors are debating whether a two-day stocks rally that pared the worst monthly rout in the S&P 500 since March 2020 will continue against a wall of worries including an aggressive Fed, growth hiccups and pandemic flare-ups. They are now turning their attention to earnings releases to gauge the impact of inflation on consumer demand and the strength of the recovery. Meanwhile,
“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.
Fed officials said they want to avoid unnecessarily disrupting the U.S. economy as they prepare to start raising interest rates, showing little stomach for an aggressive 50 basis-point move in March.
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.
Elsewhere, traders continue to monitor diplomatic efforts between the U.S. and Russia to defuse tension over Ukraine.
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 1.1% as of 8:34 a.m. London time
- Futures on the S&P 500 rose 0.1%
- Futures on the Nasdaq 100 rose 0.3%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index rose 0.3%
- The MSCI Emerging Markets Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.1260
- The Japanese yen was little changed at 115.03 per dollar
- The offshore yuan was little changed at 6.3672 per dollar
- The British pound rose 0.2% to $1.3475
Bonds
- The yield on 10-year Treasuries was little changed at 1.78%
- Germany’s 10-year yield was little changed at 0.01%
- Britain’s 10-year yield was little changed at 1.30%
Commodities
- Brent crude rose 0.2% to $89.43 a barrel
- Spot gold rose 0.3% to $1,803.43 an ounce
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