(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 swung to losses 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. A gauge of world stocks outside the U.S. headed for the biggest two-day gains in almost three weeks. The dollar weakened, while Treasury yield curves flattened. United Parcel Service Inc. jumped in early New York trading after predicting revenue above analysts’ forecasts.
Four Fed officials said they’ll back interest-rate increases at a pace that doesn’t disrupt the economy, calming markets unnerved by previous hawkish messages from the central bank. Investors are now debating whether the 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 U.S. 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.”
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 expressing caution over faster-than-necessary tightening included San Francisco Fed chief Mary Daly, who 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 also said it’s in “no one’s interest to try to upset the economy with unexpected adjustments.”
Meanwhile, the corporate-earnings outlook continues to underpin the case for stocks. Of the 182 companies in the S&P 500 that have reported earnings so far this season, more than 82% have beaten or met projections. Profits are coming in about 5.2% higher than forecast levels.
Treasuries erased their losses, with the 10-year rate shedding three basis points. In Germany, the benchmark yield returned to negative territory, while the two-year rate rose above the central-bank rate for the first time since 2015.
UPS jumped 7.6% in premarket trading after forecasting 2022 revenue above the average analyst estimate. Its fourth-quarter results also beat expectations. UBS Group AG jumped 6% in Zurich as earnings surpassed estimates. Advanced Micro Devices Inc. rose in the early New York session amid expectations its results Tuesday will show market-share gains.
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
- Futures on the S&P 500 fell 0.2% as of 7:11 a.m. New York time
- Futures on the Nasdaq 100 were 0.1% lower
- Futures on the Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 rose 1.2%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.3% to $1.1271
- The British pound rose 0.4% to $1.3499
- The Japanese yen rose 0.5% to 114.59 per dollar
Bonds
- The yield on 10-year Treasuries declined three basis points to 1.74%
- Germany’s 10-year yield declined two basis points to -0.01%
- Britain’s 10-year yield declined four basis points to 1.27%
Commodities
- West Texas Intermediate crude fell 0.2% to $87.94 a barrel
- Gold futures rose 0.7% to $1,809 an ounce
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