(Bloomberg) — Stocks in Europe and the US are set for their biggest monthly advance since November 2020 on positive earnings and expectations of shallower Federal Reserve monetary tightening.
The banking sector outperformed in Europe after a slate of better-than-expected results from Banco Bilbao Vizcaya Argentaria SA, Standard Chartered Plc and BNP Paribas SA.
Hermes International rose more than 7% after joining LVMH and Kering SA in posting strong results, showing the luxury consumer is resilient so far to high inflation and worries over a potential economic downturn.
Nasdaq 100 futures added 1% after the US stock market hit a seven-week high Thursday.
Amazon.com Inc. and Apple Inc. rose in premarket trading after both companies beat revenues estimates.
The tone was more somber in Asia, hampered by a tumble in Chinese tech shares that dragged Hong Kong toward a correction of more than 10% from a June high.
US-listed Chinese stocks fell in premarket trading, following a downbeat economic growth assessment from China’s top leaders and a lack of new stimulus policies.
The yen strengthened as the dollar retreated.
Treasuries yields rose with oil and gold. Data showing a second straight quarterly US economic contraction supported arguments that inflation will cool and that the Fed will become less aggressive.
Meanwhile, the euro-zone economy expanded by more than three times the amount economists expected, putting it on a firmer footing as surging inflation and a possible Russian energy cutoff threaten to tip it into a recession.
Inflation in the region climbed to another all-time high, supporting calls for the European Central Bank to follow up its first interest-rate hike since 2011 with another big move.
Global shares are set for a second weekly advance, paring this year’s rout to about 16%.
The risk is that the recent bout of optimism eventually gets a reality check if inflation stays stubbornly elevated, leaving interest rates higher than investors would like amid an economic downturn.
“At some point, the Fed will pivot policy and that should be better for risk markets, but in the meantime, they’re so bent on quelling inflation that we prefer not to buy the dip here,” Thomas Taw, head of APAC iShares Investment Strategy at BlackRock Inc., said on Bloomberg Radio.
Second-quarter US gross domestic product fell an annualized 0.9% after a 1.6% drop in the first three months of the year.
Back-to-back quarters of decline define a recession in most parts of the world, but in the US it’s not official until economists at the National Bureau of Economic Research deem it so.
Swaps tied to Fed meeting dates anticipate a peak in the fed funds rate of about 3.25% around year-end, less than a percentage point above its current level, followed by reductions next year to shore up growth.
Such pricing is a major bone of contention for market participants.
“Market pricing is overdone and the terminal rate should move closer to 3.5%-3.75%” as inflation remains too high amid strong labor and wage trends, wrote Priya Misra and Gennadiy Goldberg, strategists at TD Securities.
Elsewhere, a call between US President Joe Biden and China’s Xi Jinping underlined bilateral tension even as the leaders sought an in-person meeting.
Here are some key events to watch this week:
- Euro-area CPI, Friday
- US PCE deflator, personal income, University of Michigan consumer sentiment, Friday
Musk, Tesla and Twitter are this week’s theme of the MLIV Pulse survey.
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Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.8% as of 10:05 a.m.
London time
- Futures on the S&P 500 rose 0.6%
- Futures on the Nasdaq 100 rose 1%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index rose 1.2%
- The MSCI Emerging Markets Index rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.2% to $1.0215
- The Japanese yen rose 0.9% to 133.12 per dollar
- The offshore yuan was little changed at 6.7391 per dollar
- The British pound fell 0.2% to $1.2160
Bonds
- The yield on 10-year Treasuries advanced three basis points to 2.70%
- Germany’s 10-year yield advanced eight basis points to 0.90%
- Britain’s 10-year yield advanced seven basis points to 1.94%
Commodities
- Brent crude rose 2% to $109.27 a barrel
- Spot gold rose 0.4% to $1,763.01 an ounce
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