Trading cautious ahead of week rich with risk events
Monday 14:30 BST. Global stocks are hovering at eight-month highs as Wall Street holds near record levels, but trading is cautious ahead of a week chock full of risk events.
The US earnings season slips into high gear with about 200 of the S&P 500 reporting their results over the next five days, including Apple after the closing bell on Tuesday.
The Federal Reserve will deliver its latest policy decision on Wednesday followed by the Bank of Japan’s announcement on Friday, the same day the results of stress tests for European banks are due to be released.
Many investors consequently are adopting a wait-and-see approach, with the G20 finance ministers meeting in China over the weekend providing little cause for action.
After a mixed Asia-Pacific session, the pan-European Stoxx 600 is up 0.4 per cent, with the mood helped by news that German business confidence has not taken much of a hit from Brexit.
In contrast, optimism among UK businesses has fallen sharply, but the pound is steady at $1.308 as the FTSE 100 slips 0.1 per cent. Energy stocks are being pressured as Brent crude falls 1.5 per cent to a 10-week low of $45.02 a barrel amid continued oversupply concerns.
The FTSE All-World equity index is flat at 272.55, near its best level since November, elevated of late by the US stock market’s record run.
In New York, the S&P 500 is slipping just 0.1 per cent from Friday’s new record close of 2,175, having been bolstered in recent weeks by some mostly well-received earnings reports and the assumption that central banks’ monetary policies will remain ultra-accommodative.
The Fed on Wednesday is not expected to change interest rates but traders will be eager to hear any clues on the central bank’s policy trajectory.
About a month ago, when the UK’s vote to leave the EU caused anxiety in markets, futures were pricing in just a 15 per cent probability that the Fed would raise rates by 25 basis points at its December meeting.
That figure has risen to 45 per cent as markets have calmed down and recent US economic data, such as jobs number and retail sales growth, have improved.
The dollar and government bond yields have perked up in response. The dollar index, which measures the buck against a basket of its peers, is easing 0.1 per cent to 97.36 but sits a fraction below a four-month high.
Ten-year Treasury yields, which move inversely to the bond price, touched a record low of 1.32 per cent on July 6 but are now 1.57 per cent, a fraction of a basis point softer on the day.
Equivalent maturity German Bunds are dipping 1bp to minus 0.04 per cent and Japanese benchmarks are also steady at minus 0.24 per cent as traders wait to see if the BoJ will add more stimulus later this week.
Analysts expect further easing on Friday, though central bank governor Haruhiko Kuroda last week seemed to quash rumours the BoJ might deploy so-called “helicopter money” to boost the economy.
“The BoJ is expected to cut economic forecasts and ease monetary policy at this week’s meeting,” said analysts at DBS. “Growth remains stagnant and deflation risks continue to loom, due to the weakness in both external and domestic demand.”
Data published on Monday showed that declines in June for both imports and exports were not as bad as feared, though the continued contraction in trade underscored the challenges for Japanese policymakers in stoking weak domestic demand amid sluggish global growth.
The yen weakened as much as 0.6 per cent to ÂĄ106.72 per US dollar following the announcement but has recovered to ÂĄ106.14, just 0.1 per cent softer for the session.
Elsewhere in the region, the Hang Seng was up 0.1 per cent in Hong Kong, while on the mainland China’s Shanghai Composite also gained 0.1 per cent and in Australia the S&P/ASX 200 added 0.6 per cent.
Gold is down $7 to $1,315 an ounce. The yellow metal hit a two-year high of $1,375 just a couple of weeks ago, but has dribbled back as the dollar has firmed and bond yields have risen off record lows.
The Turkish lira, which last week fell to a record low of Tl3.096 per dollar in the wake of a failed coup and subsequent political crackdown, is 1 per cent stronger at Tl3.0310 and the Istanbul stock market is recovering 3.6 per cent.
