U.S. stocks rose on Monday as investors brace for a busy earnings week for blue-chip tech groups, whose results will be used as a barometer of the health of the consumer economy.
On Wall Street, the benchmark S&P 500 closed up 1.2%, while the tech-heavy Nasdaq Composite added 0.9 cent, continuing a rally from last week, led by the announcement that the Federal Reserve may soon slow the pace of interest rate hikes.
That positive sentiment will be tested this week as investors examine earnings from Meta, Amazon, Microsoft and Alphabet, which will offer insights into the strength of the US consumer in a year where online spending and digital advertising revenue have slowed. in the face of rising inflation. .
“We believe the full effects of tight monetary policy on the economy and corporate earnings are not yet well reflected in consensus forecasts, which could lead to disappointments,” UBS analysts wrote on Monday.
“Companies face the difficult combination of weakening demand, rising labor costs and unfavorable comparisons to 2021-22 earnings growth.”
Apple, which raised prices for its music and TV services on Monday, will also report results this week. Its shares rose 1.5% on Monday.
Nasdaq’s Golden Dragon Index, which tracks U.S.-listed stocks of Chinese companies, fell a record 14.4% on Monday as Alibaba, JD.com and Pinduoduo sold off sharply. The index is down about 50% this year.
Analysts said the selloff was made worse by Beijing’s release of economic data showing China’s GDP grew 3.9% year-on-year in the third quarter, below the annual target of 5.5. % of the government.
In the UK, gilts rallied sharply on Monday when Rishi Sunak was confirmed as the UK’s next prime minister, with investors betting the former chancellor would stick to economic policies that have calmed markets in recent days. .
The 10-year gilt yield fell 0.34 percentage points to trade at 3.71%, reflecting a significant rise in price. The pound climbed as much as 0.9% against the dollar in early trading before falling back amid a broad rise in the US currency to trade little changed on the day at $1.1279.
Sunak is seen by investors as much more likely to back new Chancellor Jeremy Hunt’s budget plans, which have helped restore order to the gilt market.
“Rishi Sunak has a much better chance of bringing stability to government,” said Derek Halpenny, head of research for global markets at MUFG. “He will not have a Privileges Committee inquiry into the lie in Parliament that Boris Johnson has and will be credible in the financial markets given his strong opposition to Liz Truss’ economic policies.”
Ten-year yields remain above levels of around 3.5% seen before Truss’ ill-fated fiscal plans last month, which plunged gilts and the pound, triggering a liquidity crunch in pension funds and prompting the Bank of England to intervene with an emergency bond purchase programme. But both short and long-term gilt yields have returned to roughly where they were before Sept. 23.
Investors had also bet that the BoE would be forced to raise interest rates quickly to support the pound’s fall and offset the inflationary effects of £45bn of unfunded tax cuts.
Interest rate expectations had begun to fall after Hunt announced last week that he would cut most of the Truss tax cuts.
They moderated again on Monday. Traders expect UK interest rates to rise to just above 5% by next summer, from 5.25% last week.
The move comes after Ben Broadbent, the Bank of England’s deputy governor for monetary policy, last week questioned market expectations that interest rates would need to rise above 5% to drive down inflation.
Yields on two-year gilts, which are very sensitive to rate expectations, fell 0.33 percentage points to 3.38%.