Global markets: Stocks climb as traders look to profits to counter slowdown fears

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Stocks reversed early losses to rise on Monday, as investors hoped a batch of corporate earnings this week would boost sentiment and offset more signs of an economic slowdown ahead of the Federal Reserve’s two-day policy meeting.

Overall, the start of the week started quietly for financial markets, with the dollar falling but holding above a two-and-a-half-week low and government bond yields rising.

A widely watched survey showed German business sentiment fell more than expected in July as high energy prices and looming gas shortages pushed Europe’s biggest economy into recession.

US Treasury Secretary Janet Yellen said on Sunday that US economic growth was slowing, but added that a recession was not inevitable. The data, however, suggests the likelihood of a slowdown.

Business activity in the United States contracted for the first time in nearly two years amid persistently high inflation and rapidly rising rates, another survey showed on Friday.

“The growing gloom over the outlook for the global economy is likely to continue in the coming months as fears over high inflation, rising interest rates and Russian gas in Europe continue to weigh on sentiment,” said Mark Haefele, Chief Investment Officer of Global Wealth Management. at UBS.

“Recession risks are increasing, but we recommend investors avoid positioning themselves for a one-size-fits-all scenario.”

Still, in a busy week for corporate earnings with reports from big tech firms like Apple and Microsoft and European banks, investors are hoping the latest quarterly numbers will show profitability holding up despite a weaker outlook. economic.

Monday’s gains follow a rebound in recent weeks as investors bought into markets that fell sharply in 2022 on fears of another central bank interest rate hike, ever-higher inflation high and lower economic growth.

“This morning, we seemed to be in the ‘recession-fear’ mood, but now it appears expectations are higher for earnings numbers than we’re expecting from a slew of big tech stocks in the US. United this week, and that gives sentiment a boost,” said Stuart Cole, senior macro economist at Equiti Capital.

The news that European Union countries are seeking to ease the bloc’s plan to force them to use less gas as Europe braces for a winter of uncertain supply from its main gas supplier , Russia, also boosted the mood.

At 11:05 GMT, the Euro STOXX was up 0.2%. Germany’s DAX rose 0.4% and Britain’s FTSE 0.14%.

Wall Street futures pointed to gains of around 0.5%.

Asian stocks ended the day lower after the close before investor sentiment picked up during the European day.

ALL EYES ON THE FED

The Fed wraps up a two-day meeting on Wednesday and markets are pricing in a 75 basis point rate hike, with about a 9% chance of a full one percentage point hike.

Investors will want to hear from policymakers on how much further tightening the US economy can handle.

“Risk markets are obviously priced for some sort of downturn, but are they priced for an outright recession? I would say no,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank.

“In that sense, it’s hard to say we’ve bottomed out when it comes to risk sentiment.”

The dollar index – which measures the safe-haven currency against six major peers – slipped 0.4% to 106.32, after climbing from a 2.5-week low of 106.10 hit on Friday.

The 10-year US Treasury yield rose 2 basis points to 2.81% after slipping 3.083% in the previous two sessions.

Eurozone government bond yields rose slightly, helped by the European Central Bank’s larger-than-expected rate hike last week and expectations of more to come.

Crude oil reversed earlier losses as general sentiment improved.

Brent crude futures reversed earlier losses and last rose 1.1% to $104.34 a barrel, while US West Texas Intermediate crude futures gained 1. 28% to $95.92 a barrel.

Gold edged up 0.1% to $1,729 an ounce.

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