World stocks slip into the red as inflation, earnings loom large
Global shares edged into the red on Monday and investors, wary of rate hike narratives, braced for U.S. inflation data and a corporate reporting season where robust results are needed to justify high valuations.
Geopolitical tensions were also on the radar as disruptions in the Red Sea raised shipping costs in Europe, while the Israeli conflict with Hamas threatened to spread to Lebanon.
European oil and gas stocks fell 1.8% (.SXEP) on the STOXX 600 as crude prices dipped following sharp price cuts by top exporter Saudi Arabia and a rise in OPEC output.
Oil prices , fell by more than 2% on sharp price cuts by top exporter Saudi Arabia and a rise in OPEC output, offsetting worries about escalating tensions in the Middle East.
There was more promising news from Washington where U.S. congressional leaders agreed on a $1.6 trillion spending deal aimed at averting a partial government shutdown.
Early gains during Asian trading vanished as MSCI’s broadest index of stocks (.MIAPJ0000PUS) slipped almost 1% after retreating 2.5% last week.
European stocks fell, extending their lacklustre start to 2024 weighed down by tepid energy shares, while a rise in government bond yields weighed on risk sentiment.
The pan-European STOXX 600 <.STOXX> was last down 0.3%, extending the previous week’s decline of 0.5%, while U.S. stock futures pointed to a weak open for Wall Street on Monday ,
Japan’s Nikkei (.N225) was closed for a holiday, while Chinese blue chips (.CSI300) lost 1.1% to hit near five-year lows.
The timing and scale of U.S. rate cuts remained in the driving seat.
“We foresee that continuing disinflation will eventually lead the Fed to reduce rates in May,” said Bruno Schneller, managing director at INVICO Asset Management.
“However, given the mixed signals from inflation data, policymakers are expected to hold off on easing measures until then.”
Data on Friday showed U.S. employers hired more workers than expected in December, dousing expectations of rapid easing of interest rates. However, a survey from the Institute for Supply Management (ISM) showed activity in the services sector fell in December, pointing to a weaker economy.
The S&P 500 lost 1.5% last week to break a nine-week winning streak, its longest since 1989. The index’s 24% rally last year means valuations are looking a little stretched, so much is riding on the upcoming results season.
Major banks including JPMorgan Chase (JPM.N) and Citigroup <C.N> start the reporting rush on Friday with hopes high for upbeat profits.
Consensus forecasts are that S&P 500 profits rose 3% on the year with Goldman Sachs expecting higher results.
“The bar ahead of Q4 results is higher than in recent quarters, but we expect S&P 500 firms in aggregate will beat analyst forecasts,” Goldman analysts wrote in a note.
“Our baseline 2024 forecast is S&P 500 EPS (earnings per share) rises by 5% year/year, and we see potential upside from stronger U.S. economic growth, lower interest rates, and a weaker USD (dollar).”