Robust earnings help global stocks look past dollar strength

World shares are beginning the week in much the same way they ended the one before.

World shares are beginning the week in much the same way they ended the one before. All markets remain in the shadow of a dollar that so far shows little inclination of relinquishing almost three-month highs. The greenback and hence dollar-denominated yields continue to keep appetite for shares in check even as encouraging events in the Korean peninsula and a persistent strain of solid earnings keep buyers close by.

One variation, on Monday though is that U.S. stock market futures rose in unison with large Asia-Pacific markets—at least those that were open whilst Japanese, Indian and Chinese benchmarks were closed due to holidays. Positive Asia-Pacific closes and European and U.S. early trade point to a more sure-footed Wall Street session than those seen of late. Plus, with almost 80% of S&P 500 companies that have reported earnings so far (about half) beating forecasts, investors had further reason to put aside misgivings and hunt out potential value among stock markets still below earlier-2018 peaks. On the U.S. earnings Front, Apple, which reports earnings on Tuesday, will be a key pivot, providing further upside momentum if it confounds expectations of ebbing iPhone demand and slowing profit and revenue growth.

In Europe, high profile M&A and earnings buffed stock market sentiment further as investors opted for an optimistic view of the deal between Sainsbury’s and Asda to create Britain’s largest supermarket. Sainsbury’s also reported a narrow rise in annual underlying earnings, representing a late return to profit growth compared to the 28% annual profit rise Tesco reported and an 11% advance by Morrisons. The disparity in profits and growth, on which Sainsbury’s is again the laggard combined with potential snags to the deal, like scrutiny from competition regulators, could put a cap on Sainsbury’s stock in the weeks ahead, after they rose 20% in early dealing on Monday.

A heavy macroeconomic slate will also be in view for investors this week, with U.S. monthly jobs data on Friday, as usual, the key release to watch. On Monday afternoon, supposedly the Fed’s preferred inflation gauge, the personal consumption expenditure index will be updated. The ‘core’ reading is meant to provide amongst the purest assessments of inflation growth and is forecast to rise 0.2% over the month of March, as it did in February. Markets—particularly the dollar and Treasury yields—may well react to the reading if it surpasses consensus forecasts. However, it will have little bearing on the Federal Reserve interest rate decision scheduled for Wednesday. The protocol that dictates interest rate policy changes seldom take place when the Fed chair has not scheduled a press conference, almost certainly applies this week. In fact, the interesting points in this week’s Fed meeting are likelier to be revealed when minutes are released in a couple of weeks, than in the accompanying statement. The FOMC will almost certainly make few further alterations to its group thinking having tightened policy just weeks ago.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.