Earnings Take Center Stage as Rate Cut Expectations Fade

Barry Adams
08 Apr, 2024
New York City

Stocks wavered on Wall Street, and Treasury yields edged higher for the second day in a row, as investors adjusted their rate-path expectations. 

The S&P 500 index and the Nasdaq Composite edged slightly higher as investors awaited the start of the earnings season, with leading banks set to announce earnings. 

Last week, market indexes closed on a positive note after nonfarm payrolls advanced, wages gained, and more people sought employment.

Investors weighed the positive impact of an expanding labor market on the U.S. economy, which will support higher corporate earnings despite interest rates staying higher for longer. 

However, market enthusiasm was kept in check, after Treasury yields edged higher for the second session in a row. 

This week, the U.S. Bureau of Labor Statistics is set to release the consumer price index on Wednesday, and the producer price index on Thursday. 

The consumer price index for March is expected to increase at annual pace of 3.4% and advance 0.35% from the previous month, according to a poll of ten economists conducted by ticker.com. 

The consumer price index advanced 3.2% in February, higher than most economists were looking for. 

 

U.S. Indexes and Yields

The S&P 500 index increased 0.2% to 5,212.74, and the Nasdaq Composite rose 0.3% to 16,294.02. 

The yield on 2-year Treasury notes edged higher to 4.78%, 10-year Treasury notes inched down to 4.42%, and 30-year Treasury bonds edged up to 4.54%.

WTI crude oil decreased $1.21 to $85.61 a barrel, and natural gas prices increased 8 cents to $1.82 a thermal unit.

Gold decreased by $2.95 to $2,327.49 an ounce, and silver rose 2 cents to $27.50. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.18.

 

U.S. Stock Movers

Tesla jumped 4% to $171.50 after the company's chief executive, Elon Musk, said the company is ready to release its robotaxi design on August 8. 

Oil companies traded down after crude oil prices eased more than 1% following the easing of tensions in the Middle East. 

Exxon Mobil, Chevron, Hess, and Marathon Oil declined around 0.6%. 

Popular tech stocks also drifted lower in early trading. 

Apple, Microsoft, Meta, Netflix, Amazon, Alphabet, and Amazon declined between 0.1% and 0.4%. 

Semiconductor stocks drifted downward, and Intel, AMD, Nvidia, Broadcom, and Qualcomm declined around 0.2%. 

 

European Markets Extend Gains

Stocks in Europe extended the previous week's gains, and investors reviewed the latest economic updates from Germany. 

In cautious trading, investors bid up stocks in the hopes that the European Central Bank will hold rates steady later this week and provide an update on its rate path views. 

Investors are hoping that the central bank is still on track to lower rates as early as June. 

However, investor expectations may be dashed.

Crude oil prices have rebounded to a five-month high in the last two months, and service sector inflation is near 4% and shows no sign of easing after multiple rate hikes over the last two years. 

 

German Industrial Output Increased In February

German industrial output rose monthly by 2.1% in February and accelerated from a 1.3% increase in January, Destatis reported Monday. 

Industrial output, adjusted for seasonal and calendar factors, rose at the fastest pace since January 2023, after increase in activities in automotive, chemical, and construction industries. 

The output increased in the automotive industry by 5.7%, in the chemical industry by 4.6%, and in the construction industry by 7.9%. 

However, the decline in energy generation sector production by 6.5%, significantly negatively impacted the overall output. 

The annual decline in industrial output softened to 4.9% from a decrease of 5.3% in January. 

Seasonally and calendar-adjusted industrial production, excluding energy and construction, increased by 1.9% in February from the previous month but fell 5.5% from a year ago. 

 

German Trade Surplus Shrank In February 

Germany's trade surplus shrank from the previous month in February after imports rose and exports fell, Destatis reported Monday. 

Adjusted for seasonal and calendar factors, exports in February decreased 2.2% to €132.9 billion and imports rose 3.2% to €111.5 billion from the previous month, respectively. 

Germany's foreign trade was negatively impacted by elevated interest rates and rising macroeconomic uncertainty; however, lower energy prices supported the decline in overall imports. 

Exports decreased by 4.4% and imports declined by 8.7% compared to the same month a year ago. 

The trade balance shrank to €21.4 billion from €27.6 billion in January but rose from €16.9 billion in the corresponding month a year ago. 

Exports to the European Union contracted 3.9% to €72.9 billion, and imports from the region decreased 5.7% to €57.5 billion. 

Germany's three main trading partners outside the European Union showed mixed performance. 

Exports to the U.S. increased by 10.2% from the previous month to €13.8 billion, but fell to China by 0.6% to €8 billion and to the U.K. by 2.0% to €6.6 billion. in the same period. 

Imports from China surged 16% from the previous month to €12.1 billion; imports from the U.S. declined by 5.2% to €7.4 billion; and imports from the U.K. declined by 4.6% to €3.1 billion. 

 

Europe Indexes and Yields

The DAX index increased by 0.8% to 18,318.97, the CAC-40 index rose by 0.7% to 8,119.30, and the FTSE 100 index inched higher by 0.4% to 7,943.47.

The yield on 10-year German bonds edged up to 2.44%; French bonds inched lower to 2.93%; the UK gilts edged higher to 4.14%; and Italian bonds inched higher to 3.80%.

The euro edged higher to $1.083, the British pound inched higher to $1.263, and the U.S. dollar edged higher to 90.57 Swiss cents.

Brent crude decreased $1.17 to $89.99. a barrel, and the Dutch TTF natural gas rose by €1.17 to €27.92 per MWh.

 

Europe Stock Movers

Mining companies in London traded higher after the price of copper in Shanghai jumped to a record on the expectation of a demand rebound and supply constraints. 

Antofagasta, Anglo American, and Glencore rose between 1.2% and 1.6%. 

Entain PLC rose 4.7% to 821.20 pence on speculation that private equity companies are looking to make a bid for the troubled online gambling and sports betting company. 

Energy companies edged lower after the crude oil price declined more than 1% in London trading after tensions eased in the Middle East following the start of negotiations between Israel and Hamas in Egypt. 

 

Asian Rebound Tracking Friday's Wall Street Gains 

Asian markets attempted to rebound in Monday's trading following better-than-expected U.S. economic data on Friday. 

For now, investors set aside the expectations of a U.S. rate cut as early as June and its likely impact on the world bond market. 

Benchmark indexes in Japan, India, South Korea, and Australia advanced. 

Gold miners in China and Australia traded higher after the bullion price soared to a new record high amid speculation about the U.S. rate path, elevated tensions in the Middle East, and persistent buying by the central banks, including the People's Bank of China. 

The People's Bank of China lifted its declared gold holding for the 17th month in a row, according to the official figures released on Sunday. 

The central bank increased its holding by 0.2% in March to 72.74 million troy ounces, the smallest monthly purchase since the latest buying spree began in November 2022. 

 

Nikkei 225 Rebounds Tracking Friday's Wall Street Gains 

Benchmark indexes in Japan advanced in Monday's trading and rebounded from a three-week low, tracking gains on Wall Street in Friday's trading. 

The U.S. economy added more-than-expected 303,000 jobs in March, higher than 270,000 jobs in February, and at the fastest pace in ten months. 

The Nikkei 225 Stock Average added 0.8% to 39,293.52, and the Topix index gained 0.7% to 2,723.59. 

The yen hovered near 151.64 against the U.S. dollar as traders speculated on the timing and amount of government intervention in the currency market. 

Tech and financial services stocks were among the leading gainers in Monday's trading. 

SoftBank, Tokyo Electron, Advantest, Screen Holdings, and Disco Corp. gained between 1.4% and 3.2%. 

Socionext jumped 6.1% to ¥4,896.0, and Fujitsu advanced 3.8% to ¥2,476.0. 

Mitsubishi UFJ, Sumitomo Mitsui Financial, and Mizuho Financial gained around 1.5%. 

 

China Stocks Struggle Ahead of Inflation and Trade Data 

Benchmark indexes in Shanghai and Hong Kong struggled to hold morning gains as investors awaited the release of economic data later in the week. 

China is scheduled to release its overall inflation data on Thursday and its international trade data on Friday. 

In addition, this week, the People's Bank of China is also likely to provide information on money supply and new loan updates. 

Stocks opened higher but quickly lost ground as foreign investors stayed on the sidelines. 

U.S. Treasury Secretary Janet Yellen said talks with Chinese Premier Li Qiang were "extensive and productive" after the two met on Sunday. 

Electric vehicle makers advanced after China's Commerce Minister Wang Wentao refuted the allegation of overcapacity and added that vehicle makers are not reliant on government subsidies. 

Li Auto jumped 3.3% to HK$119.90, and BYD jumped 2.1% to HK$202.0. 

The CSI 300 index decreased 0.5% to 3,551.93 and the Hang Seng index declined 0.1% to 16,709.68. 

Zijin Mining Group advanced 1.7% to HK$17.06 after yellow metal's price soared to a record high of $2,339.35 an ounce in New York. 

 

India Indexes Advance Amid Elevated Geopolitical Tension 

Stocks in Mumbai opened higher after benchmark indexes extended the previous week's gains. 

Crude oil edged lower in international trading but hovered near a five-month high amid the prospect of a wider war between Israel and Iran. 

Israel withdrew its military from South Gaza and returned to negotiations with Hamas in Egypt amid rising international pressure. 

About two weeks ago, Israel bombed Iran's embassy in Syria and killed seven people, including three military advisors.

Military experts in the region worry that Iran will conduct a retaliatory strike targeting Israeli embassies. 

On Friday, the Reserve Bank of India held its repo rate at 6.5% and projected India's economy to expand at an annual pace of 7.0% in fiscal 2025. 

However, the central bank did not provide clear indications on rate paths and inflation, citing elevated macroeconomic headwinds and global market uncertainty. 

Moreover, investors worried about the spillover effects of the higher-for-longer U.S. interest rates after the latest data showed stronger-than-expected payroll growth and economic conditions. 

This week, investors are looking ahead to the release of industrial output in March and overall inflation data in February. 

On the earning front, Tata Consultancy Services is scheduled to release its March quarter earnings after the close of trading hours in Mumbai. 

The Sensex index increased 0.5% to 74,635.23, and the Nifty index edged higher by 0.3% to 22,621.95. 

On the Mumbai stock exchange, 151 stocks traded at their 52-week highs, and 4 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds inched higher to 7.12%, and the Indian rupee edged lower at ₹83.28 against the U.S. dollar.