A look at the day ahead in U.S. and global markets from Mike Dolan
With world markets preparing for first-quarter updates from U.S. Big Tech firms this week, the heat under simmering geopolitical tensions went up a notch as a Chinese diplomat to France questioned the independence of all former Soviet states.
Ahead of an event-packed week, Chinese and global emerging market stocks fell to their lowest in almost a month and the yuan fell to its lowest in almost six weeks as the controversial statement met with fierce backlash in European capitals- especially those of Baltic states now European Union members.
Although China’s foreign ministry attempted to row back by saying Beijing respects the sovereignty and integrity of all countries – despite its refusal to condemn Russia’s invasion of Ukraine – the row will unnerve many investors wary of Beijing’s support for Moscow and position on its right to Taiwan.
And with China’s economy accelerating again after it ended its extended COVID-related lockdowns, spurring world growth again in the process, the political tension risks cutting across many investors’ attempts to re-invest in the country.
Otherwise, a packed earnings season dominates this week’s investment radar as more than a third of S&P500 companies report.
Three of the four biggest U.S. companies by market value — Microsoft, Google-parent Alphabet and Amazon — are scheduled to post updates, with Microsoft and Alphabet due on Tuesday and Amazon on Thursday. Facebook parent Meta Platforms is sandwiched in between on Wednesday.
Including Intel, those five tech stocks have accounted for two-thirds of the S&P500’s gains this year – with the Artificial Intelligence craze sparked by the emergence of ChatGPT adding a new non-cyclical attraction to the sector.
And that cycle, for all the recession fears that abound, got another fillip from Friday’s news of a marked acceleration of U.S. and global service sector firms in April.
But before markets get a taste of Q1 tech profits, the reverberations from last month’s banking blow-up are still being absorbed.
First Republic, one of the U.S. regional banks caught in the storm, reports later on Monday as Wall Street tots up the level of deposit flight from these banks and ponders plans for new regulation of mid-sized operations.
With European earnings kicking into high gear this week too, collapsed Credit Suisse said on Monday that 61 billion Swiss francs ($68 billion) in assets left the bank in the first quarter and that outflows were continuing, underscoring the challenge faced by UBS in rescuing its rival.
U.S. and euro zone first quarter gross domestic product numbers are due out later in the week too, with eyes also on new Bank of Japan governor Kazuo Ueda as he chairs his first monetary policy meeting at the end of the week.
Although confidence is high that the BOJ’s ultra-dovish policy will remain unchanged next Friday, economists flag the non-negligible risk of another surprise tweak to the explicit bond yield cap.
Japan’s stocks closed in positive territory on Monday, bucking the trend in the rest of Asia.
European stocks were slightly negative and U.S. stock futures also marginally in the red ahead of Wall Street’s open. Crude oil prices were lower.
With another Federal Reserve quarter-point interest rate rise next month now baked into pricing, Treasury yields were mostly flat. Focus is on the tense debt ceiling standoff – with the House of Representatives due to vote on Republicans’ spending and debt bill this week.
The dollar was mixed – up against Asian currencies but off against European currencies amid hawkish European Central Bank soundings on interest rates.
Events to watch out for on Monday:
* Dallas Fed April manufacturing survey, Chicago Fed National business survey
* U.S. corporate earnings: First Republic, Coca Cola, Whirlpool, Ameriprise, Brown&Brown, Packaging Corp of America, Alexandria Real Estate, Cadence Design Systems
* European Central Bank board member Fabio Panetta, French central bank chief Francois Villeroy de Galhau speaks
* South Korean President Yoon Suk Yeol starts week-long visit to the United States for summit with President Joe Biden
Graphic: Big Tech profit growth over the last eight quarters https://www.reuters.com/graphics/BIGTECH-CHART/znvnbndjlvl/chart.png
Graphic: Regional lenders’ deposit flight after banking crisis https://www.reuters.com/graphics/REGIONAL%20BANKS-RESULTS/myvmoxnrwvr/chart.png
Graphic: Flash PMI https://tmsnrt.rs/41yHCSr
Graphic: The jobs hole facing Biden and the Fed https://www.reuters.com/graphics/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png
(By Mike Dolan, editing by Emelia Sithole-Matarise; mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
