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Markets price in more risk of Fed rate rise in May
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EU yields up as odds narrow on larger ECB rate rise
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Stocks climb on hope for US earnings
(Adds quotes, updates prices throughout)
By Nell Mackenzie and Dhara Ranasinghe
LONDON, April 17 (Reuters) - World stocks markets
steadied near recent highs on Monday ahead of a slew of
corporate earnings results this week due to reveal which
economic sectors have been helped by higher rates to flourish
and which have been hit.
U.S. banks including JP Morgan , Citigroup and Wells Fargo reaped windfalls from higher interest payments their first quarter earnings reports said on Friday. This helped lift European stocks to a 14-month high in early trading on Monday, but as of 1225 GMT, the pan-European STOXX 600 index was last up 0.1%. Dan Izzo, founder of investment management company Blackbird Capital, said that though banks have been seen as a bellwether for U.S. earnings, markets today were different. "Banking sector stocks went on an absolute tear on Friday but it's important to note that, alongside this, every major U.S. index closed down that day including the Dow, S&P, Nasdaq and Russell," said Izzo.
Stock futures based on the S&P , Nasdaq and Dow Jones Industrial Average were up slightly around 0.1%.
What to watch was how certain companies in different economic sectors could pass through increased pricing from the higher rates environment and which were struggling, said Izzo.
"For the second month in a row, U.S. retail sales in March experienced a decrease, signalling a slowdown in the pace of household expenditures" said Bruno Schneller, a managing director at INVICO Asset Management. But he said consumer confidence appeared steadfast even though inflation expectations for the coming 12 months increased to 4.6% in April from 3.7% in March. Upbeat earnings news from banks and large corporations may lessen the odds of rate cuts later this year, he added. Markets have also seen a mood shift on the outlook for U.S. interest rates, with CME futures implying an 81% chance the Federal Reserve will increase rates by a quarter point to 5.0-5.25% in May. At least eight top Fed officials are speaking this week, including three governors, and could generate plenty of headlines to move the dial further.
World shares and Japan's Nikkei traded flat.
Chinese blue chips added 1.4% ahead of data on retail sales, industrial output and gross domestic product due on Tuesday, where analysts suspect the risks are for an upside surprise given recent strength in trade. Figures over the weekend showed China's new home prices climbing at the fastest pace in 21 months, supporting consumer demand and confidence.
EARNINGS KEY
Other big U.S. names reporting earnings this week include
Johnson & Johnson , Netflix and Tesla .
Analysts expect Q1 S&P 500 earnings to fall 5.2% from the year-earlier period, though Bank of America (BofA) analysts expected earnings per share for the S&P to remain at $200, 9% below consensus estimates.
"We are cautious on equities, because of the lagged effect on monetary policies. For instance, you have a tightening in lending standards, lending to households is already declining," said Michele Morganti, senior equity strategist at Generali Investments.
In bond markets, the shift in Fed expectations pushed U.S. two-year yields up to 4.14%, having risen 38 basis points last week. German, French and Italian two-year yields were little changed on Monday.
Markets are pricing 37 bps of tightening at the ECB's May meeting and 82 basis points by October. That ramp up in rate increase expectations saw the euro gain 0.8% last week. The single currency was holding at $1.09775 on Monday having hit a one-year high of $1.1075 last week. The dollar has fared better on the yen as the Bank of Japan remains committed to its super-easy monetary policy, at least for now. The dollar climbed to a one-month high against the yen on Monday rising to 134.22 yen earlier in the session, the highest level since March 15. It was last up 0.22% at 134 yen. The bounce in the dollar took some of the shine off gold which was back at $2,008 an ounce , off last week's peak above $2,048. Oil prices were steady meanwhile as investors eyed Chinese economic data for signs of demand recovery in the world's second-largest oil consumer. Brent crude futures were down 0.38% to $85.97 a barrel, while U.S. West Texas Intermediate crude CLc1 was at $82.18 a barrel, down 0.4%. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ U.S. earnings outlook China's slow recovery Dollar hits one-month high against yen US retail sales shrink in February ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Nell Mackenzie, Wayne Cole; Additional grahics Harry Robertson; Editing by Kenneth Maxwell, Jacqueline Wong, Philippa Fletcher)
