European stocks edged higher and contracts tracking U.S. shares were flat on Monday, with investors increasingly confident the Federal Reserve will raise rates by a quarter of a percentage point at its meeting next week.
The regional Stoxx Europe 600 rose 0.2 percent, while Germany’s Dax was flat and London’s FTSE 100 rose 0.3 percent. The indexes are up 5.4 percent, 6.8 percent and 2.8 percent so far this year, helped by lower energy prices and receding risk of recession across the eurozone this year.
In the United States, contracts tracking Wall Street’s blue-chip S&P 500 and those tracking the tech-heavy Nasdaq 100 traded in a tight range ahead of the open in New York.
A measure of the dollar’s strength against a basket of six other currencies in Europe was flat by midday, having previously fallen 0.3 percent. The world’s de facto reserve currency has weakened 8.2 percent over the past three months, thanks in part to the recent lifting of China’s strict zero-Covid policy, boosting global growth forecasts and eroding the dollar’s appeal.
The moves come after Fed Governor Christopher Waller cut his weighting by 0.25 percentage points last week. interest rate increase at the U.S. central bank’s next meeting in early February, although he warned there was a “significant way to go” before inflation fell back to 2 percent.
Waller’s comments helped the S&P 500 rise 1.9 percent on Friday, even as the index fell over the past week amid data showing a slowdown in U.S. retail sales in December and weekly jobless claims hitting a four-week low.
The former suggests a slowdown in economic growth, while the latter suggests resilience in the labor market. The Dallas Fed’s Lorie Logan said last week that the inflation outlook “depends in large part on how much and how quickly” the perennially tight labor market loosens.
Still, equity markets enjoyed a strong start to 2023 despite mixed results for the fourth quarter. Consensus earnings forecasts for the S&P 500 have fallen steadily over the last three months of last year and are currently down 2.8 percent year-on-year, down from an expected 10.6 percent gain in July, said Vladimir Oleinikov, a senior analyst. at Generali Investments.
“Weaker [dollar] it supports corporate profitability but is unlikely to offset the effects of a weakening economy,” he said. Johnson & Johnson, Microsoft and Tesla are among US companies reporting results later this week.
U.S. Treasuries have rallied so far this year, with the yield on the benchmark 10-year Treasury note falling to 3.5 percent from 3.87 percent at the end of December. The yield on the equivalent German Bund fell to 2.18 percent from 2.56 percent over the same period, suggesting investors are becoming less nervous about inflation settling down. Bond yields move inversely to prices.
In Asia, Hong Kong’s Hang Seng index gained 1.8 percent and China’s CSI 300 gained 0.6 percent. Japan’s Nikkei 225 index rose 1.3 percent.
Brent crude, the international oil benchmark, climbed 1 percent to $88.35 a barrel, up from $82 a barrel in early January.