US equities inched higher on Monday, with investors increasingly confident the Federal Reserve will raise rates by a quarter-percentage point when it meets next week.
Wall Street’s blue-chip S&P 500 rose 0.2 per cent and the tech-heavy Nasdaq Composite gained 0.5 per cent shortly after the opening bell. Spotify’s shares jumped 8.5 per cent after the music streamer said it would axe 6 per cent of its workers — the latest in a series of large cuts announced by high-flying technology groups — but gains have since fallen back to 3.6 per cent.
A measure of the dollar’s strength against a basket of six other currencies rose 0.2 per cent by midday in Europe, having earlier declined 0.3 per cent. The world’s de facto reserve currency has weakened 8.2 per cent over the past three months, thanks in part to China’s recent reversal of strict zero-Covid policies, which has boosted global growth forecasts and dented the dollar’s appeal.
The moves come after Fed governor Christopher Waller last week threw his weight behind a 0.25 percentage point interest rate rise at the US central bank’s next policy meeting in early February, even as he warned there was a “considerable way to go” before inflation fell back to 2 per cent.
Waller’s comments helped the S&P 500 rise 1.9 per cent on Friday, though the index fell over the course of last week on the back of data showing a slowdown in US retail sales in December and weekly jobless claims hitting a four-week low.
The former suggests slowing economic growth, with the latter indicating resilience in the labour market. Lorie Logan of the Dallas Fed last week said the outlook for inflation “hinges in large part on how much and how rapidly” the persistently tight labour market eases.
Equity markets have nevertheless enjoyed a strong start to 2023 despite a mixed bag of fourth-quarter results. Consensus earnings forecasts for the S&P 500 for the final three months of last year have been steadily falling and are currently at minus 2.8 per cent year on year, down from an expected increase of 10.6 per cent in July, according to Vladimir Oleinikov, senior analyst at Generali Investments.
“A weaker [dollar] is supportive for firms’ profitability but is not likely to offset the effects of the weakening economy,” he said. Johnson & Johnson, Microsoft and Tesla are among the US companies reporting results later this week.
US government bonds came under pressure on Monday, with the yield on the benchmark 10-year Treasury rising 0.04 percentage points to 3.52 per cent. The yield on the equivalent German Bund climbed 0.03 percentage points to 2.2 per cent. Bond yields move inversely to prices.
Europe’s Stoxx 600 rose 0.3 per cent, while Germany’s Dax traded flat and London’s FTSE 100 gained 0.3 per cent. The indices have risen 5.5 per cent, 6.8 per cent and 3.1 per cent, respectively, so far this year, helped by cooler energy prices and the receding risk of a recession across the eurozone in 2023.
In Asia, Hong Kong’s Hang Seng index added 1.8 per cent and China’s CSI 300 gained 0.6 per cent. Japan’s Nikkei 225 index rose 1.3 per cent.
Prices for Brent crude, the international oil benchmark, climbed 1 per cent to $88.45 a barrel, up from about $82 at the start of January.
