European stocks and US equity index futures slipped on Tuesday, struggling to build on the previous day’s rally as investors geared up for crucial earnings reports from a raft of marquee tech firms and perused broadly disappointing business activity data from Europe.
(Bloomberg) — European stocks and US equity index futures slipped on Tuesday, struggling to build on the previous day’s rally as investors geared up for crucial earnings reports from a raft of marquee tech firms and perused broadly disappointing business activity data from Europe.
European bonds rallied and the euro’s four-day streak of gains came to a halt after flash business activity data, while better than expected, highlighted ongoing weakness across the euro bloc and in Britain. The region’s Stoxx 600 Index erased an early advance to fall into the red, while US equity futures ticked lower after the best two-day rally since November for the tech-heavy Nasdaq 100.
The year-to-date rebound in risk assets will be tested this week by a wave of US corporate earnings from tech giants such as Microsoft Corp. and Texas Instruments Inc. as well as industrials such as GE. While some traders are bracing for the worst tech earnings slump since 2016 — Microsoft for instance is projected to report the smallest sales increase in six years — easing inflation and cost-cutting drives have encouraged expectations that some companies might escape a deeper slump.
“It’s all about earnings,” said Peter Kinsella, head of FX strategy at asset manager UBP. “Given that equities are trading at elevated levels, any earnings disappointment would justify a shift lower in stocks.”
Kinsella said there was scope for bonds to rally and the dollar, already down 1.7% this year against a basket of rivals, had likely seen its peak as the Federal Reserve approaches the end of its rate-hiking cycle. The US central bank bank is expected to cut rates by a smaller 25 basis points at a Jan. 31-Feb. 1 meeting.
The greenback held just above nine-month lows plumbed on Monday against a basket of currencies, with the euro slipping against the greenback for the first time in five sessions. Yields on 10-year German and British government bonds fell, with the latter weighed down by a particularly poor business activity reading.
The euro zone bond rally seeped into Treasury markets, knocking 10-year yields lower.
“The market is saying inflation is done and dusted which justifies a turn in tone from the Fed,” Kinsella added. “Overall I am off the view we saw the multi-year dollar peak last year.”
Elsewhere in markets, oil steadied as traders waited for fresh signals on the state of Chinese crude demand after the nation ditched Covid curbs. Copper steadied near the highest level in seven months and gold looked set to extend gains into a fourth straight week.
Key events this week:
- PMIs for US, euro area, UK, Tuesday
- Richmond Fed Manufacturing, Tuesday
- ECB President Christine Lagarde delivers a video message on “the euro as a guarantee of resilience,” Tuesday
- US MBA mortgage applications, Philadelphia Fed non-manufacturing activity, Wednesday
- US fourth-quarter GDP, new home sales, initial jobless claims, Thursday
- US personal income/spending, PCE deflator, University of Michigan consumer sentiment, pending home sales, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.4% as of 11:10 a.m. London time
- S&P 500 futures fell 0.3%
- Nasdaq 100 futures fell 0.4%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index rose 0.6%
- The MSCI Emerging Markets Index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0856
- The Japanese yen rose 0.3% to 130.23 per dollar
- The offshore yuan fell 0.1% to 6.7844 per dollar
- The British pound fell 0.6% to $1.2305
Cryptocurrencies
- Bitcoin fell 0.4% to $22,902.51
- Ether fell 0.5% to $1,624
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.50%
- Germany’s 10-year yield declined one basis point to 2.20%
- Britain’s 10-year yield declined three basis points to 3.33%
Commodities
- Brent crude was little changed
- Spot gold rose 0.2% to $1,935.58 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller.
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