Stocks Gain as Upbeat Earnings Offset Policy Hawks: Markets Wrap

Stocks inched higher as traders looked past central bank pledges to keep raising interest rates and focused instead on robust company earnings.

(Bloomberg) — Stocks inched higher as traders looked past central bank pledges to keep raising interest rates and focused instead on robust company earnings.

Europe’s Stoxx 600 rose for the third day, with a gauge of auto stocks gaining as much as 1.5%. Renault SA raised its full-year earnings guidance, thanks to strong sales momentum from new models. Hennes & Mauritz AB climbed after the Swedish retailer reported a smaller-than-expected decline in earnings as it cut costs and made progress reducing its inventory build-up.

Contracts for the Nasdaq 100 Index also ticked up, with chipmaker Micron Technology Inc. advancing more than 3% in pre-market trading after it delivered an upbeat sales forecast late on Wednesday. Bank of America Corp. and Wells Fargo & Co. led gains in financial companies as the lenders passed the Federal Reserve’s stress test, clearing the way for shareholder payouts.

Earlier, Federal Reserve Chair Jerome Powell said at least two interest-rate increases are likely necessary this year to bring the inflation rate down to the central bank’s 2% target. European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey also said at this week’s conference in Portugal that they have a ways to go in reining in price increases.

While their comments lifted bond yields across the board, equities clung to recent gains — the S&P 500 is up 5% this month — with investors focusing on the relatively resilient economic backdrop that should support company earnings, especially in the technology sector.

“We are seeing a tug of war. Markets are not buying into what all the major central banks are saying,” said Peter Garnry, head of equity and quantitative strategy at Saxo Bank AS. “Even Powell’s comments have not been enough to really dent sentiment in equity markets.”

Unless the earnings outlook worsens dramatically, especially in technology and artificial intelligence-linked companies, “it will be hard to see markets’ animal spirits disappear,” he added.

While the consensus view is that the US economy is still headed for recession, many now reckon the downturn will be less severe than feared. Strength in consumer confidence and home sales buoyed stocks earlier in the week, and data later on Wednesday is expected to show first-quarter GDP expanded at 1.4% at an annualized rate.

Daniel Lam, head of equity strategy for Standard Chartered Wealth Management, said on Bloomberg Television that positive economic surprises help explain the gains across equities. But “if the hurdle gets higher and higher, becomes harder to beat, investors may be rotating into other regions such as Japan and Asia,” Lam warned.

Key events this week:

Eurozone economic confidence, consumer confidence, Thursday
US GDP, initial jobless claims, Thursday
Atlanta Fed President Rafael Bostic speaks, Thursday
China manufacturing PMI, non-manufacturing PMI, balance of payments, Friday
US personal income and spending, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 rose 0.1% as of 9:43 a.m. London time
S&P 500 futures rose 0.1%
Nasdaq 100 futures rose 0.2%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index fell 0.3%
The MSCI Emerging Markets Index fell 0.5%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0919
The Japanese yen rose 0.1% to 144.30 per dollar
The offshore yuan fell 0.1% to 7.2527 per dollar
The British pound was little changed at $1.2648

Cryptocurrencies

Bitcoin rose 1% to $30,399.5
Ether rose 0.9% to $1,847.74

Bonds

The yield on 10-year Treasuries advanced three basis points to 3.74%
Germany’s 10-year yield advanced four basis points to 2.35%
Britain’s 10-year yield advanced three basis points to 4.35%

Commodities

Brent crude rose 0.4% to $74.36 a barrel
Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Catherine Bosley.

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