Bank earnings cap one week of almost ‘everything rally’

BLOOMBERG

It’s been a week when almost everything rallied — from emerging markets to global bonds and the S&P 500 — all buoyed by faith that the Federal Reserve is finally winning the fight against inflation. While trading was subdued as second-quarter earnings started to roll in, the week is ending with blockbuster gains across asset classes. The first batch of results from big US banks broadly underscored the economy’s resilience.
MSCI’s global stock benchmark has leaped 3.5% in the past five days, the biggest advance since November. Bonds climbed too over the week with the US two-year rate, the most sensitive to short-term policy moves, dropping as much as 30 basis points.
As investors embraced risk, multiple currencies gained against the dollar amid questions over whether the greenback is now in a sustained selloff. The bullish trades reflect hope that the US is heading towards a “Goldilocks scenario” with inflation quickly easing while the economy avoids a recession. To be sure, the Fed is still likely to lift its benchmark rate later this month and central bankers continue to warn that more than one rate increase may still be necessary after that.
“The market has been partying like it’s 1999 this week,” said Jim Reid, a strategist at Deutsche Bank AG. “It’s hard to stand in the way of that narrative at the moment regardless of what eventually happens.”
Treasuries dipped on Friday after their biggest two-day gain since early May. The yield on two-year notes rose four basis points to around 4.68%, holding near the lowest level in one month.
While S&P 500 and Nasdaq 100 futures were little changed, Microsoft Corp and Activision Blizzard Inc rose in premarket trading after a report they’re considering measures to appease regulators so that they can complete their $69 billion merger.
Among individual stock movers in Europe, Nokia Oyj slumped more than 8% after the Finnish vendor of 5G equipment lowered its guidance. Ericsson dropped almost 8% as analysts pointed to a weak margin outlook for the Swedish telecom equipment maker. Swiss money manager Partners Group Holding AG gained more than 7% after assets under management rose in the first half.
In commodities, oil headed for a third weekly gain as supply disruptions in Africa and a reduction in shipments from Russia tightened the market. Gold was set for the best week since April.
US producer inflation showed the smallest advance since 2020, a report showed. The figures came just a day after data showed consumer prices increased at the slowest pace since 2021. An index of import prices fell more than analysts’ expectations, data showed.
Traders are now looking to earnings reports to reignite the rally. The focus is going to be mostly on the corporate outlooks given that beating profit expectations seems to be a low hurdle — even as some estimates have started to rise slowly.
S&P 500 futures rose 0.2% in New York. Nasdaq 100 futures were little changed. Futures on the Dow Jones Industrial Average rose 0.5%. The Stoxx Europe 600 was little changed. The MSCI World index rose 0.1%. The Bloomberg Dollar Spot Index rose 0.1%. The euro was little changed at $1.1218. The British pound fell 0.2% to $1.3105. The Japanese yen fell 0.5% to 138.69 per dollar.
Bitcoin fell 0.6% to $31,198.89. Ether rose 0.4% to $1,994.18. The yield on 10-year Treasuries advanced one basis point to 3.78%. Germany’s 10-year yield was little changed at 2.48%.