Wall Street stock markets put in a mixed performance on Monday as cautious investors looked ahead to a week of big tech earnings and a crucial interest rate decision from the US Federal Reserve.
The broad S&P 500 equity gauge edged 0.1 per cent higher. A fall in the S&P’s technology sector was balanced by a 1.6 per cent gain for banks in the index as traders looked ahead to rate rises that benefit lenders.
The technology-focused Nasdaq Composite index fell 0.4 per cent.
Tech titans Amazon, Microsoft and Google parent Alphabet are among those releasing quarterly results this week, in a sector that has an outsized presence on both the S&P and the Nasdaq and that has already signalled it could suffer from an economic downturn.
Following breakneck expansion during the stay-at-home years of the coronavirus pandemic, Google and Microsoft are reviewing investment plans while Apple has prepared investors for a quarter of slower growth.
“These companies could materially change how investors view this earnings season and how they adjust forward expectations,” JPMorgan strategists wrote in a note to clients on Monday.
After deep falls for global stocks this year, with the S&P 500 trading about 17 per cent lower, market sentiment is now swinging between fears of rate rises hastening an economic downturn and optimism about weaker demand cooling red-hot inflation.
The Fed is widely expected to raise its main interest rate by 0.75 percentage points for the second consecutive month this week, which would increase the funds rate to a range of between 2.25 per cent and 2.5 per cent.
“There’s this thesis of a shallow recession now that brings inflation lower,” said Tim Graf, head of European macro strategy at State Street.
But he warned of a “deeper and longer slowdown” if the Fed continued raising borrowing costs aggressively after this month.
The annual rate of US inflation rose to 9.1 per cent last month and the jobs market in the world’s largest economy remains strong, with employers hiring a higher than expected 372,000 new workers last month. But signs of a housing market slowdown and a consumer spending decline have begun to emerge.
Brent crude, the international oil benchmark, added 1.7 per cent to hit $104.99 a barrel, as fears of a slowdown weighing on oil demand were outweighed by supply concerns related to sanctions against Russia over the war in Ukraine.
Government bond prices softened after a rally at the end of last week as traders sought out low-risk assets as shelter from economic uncertainty.
The yield on the 10-year US Treasury note added 0.03 percentage points to reach 2.81 per cent as the price of the debt fell.
Germany’s 10-year Bund yield, a barometer for debt costs in the eurozone, was steady at 1.02 per cent.
Italy’s equivalent debt yield stood at 3.34 per cent. The premium that investors demand to lend to Italy over Germany, a gauge of financial stress closely watched by the ECB, remained at an elevated 2.36 percentage points.
The European Central Bank raised its main interest rate last week for the first time in 11 years, while the resignation of Italy’s prime minister Mario Draghi also heightened stress in the nation’s debt markets.
Europe’s Stoxx 600 share index traded flat on Monday, ending the day up by 0.13 per cent. In Asia, Hong Kong’s Hang Seng share index edged 0.2 per cent lower and Japan’s Nikkei 225 lost 0.8 per cent.