Stocks, futures rally on earnings, Fed outlook: markets wrap

Stocks and futures rallied Friday on positive earnings from Amazon.com Inc. and Apple Inc. and expectations of shallower Federal Reserve monetary tightening, a prospect that’s also supporting Treasuries.

European stocks were set for their biggest monthly gain since November 2020. Nasdaq 100 contracts added more than 1% after the US stock market hit a seven-week high Thursday. Amazon jumped more than 13% in extended trading and Apple advanced after both companies beat revenues estimates.

The tone was more somber in Asia, hampered by a tumble in Chinese tech shares that dragged Hong Kong toward a correction of more than 10% from a June high. A downbeat economic growth assessment from China’s top leaders and a lack of new stimulus policies contributed to the dour regional mood.

Treasuries were little changed. Data showing a second straight quarterly US economic contraction supported arguments that inflation will cool and that the Fed will become less aggressive.

Meanwhile, economic expansion in France and Spain beat expectations by a distance, putting them on a firmer footing as surging inflation and the risk of a Russian energy cutoff threaten to tip the region into a recession. The data are the part of a stack of numbers due Friday that culminates with gross domestic product from the 19-member euro area as a whole. Analysts see a small gain of 0.2%.

The yen strengthened more than 1% as the dollar retreated. Oil and gold edged higher.

Global shares are set for a second weekly advance, paring this year’s rout to about 16%. The risk is that the recent bout of optimism eventually gets a reality check if inflation stays stubbornly elevated, leaving interest rates higher than investors would like amid an economic downturn.

“At some point, the Fed will pivot policy and that should be better for risk markets, but in the meantime, they’re so bent on quelling inflation that we prefer not to buy the dip here,” Thomas Taw, head of APAC iShares Investment Strategy at BlackRock Inc., said on Bloomberg Radio.

Second-quarter US gross domestic product fell an annualised 0.9% after a 1.6% drop in the first three months of the year. Back-to-back quarters of decline define a recession in most parts of the world, but in the US it’s not official until economists at the National Bureau of Economic Research deem it so.

Swaps tied to Fed meeting dates anticipate a peak in the fed funds rate of about 3.25% around year-end, less than a percentage point above its current level, followed by reductions next year to shore up growth. Such pricing is a major bone of contention for market participants.

“Market pricing is overdone and the terminal rate should move closer to 3.5%-3.75%” as inflation remains too high amid strong labor and wage trends, wrote Priya Misra and Gennadiy Goldberg, strategists at TD Securities.

Elsewhere, a call between US President Joe Biden and China’s Xi Jinping underlined bilateral tension even as the leaders sought an in-person meeting.

Here are some key events to watch this week:

• Euro-area CPI, Friday
• US PCE deflator, personal income, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.6% as of 8:10 a.m. London time
• Futures on the S&P 500 rose 0.7%
• Futures on the Nasdaq 100 rose 1.4%
• Futures on the Dow Jones Industrial Average rose 0.2%
• The MSCI Asia Pacific Index rose 1.2%
• The MSCI Emerging Markets Index rose 0.8%

Currencies

• The Bloomberg Dollar Spot Index fell 0.5%
• The euro rose 0.4% to $1.0242
• The Japanese yen rose 1% to 132.88 per dollar
• The offshore yuan was little changed at 6.7399 per dollar
• The British pound rose 0.4% to $1.2230

Bonds

• The yield on 10-year Treasuries was little changed at 2.68%
• Germany’s 10-year yield advanced three basis points to 0.86%
• Britain’s 10-year yield advanced three basis points to 1.90%

Commodities

• Brent crude rose 0.7% to $107.86 a barrel
• Spot gold rose 0.6% to $1 766.52 an ounce