With almost 10% of companies on the S&P 500 having reported, more than 80% have beat the Street so far. The S&P 500 and Nasdaq powered ahead on Tuesday, notching their best levels since April last year and futures held those gains ahead of Wednesday’s opening bell.
Markets have been electrified again over the past week amid hopes that U.S. disinflation is proceeding at a pace fast enough to end the Federal Reserve’s interest rate rise campaign after one last hike next week. Bonds are buoyed, with 10-year yields edged down again on Wednesday to their lowest for the month.
That renewed ebullience has fanned out across developed markets, with MSCI’s all-country index also hitting 15-month highs and on course Wednesday for its longest streak of consecutive daily gains in more than two years.
That mood was helped by news that Britain finally appeared to be joining the disinflation club in June, with its headline inflation rate falling back below 8% for the first time in more than year and core inflation ebbing below 7%.
After four straight monthly misses, the below-forecast outcome was some relief to UK markets – where government bond yields fell, FTSE stocks jumped and the pumped-up pound recoiled. Significantly, it dragged money markets’ assumption of peak Bank of England interest rates back below 6% for the first time in well over a month.
European government bond yields also ebbed amid indications from European Central Bank officials this week that its rate rise program may also be close to an end.
Sterling’s retreat helped lift the dollar more generally, but China’s yuan also subsided again amid growing worries about the stuttering domestic economy, re-kindled property sector worries and a stock market that’s underperformed world indices by about 20% this year – and fell again on Wednesday.
The lack of any major stimulus plan from government, deepening geopolitical concerns and increasingly wary foreign investors rankle. Foreign direct investment into China shrank by 2.7% in the first half compared to the same period last year, the commerce ministry said on Wednesday, adding foreign trade faced an ‘extremely severe’ situation for the rest of the year.
On the U.S. data front, retail sales and industrial production numbers out on Tuesday showed the economy plodding along – good for the disinflation picture, but more worrying on underlying demand.
Rebounding U.S. housing markets get a test from June starts and permits updates later on Wednesday.
