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Sunday, May 29, 2022

Global shares rise as weak data again backs ECB rate cut

By Herbert Lash

NEW YORK (Reuters) – Global equity markets rose on Wednesday on strong corporate earnings and speculation the European Central Bank will cut interest rates next week, while U.S. government debt edged up on safe-haven demand after unexpectedly weak economic data.

Wall Street closed little changed after the Commerce Department reported U.S. durable goods recorded their biggest drop in seven months in March, which tempered enthusiasm over what has so far been a relatively robust U.S. earnings season.

A gauge of planned business spending rose modestly, pointing to a slowdown in U.S. economic activity, which also weighed on U.S. equities and boosted the appeal of government debt.

Recent disappointing data in the United States, Europe and China has fuelled bets of a spring global slowdown for a third straight year and forced central banks to take action.

“Poor economic data could lead to some enhanced action from central banks, which has been bullish for stocks and other risk assets” and limited a further decline in Treasury yields, said Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston.

The Dow Jones industrial average closed down 43.16 points, or 0.29 percent, at 14,676.30. The Standard & Poor’s 500 Index gained 0.01 points, or 0.00 percent, at 1,578.79. The Nasdaq Composite Index rose 0.32 points, or 0.01 percent, at 3,269.65.

The market is trapped in a trading range, leaving investors with the choice of betting on stimulus from the Federal Reserve or the poor economic outlook, said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

“Until we get a better news flow here and overseas, it will be hard to get more enthusiasm to drive the market higher,” he said of the trend in the equity market.

“In this environment it is hard to justify paying this kind of premium for stocks and it is hard to see the catalyst for strong growth,” McCain said.

European equities got a boost after Germany’s Munich-based Ifo think-tank reported that business sentiment in the country fell in April for a second consecutive month, coming in below even the most pessimistic forecasts.

The news, which came a day after weak data on German business activity, initially weighed on the euro.

The Ifo report added to the view that the ECB is closer to lowering interest rates than at any time since its last rate cut in July 2012, and is likely to shave off a quarter-point at its policy meeting next week.

Global equity markets, as measured by MSCI’s all-country world equity index, rose 0.58 percent to 363.16.

European shares rose for a fourth straight session of gains, boosted by corporate results. The FTSEurofirst 300 of top regional shares closed up 0.7 percent at 1,191.82.

British insurer Standard Life and Portuguese retailer Jeronimo Martins led gainers, surging 8.0 percent and 6.8 percent, respectively, after announcing strong first-quarter numbers.

Analysts see U.S. earnings growth of 3.1 percent this quarter, up from expectations of 1.5 percent at the start of April.

Of the 174 companies in the S&P 500 index that already have reported results, 68.4 percent have beat analysts’ expectations, according to Thomson Reuters data through Wednesday morning. Since 1994, 63 percent have surpassed estimates on average, while the beat rate is 67 percent over the past four quarters.

European shares extended gains in late trading as dovish comments by ECB Vice President Vitor Constancio fuelled talk of a rate cut next week to stimulate the economy after the weak German data. Constancio said monetary policy “will continue to be accommodative.”

“A rate cut is on the cards,” said Ronnie Chopra, head of strategy at Tradenext.

U.S. crude rose on expectations a glut of crude at the Cushing, Oklahoma, storage hub could ease and on a steep 3.9 million barrel drop in gasoline inventories last week.

Brent futures settled up $1.42 to $101.73 a barrel. U.S. crude futures gained $2.25 to settle at $91.43.

The euro initially edged lower against the dollar but held above a near three-week low as hopes that Italy can resolve its political gridlock were trumped by the weak German data, which fanned talk of an ECB rate cut.

The euro dropped to $1.2954, its lowest since April 5, before paring losses to trade slightly higher at $1.3015.

The benchmark 10-year U.S. Treasury note rose 2/32 in price to yield 1.6996 percent.

(Reporting by Herbert Lash; editing by Dan Grebler and Leslie Adler)

Source: Reuters

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