Strong US Earnings Push Global Equities Higher

Global equity markets reap gains on Friday at the end of a tumultuous week dominated by concerns over the Federal Reserve’s monetary policy and geopolitical tensions between Russia and the West.

Strong earnings from Apple and other tech firms buoyed the US equities during Friday’s session but the major indexes remained on course for a weekly drop, as did the pan-European STOXX 600 index, down 1.02% on the day for a fourth week of losses.

Economic reports helped eased inflation fears. The widely-watched employment cost index came in a touch softer than expected suggesting wages may start to cool some from here,” said Stephanie Roth, a senior markets economist at J.P. Morgan Private Bank.

Hot wage growth has been a key factor behind the Fed’s pivot, so if this trend continues that would relieve some pressure. MSCI’s 50-country main world index (.MIWD00000PUS) gained 0.50% but remained on the brink of its worst January since the 2008 global financial crisis after shedding roughly $7 trillion in value.

The dollar, meanwhile, consolidated gains and was on track for its biggest weekly rise in seven months against other major currencies as markets priced in a year ahead of aggressive hikes in US interest rates/FRX.

The big issue is the Fed, which is clearly in a tightening cycle. Financial market support is not part of the central bank’s agenda. The only question is whether the markets have fully digested (Fed Chair Jerome) Powell’s guidance in his press conference…I would expect the equity and bond markets to find bottoms at some point relatively soon.

The Fed on Wednesday indicated it is likely to raise rates in March, as widely expected, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.

On Wall Street, the Dow Jones Industrial Average (.DJI) rose 0.43% and the S&P 500 (.SPX) gained 1.00%. The Nasdaq Composite (.IXIC) added 1.52%.

The prospect of faster or larger US interest rate hikes and possible stimulus withdrawal lifted the dollar index 0.014%, while the euro gained 0.05%.
On bond markets, the yield on benchmark 10-year Treasury notes was down 2.1 basis points to 1.787% as the Fed’s favored inflation gauge, the core personal consumption expenditure price index (PCE), rose no more than had been expected.

In the 12 months through December, the PCE increased 5.8%. That was the largest advance since 1982 and followed a 5.7% year-on-year increase in November. read more

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 2.2 basis points at 1.170%, having started the year at roughly 0.75%.

Britain’s pound rose close to a 23-month high against the euro as investors expected the Bank of England to raise rates next week and follow a path of rapid monetary tightening in 2022.

Investors also cheered the US Securities and Exchange Commission’s (SEC) late Thursday approval of the country’s 17th stock exchange, a subsidiary of Boston-based BOX Exchange, which will incorporate blockchain technology.

The new exchange, named BSTX, aims to launch in the second quarter and will initially trade securities, such as stocks or exchange-traded funds, first listed on its exchange, but those securities would be tradable on rival bourses.

Investors were digesting a European Union document that showed foreign banks based in the EU may have to hold more capital and liquidity under revisions to rules being considered by the bloc’s member states. In Italy, bond yields rose as its parliament struggled to elect a new president.