Passersby observe their reflections on an electric stock quotation board outside a brokerage in Tokyo, Japan on April 18, 2023 (file photo). As the new week begins, Asian shares remain stagnant, awaiting a flurry of earnings reports and central bank meetings that are likely to result in higher interest rates in Europe and the United States. The Federal Reserve and European Central Bank are expected to implement quarter point hikes, with all eyes on the future remarks of Fed Chair Jerome Powell and ECB President Christine Lagarde. According to John Briggs, an analyst at NatWest Markets, these upcoming rate hikes are likely to signal the end of the tightening cycle, as data on activity and inflation in both regions have softened and are expected to continue doing so.
While the Bank of Japan is anticipated to maintain its loose policy, some western banks speculate that there may be adjustments to its yield curve control stance. A recent Reuters report caused the yen to weaken and boosted Japan’s Nikkei by 1.1 percent, while the MSCI Asia-Pacific index remained relatively unchanged. Stimulus announcements from China’s Politburo meeting this week may attract attention, although investors have not been particularly impressed by Beijing’s actions so far.
S&P 500 and Nasdaq futures show little movement as a wave of earnings reports is expected this week. Major companies such as Alphabet, Meta, Intel, Microsoft, GE, AT&T, Boeing, Exxon Mobil, McDonald’s, Coca Cola, Ford and GM will be reporting, and their results will need to be impressive in order to justify the S&P 500’s earning multiple of 20 and its gains of 19% year-to-date. Analysts at Goldman Sachs note that despite higher interest rates, recent valuation expansion is reasonable given the relationship between rates and equities, as well as the expected growth and market concentration in stocks benefitting from AI optimism. While a slight contraction in the S&P 500 P/E multiple is forecasted, risks to valuations are believed to be skewed towards the upside if laggards catch up or yields decline.
Yields on 10-year Treasuries remain steady at 3.85 percent, still below the recent spike high of 4.094 percent. The dollar maintains its strength against the yen at 141.75, following a 1.3 percent increase on Friday due to the BOJ report. This led to a rise in the dollar across the board and a decline in the euro to $1.1128, down from its recent high of $1.1276. The news of a potential hung parliament in Spain does not appear to have had an immediate impact, although there may be pressure on its debt when local markets open. Increased dollar strength has resulted in a pullback in gold prices to $1,961 per ounce from last week’s peak of $1,987. Oil prices have encountered profit taking after four consecutive weeks of gains due to supply constraints, with Brent falling 47 cents to $80.60 per barrel, and U.S. crude losing 39 cents to $76.68.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
