US futures soar and global stocks climb as investors cheer huge Apple and Facebook earnings

Apple CEO Tim Cook
Apple CEO Tim Cook.

US stock futures climbed sharply on Thursday in the wake of blowout earnings from Apple and Facebook, and after the Federal Reserve promised to keep up its support for the economy.

Nasdaq 100 futures jumped 1%, boosted by the big-tech earnings. S&P 500 futures rose 0.67% while Dow Jones futures climbed 0.43% as investors also mulled a major speech by President Joe Biden on his taxing and spending plans.

Booming iPhone sales helped Apple’s profit more than double and revenue soar in its latest fiscal quarter, year on year. The company’s shares rose 2.82% in pre-market trading after it announced a $90 billion share buyback program.

Facebook’s revenue also jumped, helped by soaring advertising prices. Its shares rallied 7.04% in pre-market.

The Federal Reserve’s latest interest rate decision added to the good mood in the market. The Federal Open Market Committee held interest rates near zero and pledged to keep buying bonds at a pace of $120 billion a month.

And Fed Chair Jerome Powell signaled that the central bank would keep up its support for the economy, despite the outlook brightening, saying: “We’re a long way from our goals.”

The dollar index fell after the decision and press conference, standing at 90.65 on Thursday, down more than 2.7% in April.

In the bond market, the yield on the key US 10-year Treasury note fell on Wednesday, but picked up again on Thursday morning to stand at 1.647%. Yields move inversely to prices.

“The Fed maintained their very dovish policy stance overnight despite acknowledging the robust US economic recovery at the start of this year,” Lee Hardman, currency analyst at Japanese bank MUFG, said.

“The lack of any hawkish policy shift last night from the Fed has encouraged an extension of the bearish US dollar trend that has been in place this month.” Low US interest rates tend to make dollar-denominated investments less attractive, which weighs on the currency.

Asian and European stocks climbed on Thursday, supported by the Fed and a raft of strong earnings. China’s CSI 300 rose 0.88%, while Japanese markets were closed for a public holiday.

Europe’s Stoxx 600 was up 0.49% in early trading, boosted by strong earnings from consumer goods company Unilever and oil major Shell.

Oil prices – which boosted Shell’s results – rose for the third day on Thursday. The improving outlook in many of the world’s biggest economies supported the market, despite the raging pandemic in India.

Brent crude oil climbed 0.58% to $67.16 a barrel, while WTI crude climbed 0.58% to $64.23 a barrel.

Investors were also weighing President Joe Biden’s Wednesday night speech to Congress, in which he laid out his plan to boost spending and raise taxes to support the US economy.

Biden proposed higher taxes on companies and the rich to pay for a big expansion of the social safety net. He said: “It’s time for corporate America and the wealthiest 1 per cent of Americans to pay their fair share. Just pay their fair share.”

Stocks initially fell when Biden’s plan to raise taxes on investments were first reported last week, but have since recovered strongly.

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JPMorgan dismisses correction fears and says investors should buy any dips in stocks

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JPMorgan thinks stocks should keep climbing as economies reopen.

  • JPMorgan said fears about a correction in stock markets are overblown, despite the stellar rally.
  • The bank’s analysts said equities should keep climbing and investors should buy any dips.
  • They said vaccine rollouts, supportive central banks, and consumer savings were all positives.
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Investment bank JPMorgan has said it remains positive about global stocks and recommended that investors buy any price dips over the coming months, despite some fears about high valuations.

Although there are a few signs that equities could be due a fall, the rollout of coronavirus vaccines and recoveries in service sectors should keep boosting the market, JPMorgan said in a note Monday.

Global stocks have rallied sharply in 2021, despite some bouts of volatility, as investors have looked forward to the reopening of economies from strict coronavirus lockdowns.

The S&P 500 closed at a record high of 4,185 on Friday. Europe’s region-wide Stoxx 600 was also trading at around record highs, while the UK’s FTSE 100 has risen around 8% so far in 2021.

Some commentators have suggested that stocks could be due a correction, which is technically a fall of 10% from recent highs.

Yet JPMorgan’s analysts, led by Mislav Matejka, said they were still confident about equities due to the growing pace of vaccine rollouts, large amounts of consumer savings, and supportive central banks.

“We would not be cutting stocks exposure on a 6-9 months horizon, and continue to see any dips as buying opportunities,” they wrote, adding: “We would not expect to see a more sustained pullback before Q4.”

Despite their bullishness, the analysts said there were some signs that markets are becoming overstretched. In particular, they pointed to the gold-copper ratio being at the bottom of a 10-year range.

As investors traditionally buy gold when they’re feeling nervous and copper when they’re feeling confident, the higher copper price compared to the lower gold price suggests markets are “complacent”, JPMorgan said.

But the analysts said the outlook for economies looks bright and predicted that a renewed tightening of COVID-19 restrictions is unlikely. They said services sectors – which are dominant in most advanced economies – are only just starting to pick up.

Crucially, the analysts said the ultra-supportive monetary policy from central banks, which has driven up stocks over the last year, is unlikely to end any time soon.

“Our economists expect G5 central bank balance sheets to continue growing faster than nominal GDP until at least the end of 2022,” they said. “In other words, cumulative excess liquidity will not roll over for a while yet.”

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US futures and global stocks slip as investors brace for key inflation data and company earnings

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Asian stocks fell overnight as investors prepared for a busy week.

US futures slipped on Monday, as investors braced themselves for a busy week of economic data, company earnings and government bond sales, and digested Federal Reserve Chairman Jerome Powell’s comments that the US economy is at an “inflection point.”

Futures for the S&P 500 index were down 0.25%, while Dow Jones futures were 0.33% lower. Nasdaq 100 futures had fallen 0.15%.

Shares fell in Asia overnight, with China’s CSI 300 down 1.74% and Japan’s Nikkei 225 0.77% lower.

In Europe, the Stoxx 600 index slipped 0.43%. Britain’s FTSE 100 fell 0.81%, despite England reopening shops, gyms and pubs.

US stocks rose solidly in the week to Friday as bond yields fell, with the S&P 500 climbing 2.71% as tech stocks got a boost. Lower yields, which move inversely to prices, have helped the US’s giant tech stocks look like attractive investments during the COVID-19 crisis.

But analysts say bond yields have the potential to kick higher over the coming days in the wake of consumer inflation data due on Tuesday and three US bond auctions across the week.

Consumer price index inflation data is due on Tuesday, with economists polled by Reuters expecting a jump to 2.5% from 1.7% year on year in February.

Producer price inflation rose at the fastest rate in more than 9 years in March, data showed Friday, hitting 4.2% year on year.

The sale of 3-, 10-, and 30-year US government bonds could also unnerve the market if demand is low.

“I have suspected that the US yield story had not gone away,” Jeffrey Halley, senior market analyst at Oanda said. “This week’s data calendar will give plenty of ammunition to prove me right or wrong.”

Bond yields slipped on Monday, however, with the key 10-year US Treasury note yield down 1.1 basis points to 1.655%.

The dollar index was up 0.09% to 92.25.

Investors were also weighing up Fed Chair Jerome Powell’s latest comments.

The head of the world’s most powerful central bank said in an interview with CBS, which aired on Sunday, that the US is at an “inflection point” and is likely to see a boom in growth and hiring, but still faces threats from COVID-19.

“The outlook has brightened substantially,” he told CBS’s “60 minutes.” Yet he said there was a risk that coronavirus starts spreading again.

Another round of major company earnings is also set to begin, with Wall Street titans Goldman Sachs, JPMorgan, and Wells Fargo due to report on Wednesday.

Deutsche Bank analysts said in a note they expect S&P 500 earnings to come in 7.5% above consensus. That would be lower than the last 3 quarters, but still well above the historical average of a 4% beat.

The prospect of a busy week of data and earnings did little to oil prices. Brent crude was 0.43% higher at $63.23 a barrel on Monday, while WTI crude was up 0.32% at $59.48 a barrel.

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The rotation into value stocks has a long way left to run, JPMorgan and Barclays say

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  • JPMorgan and Barclays say the rotation into value stocks should continue as economic growth continues to accelerate.
  • Rising bond yields and inflation should boost banks in particular, JPMorgan analysts said.
  • The MSCI Value index has jumped 8.7% this year, while the growth index is broadly flat.
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The global rotation into value stocks has further to go as countries reopen after the coronavirus pandemic and consumers start spending again, according to JPMorgan and Barclays.

Value stocks – or cheaper shares such as banks and energy firms – have handsomely outperformed fast-growing stocks such as the big tech names in 2021 so far.

The MSCI World Value index was up 8.7% year-to-date on Friday compared to 0.04% fall in the MSCI Growth index, Bloomberg data showed. Stocks such as Bank of America and Exxon are beating the likes of Tesla and Amazon.

The strong performance has led some investors to question the rally. But banks including JPMorgan and Barclays are saying previously unloved stocks will continue to climb as stimulus and vaccines power a recovery.

“Value continues to look very appealing, especially the banks,” JPMorgan analysts including Mislav Matejka said in a note on Monday.

They said the moves in value stocks are still well below what has been seen in past economic recoveries, suggesting they still have further to rise.

Analysts at Barclays, including Emmanuel Cau, said in a note that “value still has significant catch-up potential” because a “longer term rebalancing within the equity market may be underway.”

They said that after a decade of fast-growing technology companies dominating the markets, a strong economic recovery could cause a major shift.

Rising growth and inflation expectations – thanks to vaccines and stimulus – are pushing up bond yields, weighing on growth stocks.

“Higher rates naturally call into question the high (future) expected growth of these stocks trading on high valuations, as both future cash flows and the valuation look to be worth less today,” the Barclays note said.

The analysts said that stronger growth expectations are also pushing up earnings expectations for value companies, which tend to be more sensitive to the economic cycle.

JPMorgan said banks, which broadly benefit from higher market interest rates, “remain very attractive in a long term context.”

The Barclays analysts said they thought that growth and inflation “may even surprise” in the second half of the year.

They recommended investors use any dip to add to positions that stand to benefit, such as mining stocks, consumer-focused firms, and financials.

However, JPMorgan said rising bond yields and inflation could push up the US dollar, which may weigh on emerging-market companies and miners.

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Christine Lagarde calls rising bond yields ‘undesirable’ as ECB steps up purchases to soothe the market

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Christine Lagarde said rising bond yields could start to weigh on the recovery

  • Christine Lagarde said the ECB was concerned rising bond yields could weigh on the recovery.
  • The ECB said it would step up the pace of bond purchases to try to support lending in the economy.
  • Rising bond yields have worried markets in recent weeks – but European yields fell after the decision.
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European Central Bank chief Christine Lagarde said on Thursday the recent rise in bond yields could have an “undesirable” impact on the economic recovery, after the ECB announced it would ramp up the speed of its asset purchases to try to calm the market.

The Eurozone’s central bank left its coronavirus bond-buying envelope at 1.85 trillion euros ($2.21 trillion) and its key interest rate at -0.5%. But it said it would “significantly” step up the pace of its purchases within the asset-buying scheme over the next three months.

Lagarde said in a press conference after the decision that the ECB was responding to a rise in “market interest rates” including bond yields, which have climbed rapidly in recent weeks and weighed on market confidence.

“If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy,” she said.

“This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity.”

The ECB’s increase in the rate of bond purchases aims to tackle rising market interest rates by increasing demand for securities. Bond yields move inversely to prices.

European bond yields dropped following the announcement, with the yield on the 10-year German bond falling 1.9 basis points to -0.332%. The Italian 10-year yield fell 9.4 basis points to 0.592%.

Rising bond yields have unnerved markets in recent weeks and triggered a sharp sell-off in equities, particularly tech stocks that soared when yields were low.

Stronger expectations of growth and inflation, thanks to the rollout of vaccines and fiscal stimulus, have pushed yields sharply higher. Stronger inflation erodes the return on bonds, making investors demand a higher yield.

US Federal Reserve Chair Jerome Powell has said rising bond yields are a result of a brighter economic outlook, and that the central bank plans to keep policy steady for the time being.

But policymakers in Europe have appeared more concerned, in part because the Eurozone’s recovery is expected to be more fragile than that of the United States.

“The just-released statement suggests that the ECB is trying to demonstrate its willingness to put a cap on bond yields without showing signs of panic,” Carsten Brzeski, global head of macroeconomics at Dutch bank ING, said in a note.

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