US index futures were in the red Friday morning, with European equities on the opposite path. In addition to the macroeconomic data season and balance sheets, China’s pledge to increase economic stimulus is influencing operations, helping to restore confidence in the world’s second-largest economy and boosting demand for commodities.
Among US index contracts, Nasdaq futures were the worst performers, reflecting the fall in earnings of companies like Amazon. Tesla rose around 4.2% premarket after Elon Musk said he had no plans to sell any more shares. In Europe, the rise of the Stoxx Europe 600 index is supported by the mining sector.
Disappointments from some tech giants aside, the busy earnings season, still ongoing, has largely helped to smooth the losses during a turbulent year. About 86% of the companies that make up the S&P are beating estimates, according to Bloomberg, citing strategists at Barclays.
Treasury bonds lost face value, with the premium on 10-year bonds rising to 2.86%. In currency markets, the yen broke a streak of depreciation, when it hovered around a 20-year low. The euro, pound sterling, and commodity-linked currencies gained while the dollar declined.
Meanwhile, crude was higher, with West Texas Intermediate futures nearing $106 a barrel on Friday. The commodity is heading for its biggest monthly gains since early 2018.
After the US GDP garnered attention, today it is Europe’s turn to show the temperature of its economies. Data on consumer inflation on the continent is also on the agenda, as are corporate balance sheets in all markets.
The US announced yesterday that its economy contracted 1.4% in the first quarter of 2021. This is the first drop since 2020. Analysts had predicted that the wealth produced by the country would continue to rise, at 1%, although well below the + 6.9% from the fourth quarter.
Despite the discomfort with the numbers, analysts point out that private consumption continued to advance in the quarter: +2.7% on an annual basis, versus +2.5% in the previous quarter. The result of North American GDP, therefore, was fundamentally due to the drop in exports, inventories, and public spending.
Europe’s biggest economies started 2022 with poor performance – underlining the damage caused by rising energy costs and problems with commodity supplies following the Russian invasion of Ukraine. The market is paying attention to how the economies of Europe are moving: a very rapid deterioration in production and consumption would complicate the efforts of the European Central Bank (ECB) to fight inflation. Among the monetary policy, weapons are the withdrawal of monetary stimuli and the increase in interest rates.
Germany narrowly avoided a recession: the economy expanded by just 0.2% in the first quarter. In France, GDP stagnated, after expanding by 0.8% in the final three months of 2021. Italy’s economy shrank 0.2%, affected by energy costs. Spain’s slowed more than expected (from +2.2% in the fourth quarter of 2021 to 0.3% from January to March this year).
However, despite all the uncertainty, European GDP for the first quarter grew by +5.0% year-on-year, in line with analysts’ expectations and slightly above the previously reported +4.7%.
Inflation is burning hot, although the market is already beginning to suspect that in Europe the rise in prices is close to touching the ceiling. The Eurozone CPI in April was practically stable at +7.5%, a record mark, against +7.4% in the previous month. France’s inflation rate unexpectedly rose to 5.4% in April – the highest level since the euro was introduced and more than economists had expected.
Companies’ good financial health will also drive business. Investors are echoing the earnings of Apple and Amazon, released after the stock exchanges closed. The manufacturer beat estimates in the first quarter on strong demand for iPhones and services. But Amazon reported a loss – the first since 2015.
US equity markets were buoyed by strong quarterly earnings reports, even after a surprising decline in GDP in the first quarter of the year. Stocks managed to weather the slowdown in the US economy, which unexpectedly contracted in the last quarter for the first time since 2020. Gross domestic product fell at an annualized rate of 1.4%, after having grown 6.9% at the end of the year. of 2021.