Stock market highs face test from US earnings season – Financial Times

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Friday 12.00 BST

What you need to know
● Major Wall Street banks start US earnings season
● FTSE All-World extends record high even as Europe stutters
● Dollar adds to losses for the week
● Dow Jones Industrial Average expected to slip from record high
● Brent crude above $48 a barrel

Leading Quote

“The current bank environment is characterised by rising short-term interest rates and benign credit quality, reflecting an improving economy and signalling stable/increasing bank profitability, but not all banks were created equal,” says Richard Tortoriello, of S&P Global Market Intelligence.

“In a rising rate environment, investors [in the financial sector] should focus heavily on valuation . . . Fundamental strategies are less effective during such periods.”

Hot topic

The start of US earnings season provides an important test for the bullish mood that has taken stock markets back to record levels. Banks are entering the spotlight with numbers from JPMorgan hitting the tape, sending its shares up 1.2 per cent in pre-market trading.

Citigroup and Wells Fargo report later.

In the meantime, Europe’s financial stocks and its wider equity indices are failing to hold earlier gains.

The Euro Stoxx banking index is flat, coming off a modest rally in opening trade.

The wider Euro Stoxx 600 is down 0.1 per cent, with the FTSE 100 0.2 per cent weaker in London. Frankfurt’s Xetra Dax is down 0.1 per cent.

A stronger showing in Asia is helping the FTSE All-World extend its record high, up 0.1 per cent.

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Wall Street indices are expected to ease marginally at the start of US trade. On Thursday, the S&P 500 rose to within touching distance of its record high of 2,453.82, closing up 0.2 per cent at 2,447.83, while the Dow Jones Industrial Average closed at another record. In Hong Kong, the Hang Seng is on track for its best week in 12 months.

The bullish sentiment across world stock markets has been underwritten by signals from the Federal Reserve that its pace of monetary policy tightening will be gradual. That has helped create hope that the European Central Bank has more room for manoeuvre as it prepares to reduce its €60bn monthly bond-buying stimulus.

Conditions on sovereign debt markets remain calm, recovering from the sharp sell-off last week when remarks from Mario Draghi, the ECB president, were seen as opening the way for the beginning of the end of its ultra-loose policy era.

The yield on benchmark 10-year German debt is down 3 basis points at 0.576 per cent, with Spain’s off 3bp at 1.673 per cent. The yield on 10-year US Treasuries is 1bp lower at 2.34 per cent. Yields fall when prices rise.

Forex

The dollar index is slipping back, leaving it down 0.4 per cent over the week at 95.660. It takes it back toward around the 10-month low of 95.470 it hit toward the end of June, when Fed policymakers last sounded a dovish tone.

The euro is up 0.2 per cent at $1.1418, while the pound is 0.2 per cent higher at $1.2961.

The Singapore dollar, marginally softer at S$1.3743, was flirting with its first daily loss in four days after a preliminary reading on second-quarter gross domestic product undershot expectations due to slower growth in the country’s manufacturing sector.

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Commodities

Oil prices are ticking higher.

Brent crude, the global benchmark, is up 0.1 per cent at $48.47 a barrel after closing 1.4 per cent higher on Thursday. West Texas Intermediate, the US marker, is at $46.14 — up 0.1 per cent.

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