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US stocks and bond yields rose on Monday ahead of a busy week of central bank meetings and corporate earnings reports.
Wall Street’s benchmark S&P 500 closed 0.4 per cent higher, led by energy and financial stocks.
The rise came after a closely watched business survey pointed to slower than expected growth in the US in July. The flash composite purchasing managers’ index came in at 52 — above the 50 mark that indicates economic expansion, but lower than June’s reading and weaker than economists had forecast.
Signs of an economic slowdown have sometimes been counter-intuitively welcomed by US stock investors in recent months, as they decrease the likelihood that the Federal Reserve will make further interest rate rises.
The US central bank is widely expected to raise interest rates by 0.25 percentage points following the conclusion of its policy meeting on Wednesday, but investors are divided over whether there will be additional increases later this year.
Data earlier this month showed consumer prices rising at their slowest pace since 2021, but resilient economic growth has cast doubts over whether inflation will reach the Fed’s 2 per cent target without additional action.
“On the one hand, the US economy continues to perform remarkably well, while on the other, the excellent news on inflation means that the Fed can take its foot off the gas and wait a few months for further developments,” said Matthew Ryan, head of market strategy at financial services firm Ebury.
The yield on the two-year Treasury, which tends to be sensitive to changes in monetary policy, was up 0.07 percentage points to 4.91 per cent. The yield on the 10-year note was up 0.04 percentage points to 3.87 per cent.
The tech-focused Nasdaq Composite stock index added 0.2 per cent, recouping some of the losses suffered last week but underperforming the broader market as investors await trading updates from Microsoft, Alphabet and Meta in the coming days.
Tech stocks stumbled last week after underwhelming results from Tesla and Netflix, but analysts said this week’s reports will be more relevant given recent investor focus on artificial intelligence.
“The real test will be for companies that have significant exposure to artificial intelligence as investors are eager to see if these companies can report strong enough results to support their significantly elevated share prices in recent months,” said James Demmert, chief investment officer at Main Street Research.
In Europe, stocks edged higher even after separate data pointed to a contraction in manufacturing and services activity, with the continent-wide Stoxx 600 gaining 0.1 per cent.
The eurozone’s composite PMI dropped to an eight-month low of 48.9, the second consecutive month of sub-50 readings. The euro fell 0.6 per cent against the dollar to $1.106.
“Today’s PMI data were already a big bummer for the European economy, suggesting that the current ‘slowcession’ will not end any time soon,” said Carsten Brzeski, global head of macro at ING.
A 0.25 percentage points increase in the European Central Bank’s benchmark rate, to 3.75 per cent, is considered almost certain when policymakers meet on Thursday, with one more upwards move likely in the coming months.
Meanwhile, Spain’s Ibex 35 index fell 0.3 per cent after the country’s inconclusive election result on Sunday, with the right and left both failing to secure a clear path to forming a government.
An underwhelming statement on economic stimulus from China’s ruling politburo also damped investor enthusiasm in Europe, which is more exposed to the Chinese economy than the US is. “With [China’s] underwhelming stimulus, a potential growth driver for Europe falls away,” Brzeski added.
A readout from a politburo meeting on Monday included a pledge to spur consumer spending but was light on details.
The world’s second-largest economy has struggled to recover from three years of severe Covid-19 restrictions, suppressing global demand and prompting calls for additional government support measures.
“The market has been disappointed with China reopening trade and is looking for more, hence could be in for some disappointment,” said Mohit Kumar, chief European economist at Jefferies.
Earlier, China’s benchmark CSI 300 index dropped 0.4 per cent while Hong Kong’s Hang Seng lost 2.1 per cent.
