Stocks take a breather as markets brace for tech earnings, rate verdicts
FILE PHOTO: The trading room of Frankfurt's stock exchange (Boerse Frankfurt) is reflected in the window of the visitor's gallery during afternoon trading session in Frankfurt Germany, February 23, 2016. REUTERS/Kai Pfaffenbach/File Photo
LONDON :Global shares paused their rally on Tuesday after recent hefty gains as expectations for a thawing in global trade tensions kept risk appetite keen, while the bull run in tech stocks counted on a bumper round of mega-cap earnings this week.
The likelihood of lower borrowing costs in the U.S. and Canada this week supported bonds and kept the dollar pinned as investors waited to see just how dovish the Federal Reserve might be on the outlook.
Safe-haven gold, meanwhile, fell back below $4,000 an ounce as a drop of almost 10 per cent in six sessions squeezed leveraged money out of what were very crowded trades.
"There is a fundamental reason why gold has gone up and that is mostly demand from central banks," said George Lagarias, chief economist at Forvis Mazars.
"What we're seeing is a very natural and, dare I say, welcome correction. The market needs to cool off and proceed at a more natural pace," he added.
STOCKS PAUSE AFTER RECORDS
Several global share markets that have recently surged to all-time highs took a breather on Tuesday.
Europe's STOXX 600 was down 0.2 per cent after hitting a lifetime high on Monday. Major bourses in Frankfurt and Paris were close to unchanged on the day, while Britain's FTSE 100 edged up to a new peak.
Spain's IBEX also inched up to touch a new record, surpassing its previous peak at the onset of the financial crisis in 2007.
S&P 500 futures and Nasdaq futures were a touch higher heading towards the Wall Street open.
"Investors are moving with a little more caution on Tuesday as there are significant risk events ahead, including the FOMC meeting and the start of the MAG7 earnings reports," said Daniela Hathorn, senior market analyst at Capital.com.
"The outlook for equities is going to depend largely on how these factors interact, with a confirmation from the Fed of future cuts and a positive guidance outlook from the MAG7 as the ideal scenario for more upside."
There are lofty expectations for the "Magnificent Seven" tech heavyweights reporting this week, with Microsoft, Alphabet, Apple, Amazon and Meta Platforms all needing strong results to justify stretched valuations.
Japan's Nikkei eased 0.6 per cent, having surged 2.5 per cent on Monday as a rally in all things tech lifted it to gains of almost 27 per cent so far this year.
Japan's new Prime Minister Sanae Takaichi met U.S. President Donald Trump in Tokyo to discuss defence ties, trade and a package of investments in the U.S. under a $550 billion deal struck earlier this year.
MSCI's broadest index of Asia-Pacific shares outside Japan edged down 0.6 per cent, while Chinese blue chips slipped 0.2 per cent. The Shanghai Composite Index cracked the 4,000 level for the first time since mid-2015, although it closed below.
FED TO CUT RATES
In bond markets, 10-year Treasury yields fell to 3.99 per cent as investors await Wednesday's Fed meeting. A quarter-point rate cut is considered a done deal, with the real focus on whether the Fed validates market pricing for a December easing as well.
"It is a given that we see a rate cut," Forvis Mazars's Lagarias said.
"The questions for me are: will the Fed signal its intentions for December and will we see further dissent towards lower rates apart from Stephen Miran?"
There are also some expectations the Fed will end the rundown of its balance sheet, otherwise known as quantitative tightening.
Canada's central bank is also expected to cut rates this week, while the European Central Bank and the Bank of Japan are seen holding steady.
The BOJ is likely to debate whether conditions are right to resume rate hikes as worries about a tariff-induced recession ease, but political complications may keep it on hold for now.
The yen strengthened as U.S. Treasury Secretary Scott Bessent called for "sound monetary policy" during a meeting with Japanese counterpart Satsuki Katayama. The dollar was last down 0.5 per cent to 152.11 yen, having stopped short of the recent 153.29 peak on Monday.
The euro nudged up to $1.1652. The dollar index eased to 98.74, but remained well within the recent trading range.
In commodity markets, oil prices eased on a Reuters report that eight OPEC+ nations are leaning towards making another modest increase in oil output for December when they meet on Sunday, as Saudi Arabia pushes to reclaim market share.
Brent dropped 1.2 per cent to $64.83 a barrel, while U.S. crude eased 1.1 per cent to $60.61 per barrel.
