Global equity traders are hoping that fourth quarter earnings reports doesn’t spoil the positive momentum built by a dovish Federal Reserve.
Global equities have been calmer after a volatile fourth quarter with easing trade tensions between the United Sates and China and on expectations that Fed may raise interest rates only twice compared to the earlier expectations of three.
US equity indices have been staging a comeback, witnessing their best gains in years in January so far. Last week, the Dow Jones Industrial Average rose 2.4 per cent last week, while the S&P 500 added 2.54 per cent and the Nasdaq gained 3.45 per cent.
“I’m not expecting any big surprises from the largest US banks when they report fourth quarter earnings next week — rather, mostly more of the same. But, for the full-year 2018, I suspect we’ll hear margins have mostly benefited from higher rates. The good news is the US money centers have diversified businesses, and while certainly exposed to markets, have other offsetting revenue drivers,” said Jon Curran, Senior Investment Manager, Aberdeen Standard Investment.
US earnings season will start with Citigroup expected to announce their gourth quarter earnings on Monday, J.P. Morgan on Tuesday and Bank of America and Goldman Sachs on Wednesday. Generally earnings are expected to be up nearly 15 per cent in the fourth quarter to December.
Phaneendar Bhavaraju, head-FX and global market strategy at DIFC-registered Arrow Capital said: “We expect S&P to remain range bound as earnings season looms. Any decline in earnings momentum will lead S&P 500 to 2,300 levels.”
The pound also will be watched as the UK prime minister’s Brussels-backed Brexit deal will be put to test in the House of Commons.
“Pound has bounced back on growing expectations that UK may delay its exit. A no deal Brexit less likely but extreme scenarios can play out. Technically 1.2500 is a strong medium term support level,” Bhavaraju said. Pound rose to its highest level in November on Friday. Pound rose half a per cent to be at 1.2831 against the dollar.
Gold prices, which has been benefiting because of its safe-haven properties, edged lower due to a reversal in dollar. Gold prices in international spot market was flat at $1,287.53 an ounce. “Clearly some profit-taking should be expected. It is far too early to suggest that gold has peaked, even though it has hit one of our major long-term levels around $1295/$1300,” Fawad Razaqzada, Market Analyst, Forex.com said.