European equities ticked up on Monday as traders prepared for a flurry of Big Tech earnings reports, delivered against a backdrop of high inflation and signs of impending monetary policy tightening.
The region-wide Stoxx Europe 600 share index rose 0.1 per cent in morning dealings, while London’s FTSE 100 index rose 0.5 per cent.
Futures markets meanwhile indicated that the US blue-chip S&P 500 stocks index would edge up in early New York trading, while the technology-focused Nasdaq 100 index would rise 0.2 per cent.
Monday will bring fresh quarterly numbers from social media giant Facebook, with figures due later in the week from peers including Microsoft and Apple.
The anticipated earnings reports come after shares in social media platform Snap slid more than a quarter last Friday in response to the company warning of reduced advertising revenues. Other tech bellwethers including Facebook also suffered losses in the wake of Snap’s report.
In Asian markets, Hong Kong’s Hang Seng closed roughly flat as improvements in healthcare and industrial stocks were tempered by a drop in real estate shares after Beijing said at the weekend it would expand trials for a property tax.
China’s property sector, long seen as the engine of the country’s economic growth, has been knocked in recent months by a crackdown on real estate speculation and a liquidity crisis at developer Evergrande.
In currencies, the Turkish lira sank to a record low against the US dollar on Monday, having hit a fresh nadir last week when the central bank slashed interest rates 2 percentage points — a deeper cut than markets had expected.
Exacerbating the currency’s declines, President Recep Tayyip Erdogan ordered 10 western ambassadors to be declared persona non grata in Turkey over the weekend. The Turkish lira on Monday morning weakened 1.7 per cent to stand at TL9.75 against the greenback.
In government debt markets, yields on the 10-year US Treasury note and the equivalent UK gilt were both broadly flat on Monday at 1.66 per cent and 1.15 per cent respectively.
Central banks around the world are contemplating how to react to widespread inflationary pressures. Huw Pill, the Bank of England’s chief economist, told the Financial Times last week that the headline rate of UK inflation could exceed 5 per cent next year.
The European Central Bank is due to meet on Thursday, with meetings lined up in early November for America’s Federal Reserve and the Bank of England.
“We do believe that central banks will have to bring clarity to [ . . . ] market pricing in their upcoming meetings,” said Samy Chaar, chief economist at Lombard Odier, noting that increases are priced in for “close to now in the UK”, for the second or third quarter of next year in the US, and “even a lift-off from the ECB by the end of 2022”.
“Are they going to do sooner, aggressive and therefore not so high at the peak of the cycle,” Chaar asked, “or are they going to try to push back against this market pricing for a delayed lift-off, and eventually a slow start [ . . . ]?”
US economic growth data are due out this Thursday and economists are forecasting GDP expansion of 3.2 per cent on an annualised basis in the July to September quarter, compared with a 6.7 per cent expansion in the second quarter.
Global oil prices hit a fresh three-year high as supply concerns persisted, in a continuation of a widening energy rally that has fuelled elevated natural gas prices across Europe. Brent crude, the main international benchmark, benchmark topped $86 a barrel on Monday.
What else to watch in markets today
Germany: figures last week showed that business activity in the eurozone was growing at its slowest pace for six months, as companies deal with supply chain problems and rising energy prices. There will be another indication on how businesses in Germany are coping with the tough conditions when the Ifo Institute releases its closely watched monthly business climate index this morning.
UK politics: Budget week kicks off in the UK. Chancellor Rishi Sunak will present both the usual Budget and a government spending review on Wednesday, so watch out for some last-minute pleading from Whitehall departments and lobby groups across the country as they push for further funds.