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European stocks dipped on Friday following muted gains in Asia, as investors awaited earnings for big US banks that will reveal the extent to which lenders have benefited from rising interest rates.
Europe’s region-wide Stoxx 600 fell 0.1 per cent in early trading, having risen for five consecutive sessions, its best streak since mid-April. France’s Cac 40 added 0.2 per cent, Germany’s Dax fell 0.1 per cent and London’s FTSE 100 swung between gains and losses.
Asian markets were mixed after US economic data showed further signs of cooling inflation, with producer and consumer prices having fallen more than expected in June. South Korea’s Kospi advanced 1.7 per cent, Hong Kong’s Hang Seng index rose 0.2 per cent and China’s CSI 300 was flat. Japan’s Topix fell 0.2 per cent.
Investors will on Friday turn their attention to US lenders Citigroup, JPMorgan and Wells Fargo, whose second-quarter results come at a time of heightened scrutiny of lenders’ balance sheets following the collapse of three regional banks in the spring.
Banks are expected to report the biggest jump in loan losses since the onset of the coronavirus pandemic, as rising interest rates pile pressure on borrowers. Tighter monetary policy is likely to have simultaneously boosted banks’ returns from investment and lending.
Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 both fell less than 0.1 per cent ahead of the New York open. Both indices have risen steadily since the start of the year despite rising rates, stoking concerns of a potential sell-off if and when the economy sinks into recession.
“We’re due for a pullback but there’s an upside fever out there so we may not see it for a while,” said Mike Zigmont, head of trading and research at Harvest Volatility Management. “It’s going to take some really spectacular news or data to keep this upside momentum going. I personally don’t think earnings season can do it.”
Lower than expected inflation data has meanwhile left the US dollar down 2.4 per cent for the week, on track for its worst run since November, according to Bloomberg data. However, the dollar index, which tracks the greenback against a basket of six other major currencies, strengthened 0.1 per cent on Friday.
“Dollar long positions are evaporating rapidly, with [producer price] numbers all but confirming the disinflationary narrative in the US,” said Francesco Pesole, currency analyst at ING.
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