US stocks advanced on Friday following a week of strong tech earnings, even as investors assessed two stronger than expected inflation reports for potential implications for the Federal Reserve’s May policy decision.
The benchmark S&P 500 closed 0.8 per cent higher, following a Thursday rally that represented its biggest daily increase since January 6. The blue-chip index increased 0.9 per cent in the week, and added 1.5 per cent in April for back-to-back monthly gains.
The Nasdaq Composite index per cent on Friday and notched its first three-day winning streak in a month. The tech-heavy index advanced 1.3 per cent for the week and edged fractionally higher in April.
Wall Street was buoyed by strong earnings results from Meta, Microsoft and Alphabet this week. More than half of companies on the S&P 500 have reported results so far and nearly 80 per cent have reported earnings ahead of expectations, according to data provider FactSet.
Meanwhile, First Republic shares plunged 43 per cent on Friday, continuing their freefall after the bank on Monday said customers had withdrawn $100bn of deposits during March’s turmoil, and as a plan for the bank’s survival failed to materialise.
Investors also assessed inflation data released on Friday that is likely to keep the Fed on track to deliver a quarter point rate rise next week.
The labour department’s employment cost index, which tracks wages and benefits paid by private and public sector employers, rose 1.2 per cent in the first quarter, while a separate report showed the core personal consumption expenditure price index rose 4.6 per cent year on year in March. Both were ahead of economists’ estimates.
“The Fed is in a tough spot,” said Bill Adams, chief economist at Comerica Bank. “The economy is cooling, with slower payrolls growth in the past few months, [and] GDP growth of just 1.1 per cent annualised in the first quarter. But inflation is still too high, and the components of inflation that the Fed worries will be most persistent — that is, inflation of labour-intensive services — are especially sticky.”
Jack Ablin, chief investment officer at Cresset Capital, said: “I was hopeful that we could finally declare victory on this tightening cycle, but I think we have to wait until next month.”
US government bonds rallied, with the yield on interest rate sensitive two-year Treasuries falling 0.06 percentage points to 4.03 per cent. Yields move inversely to prices.
Lou Brien, a strategist at DRW Trading, said: “We’re looking at the GDP being half of what it was expected to be and the spending being unchanged on the PCE today. I think the market is going along with the idea that a recession is a real possibility.”
In Europe, the region-wide Stoxx 600 closed 0.6 per cent higher while Germany’s Dax added 0.8 per cent. France’s CAC 40 rose 0.1 per cent as French inflation in April accelerated more than economists had expected, raising pressure on the European Central Bank to maintain the pace of interest rate rises when it meets next week.
Analysts polled by Reuters expect the ECB to raise rates by 0.25 percentage points to 3.75 per cent, yet “any upside surprise [in inflation figures] would keep the pressure up to stick with the faster hikes”, said Henry Allen, macro strategist at Deutsche Bank.
Japanese stocks hit an eight-month high after Bank of Japan governor Kazuo Ueda announced a review of the central bank’s ultra-loose monetary policy, opting against an immediate change of tack. The Nikkei 225 rose 1.4 per cent to its highest level since late August. The yen fell as much as 1.7 per cent to ¥136.23 per dollar.
Other Asian stocks also advanced, with China’s CSI index up 1 per cent and Hong Kong’s Hang Seng index gaining 0.5 per cent.
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