Global stocks rise as recession worries ease

World stock markets mainly rose on Friday as companies reported better-than-expected earnings and investors are hopeful easing US inflation means an end of rate hikes is near.

The European single currency meanwhile struck $1.1248, the highest level since February 2022, and oil prices slid before the weekend.

The US corporate earnings season got into full swing with big-hitting banks Citigroup, JPMorgan and Wells Fargo all reporting better-than-expected results or outlooks.

“One key point to watch for here will be impairments -- even though the monetary policy tightening cycle appears to be closing in on its peak, has the Fed overcooked the situation and will this now leave a lasting scar on economic performance?” noted Scope Markets analyst Joshua Mahony.

JPMorgan Chase reported a 67 per cent jump in second-quarter profits to $14.5 billion, but also added reserves of $1.5 billion in case of bad loans, although most of that was tied to its acquisition of First Republic Bank under a government-orchestrated spring auction after the smaller lender suffered a fatal run on deposits. Its shares climbed 1.9 per cent shortly after trading got underway.

Wall Street opened higher, with the Dow climbing 0.5 per cent. In Europe, London and Paris were higher in afternoon trading while Frankfurt dipped.

Shares in Wells Fargo bank rose 2.4 per cent after it beat revenue and earnings estimates, with net profit rising 58 per cent to $4.9 billion. Citigroup shares slid after it reported a 36 per cent drop in profits, although it still beat expectation.

Traders welcomed this week more data showing falling US inflation, giving the Fed room to bring the curtain down on more than a year of rate increases.

Global equities have been bubbling on hopes for an end to monetary tightening aimed at taming inflation, which was fuelled by post-Covid reopening, supply chain snarls and Russia’s invasion of Ukraine.

That has come just as China pledges to introduce measures to kickstart its stuttering economy and bring an end to a painful crackdown on the huge tech sector.

Wall Street cheered news Thursday that wholesale prices rose less than expected in June. That followed Wednesday’s report showing the consumer price index below forecasts.

While the CPI remains above the Fed’s target, analysts said there is growing confidence that officials were winning their battle and the economy could avoid a feared recession.

Despite a Fed official saying he thinks two more rate hikes are possible this year the “market still believes it is one-and-done for the Fed”, said Briefing.com analyst Patrick O’Hare.

“In any case, the stock market is winning the fight for now, because it remains evident in the strong labour market that the economy is still battling well in the wake of the Fed’s prior rate hikes,” he added.

Thursday’s upbeat mood filtered through to Asia, where Hong Kong rose for a fifth successive day thanks to a bounce in Chinese tech giants.

Shanghai, Sydney, Seoul, Singapore, Taipei, Mumbai, Bangkok, Manila and Jakarta also gained.

However, Tokyo struggled owing to a pick-up in the yen against the dollar, which has come under pressure against its peers owing to lower expectations about US rates.

Benchmark 10-year Treasury yields rose off two-week lows on Friday after consumers lifted their inflation expectations in July, but they remained lower on the week as investors bet that the Federal Reserve is nearing the end of its hiking cycle.

The University of Michigan’s preliminary reading on the overall index of consumer sentiment showed that US consumer sentiment jumped to the highest level in nearly two years in July as inflation subsided and the labour market remained strong. The survey’s reading of one-year inflation expectations inched up to 3.4% this month from 3.3% in June. Its five-year inflation outlook nudged up to 3.1% from 3.0% in the prior month.

Slowing consumer and producer price inflation in June has increased expectations that inflation will continue to moderate, and in turn lead to more dovish monetary policy. Now, markets will scrutinize Fed Chairman Jerome Powell’s tone at the US central bank’s July 25-26 meeting for further indications on whether it is likely to continue raising rates beyond a highly anticipated 25 basis points increase this month.

The inflation reports “really weren’t as encouraging as the celebration would kind of suggest, there were mixed signals in them,” said Will Compernolle, a macro strategist at FHN Financial in New York.