US markets regained their firm footing as the technology sector grabbed the headlines with some stellar earnings.
Inflation and a potential cut in interest rates has been a central debate over the last year and, as it becomes increasingly apparent that no such cuts are imminent, the pressure is transferred to company earnings, where results need to exceed expectations in order to maintain the market’s generally lofty valuations. In particular, the mega cap technology stocks which have been major divers of market strength remain under the spotlight and in their latest updates, Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) duly delivered.
Alphabet shares rose by over 10% on better than expected earnings, while also declaring a significant $70 billion share buyback and its first ever dividend. Microsoft shares also rose after posting strong numbers which included an acceleration in sales of its cloud services. With the quarterly reporting season now in full flow, this week will bring further updates in the technology space from the likes of Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Advanced Micro Devices (NASDAQ:AMD), while PayPal (NASDAQ:PYPL), Mastercard (NYSE:MA) and McDonald’s (NYSE:MCD) will also provide some further colour on current consumer trends.
Friday’s Personal Consumption Expenditures index, the Fed’s preferred measure of inflation, had been awaited with some trepidation but in the event the reading was largely in line. Core PCE remined unchanged on a monthly and annual basis at 0.3% and 2.8% respectively, suggesting no worsening of the inflation picture. By the same token, it puts no pressure on the Fed to revise its outlook, with this week’s interest rate decision universally expected to reveal a further no-change outcome. Indeed, interest on Wednesday will not be in the decision itself, but rather in any accompanying comments from the Fed on its current thinking.
The end of the week will also herald the latest non-farm payrolls figure, where the consensus is that a further 243000 jobs will have been added in April, compared to a bumper 303000 the previous month, and for the unemployment rate to remain unchanged at 3.8%. in the meantime, the main indices have resumed their upward path after a strong week and, in the year to date, the S&P500 is now up by 6.9%, the Nasdaq by 6.1% and the Dow Jones by 1.5%.
In Asian markets, Japan was the central area of focus despite the equity market being closed for a holiday. The yen was being closely followed having reached a multi-decade low against the US dollar, prompting speculation after a later relief rally that there may have been some intervention from the Bank of Japan. Despite being positive for the country’s exporters, the weakness of the yen also reduces purchasing power, with Japan being a major importer of energy. Elsewhere, markets in China saw a surge in both mainland properties and real estate sectors on fresh speculation that there could be some imminent stimulus coming from the authorities in an attempt to revitalise home sales.
Meanwhile there are increasing questions as to whether the FTSE100 has finally found favour on the global stage. The premier index continues to scale new highs, where It will not have escaped the attention of international investors that the UK remains relatively cheap in terms of valuation compared to most developed markets. Rising commodity prices and especially gold have boosted large sectors to be found within the premier index, while the relative weakness of sterling has been an additional boost. Around 70% of FTSE100 earnings come from overseas, making them more profitable when translated back to sterling.
The index has now added 5.7% so far this year, with its constituents additionally providing an average dividend yield of 3.6% with the still undemanding valuation level suggesting that further growth is indeed achievable. In the meantime, another week of busy corporate earnings will see HSBC (LON:HSBA) and Standard Chartered (LON:STAN) round off the reporting season for the UK banks, with updates also due from the likes of Shell (LON:SHEL), Next and GSK (LON:GSK).