A gauge of global stocks edged lower for a second straight session but remained near two-month highs on Monday ahead of another round of corporate earnings results, while the dollar and U.S. Treasuries rose on increasing expectations for another rate hike from the Federal Reserve in May.
After the first wave of bank earnings last week from names such as JP Morgan (JPM.N) and Wells Fargo (WFC.N) were better than anticipated, investors will now see results from the likes of Goldman Sachs (GS.N), Morgan Stanley (MS.N), Bank of America (BAC.N) and a host of regional banks.
“Regional bank earnings will come in very slightly positive, while bigger banks will probably post surprisingly positive results,” said Sam Stovall, chief investment strategist at CFRA Research.
On Wall Street, stocks gave up slight gains and edged lower, but held within a tight trading range in the early stages of trading.
The Dow Jones Industrial Average (.DJI) rose 41.91 points, or 0.12%, to 33,928.38, the S&P 500 (.SPX) gained 0.53 points, or 0.01%, to 4,138.17 and the Nasdaq Composite (.IXIC) dropped 3.83 points, or 0.03%, to 12,119.63.
U.S. yields climbed and the dollar strengthened, buoyed in part by economic data that showed a rebound in New York factory activity, adding to expectations the Fed will raise rates by 25 basis points at its May meeting.
While many see the Federal Reserve as closer to ending its rate hike cycle than other global central banks, economic data has indicated the economy is not near a recession yet, giving the fed leeway to continue with rate hikes.
Market expectations for a 25 basis point hike at the May meeting have risen to nearly 87%, up from the 78% on Friday, according to CME’s FedWatch Tool.
“It will take time and we’re still in the early phases of slowing,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
The yield on 10-year Treasury notes was up 7.1 basis points to 3.593%.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 9.1 basis points at 4.194%.
The dollar index rose 0.482%, with the euro down 0.75% to $1.0917.
The Japanese yen weakened 0.52% versus the greenback at 134.49 per dollar, while Sterling was last trading at $1.2363, down 0.40% on the day. The greenback hit a one-month high against the yen as the Bank of Japan is widely expected to keep a loose monetary policy.
At least eight top Fed officials are speaking this week, including three governors, and could generate plenty of headlines to move the dial further.
S&P 500 earnings to fall 4.8% from the year-earlier quarter, per Refinitiv data. In the early portion of earnings season, 30 companies have reported earnings, with 93.3% topping expectations.
The dollar strength and recession concerns weighed on crude prices, although Chinese economic data seemed offset demand worries.
U.S. crude recently fell 1.24% to $81.50 per barrel and Brent was at $85.34, down 1.12% on the day.