European stocks and U.S. futures were flat on Tuesday as traders balanced an improved macroeconomic outlook for the global economy against lingering concerns that inflation could prove stickier than previously thought.
The regional Stoxx Europe 600 and Germany’s Dax were flat. London’s FTSE 100 fell 0.4 per cent after Britain’s public sector borrowing more than doubled on the year in December to £27.4bn. Contracts that track Wall Street’s blue-chip S&P 500 and those that track the technology-heavy Nasdaq 100 traded in tight ranges ahead of the New York open.
“A better sentiment [the] growth outlook” helped the S&P 500 rise to its highest level since early December on Friday, according to analysts at JPMorgan, with semiconductor and technology stocks in particular posting strong gains.
US banks don’t expect a January equity market rally, however. “The latest economic data is expected to reduce earnings expectations and weaken [full-year] guidance points to a market that tends to decline,” he said.
Others are more optimistic. China’s economic reopening, receding recession fears in Europe and cooling inflation in the US means that “investor concerns over a harder landing for the global economy” have eased, said Lee Hardman, currency analyst at MUFG. Traders had been given “new confidence that central banks can pause the cycle of rate hikes” later this year, he added, even as officials at the US Federal Reserve and the European Central Bank insisted the fight against inflation was far from won.
The euro zone “returned to growth” at the start of 2023, according to a flash purchasing managers’ index released by S&P Global on Tuesday morning, with business activity in January picking up after six consecutive months of decline.
The data “adds to the evidence that the region has survived the recession”, said Chris Williamson, chief business economist at S&P Global Market Intelligence. In contrast, the manufacturing and services PMI for the US, published later in the day, is expected to decline.
The dollar came under pressure on Tuesday, with a measure of the currency’s strength against a basket of six peers down 0.2 percent. US government bonds rallied, with the yield on the benchmark 10-year Treasury down 0.02 percentage points to 3.5 percent. Bond yields move inversely to prices.
In Asia, Hong Kong’s Hang Seng index rose 1.8 percent and China’s CSI 300 rose 0.6 percent. Japan’s Nikkei 225 added 1.5 percent, all recovering from a sell-off triggered by the Bank of Japan’s surprise adjustment to its long-standing yield curve control measures in late December.