World stocks fell and the U.S. dollar steadied on Monday as a busy week of central bank meetings and company updates started. Japanese government bonds sold off before possible monetary policy tweaks.
Disappointing updates from U.S. tech heavyweights soured the mood across stock markets, knocking European shares off their six-week highs at the open and dragging down by 0.11 per cent a MSCI index that tracks shares in 47 countries.
“Quarterly results continue to be more than good overall, but markets appear to be particularly sensitive to the sporadic negative updates, especially from tech stocks,” said Alessandro Balsotti,” strategist and fund manager at JCI Capital.
The week features quarterly earnings from more than 140 S&P 500 companies, including Apple. It will be closely watched after disappointing results from Facebook and Twitter shook investor belief in tech resilience.
JPMorgan reported relatively aggressive moves into “value” stocks - in particular banks - and away from shares leveraged to economic growth.
“Tech really began cracking on Tuesday before the floodgates opened on Friday,” analysts at the U.S. bank wrote in a note.
“The rotation will likely continue, benefiting value categories at the expense of momentum/tech as rates are biased higher,” they added. “Europe’s higher weighting to banks/resource will help it vs the U.S.”
In Europe, 70 companies on the STOXX 600 are due to report their updates this week with figures from big banks, including BNP Paribas, Intesa Sanpaolo, Lloyds in the spotlight.
CENTRAL BANK TEST
Away from earnings, the top focus will be three central bank meetings. Bank of Japan and the Bank of England will be eyed for possible policy tweaks, while the U.S. Federal Reserve is unlikely to deliver surprises.
The Fed meets on Tuesday and Wednesday and is expected to keep rates unchanged and reaffirm the outlook for further rate rises. The market is almost fully priced for a hike in September and leaning towards a further move before the end of the year.
The BoJ meeting that ends on Tuesday will be closely watched amid speculation the central bank might tweak its massive asset-buying programme and take a step towards less monetary policy accommodation.
As the market tried to test the central bank’s intention, Japanese government bond sagged, sending the benchmark 10-year yield to its highest level in almost a year and a half .
That forced the BoJ to conduct a special bond-buying operation for two sessions in a row and to end up buying a record amount to stem rising bond yields.
On currency markets, the chance of a BoJ shift has sent the yen higher in the last week or so, leaving the dollar around 111.05 yen from a peak of 113.18 earlier in the month.
Against a basket of currencies the dollar was hovering at 94.606, having repeatedly failed to clear resistance around 95.652 this month.
The euro edged up to $1.1664 against the dollar in early European trading, after the European Central Bank reaffirmed last week that rates would remain low through the summer.
In Asia, eyes were on China’s yuan after it suffered the longest weekly losing streak since November 2015. It duly weakened further, slipping past 6.8400 per dollar for the first time since June last year.
In commodity markets, oil prices rose but gains were limited as the fallout from trade tensions weighed on markets.
U.S. crude added 69 cents to $69.19, while Brent rose 13 cents to $74.40 a barrel.