Stocks advance as optimism for US economy grows

Stocks rose in Europe and on Wall Street on Monday, lifted by expectations the US economy will shake off geopolitical concerns to continue expanding this year even if the Federal Reserve holds off on cutting rates while waiting to see inflation come down. Wall Street stocks built on recent gains early Monday, with the broad-based S&P 500 adding to its record close last week while major companies get ready to report their financial results. About 10 minutes into trading, the Dow Jones Industrial Average advanced 0.3 percent to 37,994.04. The S&P 500 climbed 0.5 percent to 4,862.07, while the Nasdaq Composite Index added 0.7 percent to 15,414.03.

Technology stocks drove a US market rally on Friday that saw the S&P 500 index reach an all-time high, and earning reports from heavyweights including Netflix and Tesla are expected this week. Investors will also see on Thursday data on fourth quarter growth in the United States, which could offer clues on when the Fed might ease interest rates. “Persistent US inflation, fuelled by sticky services inflation, is poised to delay Fed rate cuts until the third quarter, and even then, the cuts may be limited,” said Luca Santos, a currency analyst at ACY Securities.

And while the European Central Bank is unlikely to cut rates at its policy meeting on Thursday, all eyes will be on its president Christine Lagarde after she said last week that rate cuts could be coming this summer. “European indices are pushing higher... as optimism over the direction of US earnings provide a tailwind behind tech stocks in particular,” said Joshua Mahony, chief market analyst at trading firm Scope Markets.

Wall Street’s rally on Friday was helped by a closely watched survey from the University of Michigan showing a surge in consumer confidence and optimism about falling inflation.

However, analysts warned that traders may have run a little ahead of themselves at the end of last year as they forecast the Fed will cut rates up to six times before December, with the first coming in March. A string of data in recent weeks has shown inflation remains sticky and well above the bank’s two percent target, while the jobs market continues to show resilience despite borrowing costs sitting at two-decade highs.

Minutes from the Fed’s most recent meeting also showed decision-makers were happy to keep monetary policy tight until they are confident prices are under control.

On Friday, San Francisco Fed boss Mary Daly said it was likely too early to think of moving just yet. Atlanta Fed chief Raphael Bostic said that while he was open to changing his mind, he did not expect a tweak until the third quarter, while his Chicago counterpart Austan Goolsbee added that decision-making was “fundamentally about the data”. The chances of a reduction before the end of the first quarter fell last week to less than 50 percent, having been above 80 percent the week before, Bloomberg News reported. Asian equities closed mixed, with Japanese stocks extending gains since the start of the year thanks to a weaker yen and rising Japanese inflation, ahead of a Bank of Japan policy decision later this week.

But Shanghai and Hong Kong saw heavy selling because of worries about ongoing weakness in China’s economy and a lack of measures aimed at kickstarting growth.

Oil prices reversed early gains to move lower after the International Energy Agency slashed its demand growth forecast. –AFP