European stocks remained in a holding pattern and US government bonds sold off as investors awaited earnings from some of the world’s largest tech groups and the conclusion of the Federal Reserve’s latest meeting.
The regional Stoxx 600 index, which hit a record on April 19, has barely moved so far this week and drifted 0.1 per cent lower in early trades on Wednesday. London’s FTSE 100 added 0.4 per cent and futures markets signalled the blue-chip S&P 500 stock index would flatline at the New York opening bell.
Apple and Facebook announce quarterly earnings later in the session, giving investors who have hung on to tech stocks throughout the pandemic clues as to how they can sustain their growth as developed world economies reopen.
Microsoft released results that beat analysts’ forecasts after Wall Street closed on Tuesday evening, yet the group’s shares dropped by almost 3 per cent in after-market trading. Futures contracts on the top 100 stocks on the technology-focused Nasdaq Composite index dipped 0.3 per cent on Wednesday morning, although trading in these securities can be thin during the European session.
“The outlook for the tech sector is more nuanced than it was at the start of the year,” said Salman Ahmed, global head of macro and strategic asset allocation, when successful coronavirus vaccines prompted investors to cut their holdings of pandemic winners and pile into airlines and banks.
“We don’t see international travel resuming any time soon,” Ahmed added, citing the devastating surge of Covid-19 infections in India and scientists’ concerns about new mutations of the virus. The next stage of the “stock market story is about consumers’ savings built up [during lockdowns] and how they will be spent . . . It is not necessarily the tech names that are going to get most of the money”.
Federal Reserve chair Jay Powell will give a press conference later on Wednesday. Economists expect he will reiterate the need for the central bank to keep purchasing $120bn of bonds each month until the shape of the recovery from the pandemic becomes clearer.
US government bonds softened ahead of the meeting as investors remained alert for any possible change of language from Powell, who has so far signalled he is comfortable with inflation running hot until the US labour market recovers. The yield on the benchmark 10-year Treasury bond, which moves inversely to its price, added 0.02 percentage points to 1.645 per cent.
“Low inflation and a terrible pandemic gave the Federal Reserve two powerful arguments to keep accommodation flowing even as financial conditions improved,” Andrew Sheets, chief cross asset strategist at Morgan Stanley, wrote in a research note.
“Can the Fed sustain this accommodation if the US hits herd immunity and realised inflation is above 2 [per cent, year on year] this summer? Certainly, and this remains our expectation. But is that a trickier message for the Fed to manage? It sure seems that way.”
In Asia, Hong Kong’s Hang Seng index ended the session 0.3 per cent higher and mainland China’s CSI 300 gained 0.6 per cent, boosted by healthcare stocks. Tokyo’s Topix rose 0.3 per cent.
Brent crude fell 0.1 per cent to $66.31 a barrel. The dollar index, which tracks the greenback against a basket of trading partners’ currencies, rose 0.2 per cent but remained around its weakest since early March.