Global equity markets and crude oil rose yesterday, drawing support from strong corporate earnings and speculation of a European Central Bank interest rate cut after weak German economic data.
Wall Street traded flat to lower after a report said US durable goods recorded their biggest drop in seven months in March, which tempered enthusiasm over what has so far been a relatively robust US earnings season.
A gauge of planned business spending rose only modestly, indicating a slowdown in US economic activity, which also weighed on US equities.
But news from the Munich-based Ifo think tank that German business sentiment in April fell for the second consecutive month and was worse than the most pessimistic forecasts boosted European equities while weighing on the euro.
The Ifo report added to the view that the ECB is closer to lowering interest rates than at any time since it last cut them in July 2012 and is likely to shave off a quarter-point at its policy meeting next week.
“There is enthusiasm the ECB is poised to cut rates and that simply means more liquidity and that is the underlying, basic strong factor for stock markets around the globe,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
Cardillo said earnings continue to surprise to the upside for the most part, so enthusiasm for equities continues to grow.
Analysts see earnings growth of 3.1 per cent this quarter, up from expectations of 1.5 per cent at the start of the month.
Of the 174 companies in the S&P 500 index that have reported first-quarter results, 68.4 per cent have beat analysts’ expectations, according to Thomson Reuters data through Wednesday morning.
Since 1994, 63 per cent have surpassed estimates on average, while the beat rate is 67 per cent over the past four quarters.
Global equity markets, as measured by MSCI’s all-country world equity index, rose 0.58 per cent to 363.16.
On Wall Street, the Dow Jones industrial average was down 21.66 points, or 0.15 per cent, to 14,697.80. The Standard & Poor’s 500 Index gained 1.38 points, or 0.09 per cent, to 1,580.16. The Nasdaq Composite Index gained 0.10 points, or 0.00 per cent, to 3,269.43.
European shares chalked up a fourth straight session of gains. The FTSEurofirst 300 of top regional shares closed up 0.7 per cent at 1,191.82.
British insurer Standard Life and Portuguese retailer Jeronimo Martins led gainers, surging 8.0 per cent and 6.8 per cent, respectively, after announcing strong first-quarter numbers. Volume was three and five times their average for the past 90 days. Brent crude rose above $101 a barrel as US stocks of gasoline declined, but gains were checked by the prospect of slower growth and fuel demand in major economies.
Brent futures were up $1.43 to $101.74 a barrel. US crude futures gained $2.06 to $91.24.
“It’s an unusual situation in that bad economic news is good news for markets because it implies more easing by the central banks,” said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland.
The euro initially edged lower against the dollar but held above a near three-week low as hopes that Italy can resolve its political gridlock were trumped by the weak German data, which fanned talk of an ECB rate cut. The euro dropped to $1.2954, its lowest since April 5, before paring losses to trade slightly higher at $1.3015.
The benchmark 10-year US Treasury note rose 3/32 in price to yield 1.6944 per cent.