World shares were approaching a five-month peak and the dollar slipped on Monday as investors wagered the earnings season would see most companies beat forecasts given expectations had been lowered by coronavirus lockdowns.
The US earnings season kicks off this week with major Wall Street banks JPMorgan, Citigroup and Wells Fargo reporting on Tuesday. It’s expected to be the second-biggest quarterly earnings drop since 1968, according to Refinitiv data.
“There’s a view that the bar has been set pretty low for them to report the almost obligatory ‘better than expected’ results - the absence of forward guidance from many firms notwithstanding,” said Ray Attrill, head of FX strategy at NAB.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.8 per cent as Chinese stocks jumped 2.1 per cent on Monday. Japan’s Nikkei gained 2.2 per cent and South Korea 1.7 per cent.
The optimism carried over to Europe, where stocks rose 1.0 per cent, even as the US on Friday slapped additional duties of 25 per cent on French luxury goods valued at $1.3 billion, in a tit-for-tat response to France’s digital services tax.
MSCI’s All-Country World Index was just shy of hitting February 26 highs. E-Mini futures for the S&P 500 ticked 0.5 per cent higher despite record new cases of Covid-19 in the US over the weekend, a divergence that shows no sign of stopping.
“Ongoing grim U.S. COVID-19 infection news continues to be summarily ignored in favour of ongoing optimism regarding the time-line for the discovery and rapid roll-out of an effective vaccine and/or more policy support for asset prices and the U.S. economy,” Attrill said.
The risk-on rally saw the US dollar dip 0.2 per cent against a basket of major currencies after three straight weeks of losses.
The euro, meanwhile, rose 0.2 per cent to $1.132 to maintain its slow uptrend since late last month. Looming large for the common currency was a planned EU summit on July 17-18, where leaders need to bridge gaps on long-term budget and economic stimulus plans.
“If an agreement weren’t to be reached there, then they still expect one within weeks. It’s worth remembering that there are number of complex issues to be worked out,” Deutsche Bank strategist Jim Reid said.
Safe-haven German yields rose slightly, and Italy’s 10-year yield hit the highest level in over a week at 1.33 per cent in early trade as investors bagged profits after the recent rush to safety cooled.
Yields on US 10-year notes came close to record lows last week at 0.569 per cent and were last at 0.63 per cent.
Super-low rates have in turn been a boon for non-yielding gold which hit a near nine-year high after five straight weeks of gains. The metal was last at $1,807 an ounce, just off a $1,817.17 top.
The hunt for yield has tended to benefit emerging market currencies and those leveraged to commodities such as the Australian dollar, while weighing on the US dollar.
Oil prices eased in early trade, although that followed a sharp rise on Friday when the International Energy Agency (IEA) bumped up its 2020 demand forecast.
Brent crude futures dipped 49 cents to $42.75 a barrel, while US crude lost 52 cents to $40.03.