US equities rebound as selling pressure eases

US equities climbed higher on Monday afternoon after experiencing their biggest weekly tumble in two months last Friday.

The blue-chip S&P 500 closed 0.3 per cent higher, while the tech-heavy Nasdaq added 0.6 per cent.

Investors continue to study releases of economic data, which have so far pointed to an overheated economy, spurring central banks such as the US Federal Reserve and European Central Bank to commit to raising interest rates higher for longer.

Elements of the latest US durable goods report on Monday suggested underlying strength in the domestic economy. Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business investment, rose 0.8 per cent in January from a month earlier, comfortably above economists’ forecasts.

“Given the fairly broad strength in this report and the fact that manufacturing activity surprised to the upside in the industrial production data released earlier this month, we can’t completely dismiss this as rebound noise,” Wells Fargo analysts wrote on Monday.

Analysts at Morgan Stanley said the data was turning recession fears into “fear of re-acceleration”. “Against the backdrop of the fastest monetary policy tightening in recent history, the US economy has displayed remarkable levels of resilience,” they added. The bank predicted that the Fed’s first interest rate cut would be in March 2024.

Ten-year US Treasury yields fell slightly to 3.93 per cent, while two-year contracts, which are more sensitive to monetary policy, ticked down to 4.78 per cent.

“January was the best January for the Global Bond Aggregate index this century whereas February so far is on course to be the worst February over the same period,” said analysts at Deutsche Bank.

In Europe, the region-wide Stoxx 600 closed up 1.1 per cent. Germany’s Dax rose 1.1 per cent, while the French Cac 40 gained 1.5 per cent. London’s FTSE 100 climbed 0.7 per cent.

“I suspect after a week of consolidation there’s a bit of buy the dip going on,” said Emmanuel Cau, head of European equity strategy at Barclays.

The euro was up 0.6 per cent and the dollar index, which measures the greenback against a basket of six peer currencies, was down 0.5 per cent. Sterling rose 1 per cent as the UK and EU reached a deal on post-Brexit trading rules.

EU economic sentiment, published on Monday, was lower than expected, at 99.7, relative to the 102.5 consensus forecast. Consumer confidence was in line with expectations, at minus 19.

This month has proved an uncertain time for traders, as the persistent threat of inflation forced them to price in further central bank interest rate rises. On Monday, market watchers sought extra insight into the banks’ thinking in speeches from Fed board member Philip Jefferson, as well as ECB executive board member Philip Lane.

“We had a big sell-off last week, so it’s not unusual to see bounces of this magnitude as the market tries to understand the data we’ve seen so far,” said Neil Shearing, group chief economist at Capital Economics.

“I suspect that the ECB has been quite clear that it has more work to do, but for the Federal Reserve the key questions are how far rates have to be increased, and how long will they keep them there.”

Markets last week reacted swiftly and decisively to better than expected economic data, after “core” monthly personal consumption expenditure — the Fed’s preferred measure of inflation — rose more than expected in January. The core PCE index increased 0.6 per cent month on month and 4.7 per cent year on year — the latter substantially more than the average forecasts of a 4.3 per cent rise.

Yields on 10-year German Bunds edged down to 2.58 per cent.

Hong Kong’s Hang Seng index fell 0.3 per cent while China’s CSI 300 lost 0.4 per cent.

Global oil benchmark Brent crude fell 0.9 per cent to $82.45 a barrel after adding 0.2 per cent last week. US equivalent West Texas Intermediate fell 0.8 per cent to $75.68 a barrel after finishing flat last week.