Earnings season kicks off this week with major banks reporting, including JPMorgan, Goldman Sachs, Wells Fargo and Citigroup.
S&P 500 companies overall are expected to have increased earnings by 8.8 per cent in the third quarter from a year earlier, according to LSEG IBES, and strong results will be needed to justify the market’s high valuations.
“Our guess is you might get, at least in the very near term, a more volatile and directionless environment for some of the risky assets. Ultimately, whether or not you go against the market in this environment depends on your conviction,” said Homin Lee, senior macro strategist at Lombard Odier.
FRANCE TURMOIL
Politics cast a cloud over Europe as the French presidency announced Lecornu’s new cabinet line-up on Sunday, reappointing Roland Lescure, a close ally of Emmanuel Macron, as finance minister.
Lecornu must now steer a budget for 2026 through a deeply divided parliament and faces the threat of no confidence vote in parliament.
France’s 10-year bond yield was up just 1.2 basis points at 3.48 per cent and French stocks rallied 0.5 per cent in a sign that investors were holding on to hopes for some near-term political stability.
“Even if, very big if, Lecornu now lasts longer in office than on his first attempt, he will face an uphill struggle to get a budget for 2026 through the divided parliament by the end of the year,” said Holger Schmieding, chief economist at Berenberg.
Currency markets also saw some stabilisation after Friday’s rush into the traditional safe havens of the Japanese yen and Swiss franc. The dollar rallied 0.7 per cent to 152 yen, having slid 1.2 per cent on Friday from a top of 153.29.
The euro was steady at US$1.1605, while the dollar gained 0.3 per cent on the Swiss franc to 0.80105. The dollar index was steady, after losing 0.6 per cent on Friday.
In bond markets, cash Treasuries were closed for a holiday, while government bond yields in Europe nudged up.
US and European bond yields had hit multi-week lows in the wake of Trump’s tariff threat on Friday , while investors had added to wagers on more rate cuts from the Federal Reserve.
“Interestingly, the bond market held up on Friday and that was encouraging given the recent selloff in long-dated bonds,” said Wren Sterling’s McPherson.
Futures implied around a 98 per cent chance of a quarter-point cut from the Fed later this month, and a similar probability of another move in December.
Fed Chair Jerome Powell has a chance to offer his guidance when he speaks on the economic outlook at the NABE annual meeting on Tuesday.
A host of other Fed members are appearing this week, along with a who’s who of central bankers attending an IMF-World Bank meeting in Washington.
Oil prices also regained some ground on hopes the US and China would find some compromise on trade to avoid fresh tariffs.
Brent bounced 1.6 per cent to US$63.74 a barrel, while US crude rose 1.6 per cent to US$59.83 per barrel.
