(Reuters) - Investors are gearing up for a busy week ahead, when the bulk of the S&P 500 components report earnings, the dollar could see if it's regained any forex-appeal and the Bank of Japan's new governor chairs his first policy meeting.
Here's a look at the week ahead in markets from Lewis Krauskopf in New York, Kevin Buckland in Tokyo, Alun John, Naomi Rovnick and Amanda Cooper in London.
1/ MEGACAP MOMENT
The heart of first-quarter U.S. earnings season arrives next week, with some of the biggest companies reporting results.
Three of the four biggest U.S. companies by market value -- Microsoft (NASDAQ:MSFT), Google parent Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) -- are scheduled to post earnings, with Microsoft and Alphabet due Tuesday and Amazon on Thursday. Facebook (NASDAQ:META) parent Meta Platforms is sandwiched in between on Wednesday.
Megacap tech and growth stocks have had a resurgence across the board in 2023 after getting pummelled last year, as Treasury yields have moderated and investors gravitated toward large companies seen as having secure balance sheets following last month's banking crisis.
Their results will put that stock momentum, as well as the market's overall momentum, to the test.
(Graphic: US tech stocks regain some lost ground - https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/znvnbjybgvl/chart.png)
2/ NEW CHIEF IN TOWN
New Bank of Japan governor Kazuo Ueda chairs his first monetary policy meeting at the end of the week. Confidence is growing that ultra-dovish policy will remain unchanged next Friday, but economists flag the non-negligable risk of another surprise.
Morgan Stanley (NYSE:MS) MUFG, for example, puts the risk at 20%, even as it says its main scenario is for no action next week after Ueda's repeated comments over recent weeks that stimulus settings remain appropriate for now.
Sources have told Reuters the central bank is warming to the idea of further tweaks to the controversial yield curve control policy that has sapped market liquidity with its massive bond purchases, but likely at a much later time this year.
Corporate Japan, for its part, wants Ueda to focus on market stability rather than policy changes, a Reuters poll showed.
(Graphic: Ueda's YCC conundrum - https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/akpeqnddlpr/chart.png)
3/ DON'T BANK ON IT
Q1 has been interesting for the banks. Economic euphoria in January was followed by a reality check in February, when investors decided rates would likely rise some more but the world would avoid recession - a sweet spot for financials.
March brought home the impact of tighter credit conditions. Two mid-tier U.S. lenders folded as customers pulled their deposits and ran for the hills.
Things reached boiling point with Credit Suisse's hastily arranged takeover by rival UBS. The whole debacle wiped almost $180 billion off the value of Europe's banks at one point. The sector has since recovered, but it's still worth $70 billion less than it was before Silicon Valley collapsed in early March.
UBS, Deutsche Bank (ETR:DBKGn), Santander (BME:SAN) and Barclays (LON:BARC) are some of the big guns reporting next week - along with the Credit Suisse's earnings swan song.
(Graphic: European banks rollercoaster quarter - https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/mopakyxxwpa/chart.png)
4/ GUESS WHO'S BACK?
European currency bulls. And they're hoping for some hawkish commentary from the European Central Bank's policymakers and for plenty of data that suggests the central bank could keep rates higher for longer than the Federal Reserve.
The premium of U.S. market rates over their European counterparts reached their narrowest in many months in early April, on the view that U.S. rate cuts are coming later this year while borrowing costs in Europe have further to climb.
Those expectations have pushed the euro, the pound and the Swiss franc to multi-month highs, although this rally could lose steam as markets reassess whether Fed cuts are really coming.
Anything that dents the dollar's yield appeal should help keep European currencies looking perky, at least for now.
(Graphic: How the euro has moved - https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/egpbyqnnzvq/eur-usd-swap-new.png)
5/ ON THE EDGE
The outlook for European stocks is on a knife-edge, as a resilient economy clashes with prospects of stubborn inflation and tighter monetary policy.
First-quarter eurozone GDP data is due April 28. Output indicators analysed by consultancy Capital Economics show the bloc's economy has expanded.
Inflation reports for Germany and Spain may also reveal price rises have been sustained and are sticky.
But March's market turmoil caused by U.S. bank failures is not viewed as likely to dissuade the ECB from hiking rates. Goldman Sachs (NYSE:GS) sees the euro zone deposit rate rising to 3.75% by July.
Equity investors remain cautiously optimistic. The STOXX 600 index has gained 2% this month.
But German construction companies are reporting cancelled orders and euro zone consumer confidence is weak. Robust first-quarter growth may not mean Europe is out of the woods yet.
(Graphic: Euro zone GDP vs STOXX 600 - https://www.reuters.com/graphics/EUROZONE-GDP/myvmojdqbvr/chart.jpg)