Wall Street ended Friday mixed. The Dow snapped a three-day losing streak following strong earnings from Procter & Gamble. Impressive results saw the stock surge 8.8%, its biggest one day jump in a decade, boosting the Dow. The S&P closed flat, and the NASDAQ Composite closed lower despite a promising start.
US earnings season supportive of stocks
Encouraging cooperate earnings helped the broader US market close higher across the week, after concerns of rising rates, geopolitical tensions and the slowdown of the global economy have weighed on sentiment.
Despite these prominent tensions, the fact that earnings are consistently beating expectations is supportive of stocks. This can help investors call the bottom of the recent rout and reposition for the recovery. Yet a move higher will be fragile as headwinds are growing for stocks. The slightest hint of the stronger dollar, higher borrowing costs and the impact of the trade war hitting profit fundamentals could quickly bring stocks crashing down. This week is a packed week for US earning season with big names Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Caterpillar (NYSE:CAT) reporting.
Asia Higher on Beijing support
Asian shares bounced higher on Monday, as Chinese stocks extended their rebound for a second straight session, pulling European futures higher in the process. Beijing’s pledge of support for the economy is overshadowing geopolitical concerns over Saudi Arabia, Italy and Brexit.
US tread difficult path on Saudi Arabia
Saudi Arabia will remain in focus on Monday as relations with foreign governments continue to deteriorate. Riyadh’s hands are looking increasingly dirty following the disappearance of journalist Jamal Kasshoggi. This has encouraged investors to price in a changing relationship between the US and Saudi Arabia. The US are treading carefully to censure Saudi’s actions, whilst also keeping their ally, the world’s biggest oil exporter close. Pressure it is mounting on Riyadh to come clean, with the Saudi stock market experiencing its biggest exodus of foreign investors since opening to direct foreign buying in mid-2015.
Oil edging higher as Iran sanctions approach
Oil prices edged higher amid the Saudi scandal and with more tightening on the supply side expected as US sanctions on Iran are due to kick in next month. With a disruptive winter on the cards, major oil consumers are stock piling. Saudi Arabia could struggle to make up the fall in supply from Iran as promised, especially when you consider added pressure from falling Venezuelan and Angolan production. $80 is offering resistance but we don’t expect that to be a big hurdle for oil to overcome.
Italy’s time to explain
The euro and the FTSEMIB are looking resilient as Italy is due to explain its breach of European Commission rules today. Italian yields are not showing the same strength as 4 year lows. The broad expectation is for Brussels to reject the budget on Tuesday. Whilst this has been on the cards for some time, the markets will want to see what the next chapter is in this unprecedented move. Sanctions could do more damage than good to this delicate situation. At least a slightly busier eurozone economic calendar will provide some distraction for euro traders with a slew of PMI figures on Wednesday and the ECB meeting on Thursday.