US futures inch up; stock markets ride higher on cooler inflation

By Nell Mackenzie

LONDON (Reuters) – U.S. share futures treaded cautiously higher on Monday ahead of more large-cap earnings reports, central bank meetings and a key employment report due later this week.

US stock futures were mixed at 1100 GMT with the S&P 500 and the Nasdaq 100 both up about 0.1%.

Apple Inc and Amazon.com both report on Thursday, while other well-known names with results due include Western Digital Corp, Caterpillar Inc, Starbucks Corp, and Advanced Micro Devices.

U.S. futures were unenthused by a jump in European shares after euro zone inflation fell further in July seeing that most measures of underlying price growth also eased. Markets took this as a comforting sign for the European Central Bank (ECB) as it considers ending a brutal string of interest rate hikes.

Germany’s blue-chip stocks index hit a record high at one point and was last up 0.1%. The pan-European STOXX 600 index rose by 0.2%, heading for a second consecutive monthly gain.

This lightened the mood in markets after China’s manufacturing activity fell for a fourth straight month in July, as demand remained weak at home and abroad, official surveys showed on Monday.

“Markets are treating information with a lot more sensitivity and people are looking into new information with a detailed eye,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

Within the detail of the Euro zone report, Deutsche Bank’s senior European analyst Marc de Muizon noted how service prices were resilient in the region but not as strong as they should be at the height of the 2023 tourism season.

“The apparent strength of the headline quarterly growth was driven by a few country idiosyncrasies and masks an underlying momentum that is likely much closer to stagnation,” de Muizon said.

EYES ON THE HORIZON

Figures hotly anticipated this week include the U.S. ISM surveys on manufacturing and services, as well as the July payrolls report.

All three main U.S. indexes ended last week higher and appear set to gain this month as signs of cooling inflation and a resilient economy have eased investor sentiment about the economy surviving amid higher rates for longer.

Upbeat quarterly earnings from megacap growth companies including Alphabet, Meta Platforms as well as chipmakers Intel and Lam Research have also boosted investor sentiment.

Almost 30% of the S&P 500 report results this week and so far earnings have been good enough to see the index extend its rally to 10% since the start of June.

The Dow Jones Industrial Average logged in July its longest winning streak in nearly four-decades underpinned by gains in sectors including healthcare, financials and energy that had underperformed during the first half of the year.

The Bank of England is widely expected to raise rates by at least a quarter point, but markets are more divided on whether the Reserve Bank of Australia will hike or stay on hold.

Traders cut bets on a continuing rally in the pound by the most since mid-June ahead of the Bank of England rate decision on Thursday.

Sterling has surged 24% from a record low of $1.033 against the dollar in September after a disastrous budget, hitting a 15-month high of $1.314 in mid-July.

The euro gained, up 0.1% to $1.103, as did the dollar index, staying largely flat at 101.660.

Investors continued to digest Friday’s decision by the Bank of Japan (BOJ) to lift the lid on bond yields, in a step away from its ultra-easy policies.

Analysts at BofA estimate the BOJ’s bond buying added $1.3 trillion to global liquidity in the past 18 months and provided a low floor for global rates, so any sustained rise in Japanese government bond yields could ripple though other bond markets.

Japanese 10-year yields surged to a nine-year high up to 0.6% on Monday, and toward the new cap of 1.0%. That also put upward pressure on Treasury yields, where the 10-year rose 1 basis point to 3.97%.

In commodities, gold traded flat at $1,960 an ounce, but still higher for the month so far.

Dropping oil inventories pushed Brent 58 cents higher from Friday’s close to $85.59 a barrel, while U.S. crude rose 70 cents to $81.26.

(Reporting by Nell Mackenzie; Editing by Amanda Cooper, Jamie Freed, Himani Sarkar and Nick Macfie)