S&P extends rally after week of strong US tech earnings

US stocks were higher in morning trade on Friday as investors turned optimistic following a week of strong earnings results from the country’s largest technology stocks.

Wall Street’s benchmark S&P 500 added 0.6 per cent, building on the previous session in which the index clocked its biggest daily increase since January 6.

The tech-heavy Nasdaq Composite index added 0.2 per cent after strong earnings results from Meta, Microsoft and Alphabet this week.

The gains come despite the fact that fresh economic data showed US personal consumption, adjusted for inflation, remained flat in March, as persistent inflation caused Americans to continue cutting back on purchases.

US government bonds rallied. The yield on interest rate sensitive two-year Treasuries fell 0.03 percentage points to 4.06 per cent. Yields move inversely to prices.

First Republic shares plunged nearly 50 per cent on Friday, continuing their freefall, set off by the bank’s announcement at the start of the week that customers had withdrawn $100bn of deposits during last month’s turmoil.

European stocks recouped morning losses, when inflation data stirred concerns that eurozone interest rates would have to increase further to stave off price rises.

The pan-European Stoxx 600 closed 0.6 per cent higher while Germany’s Dax added 0.8 per cent. France’s Cac 40, up 13 per cent this year, rose 0.1 per cent as French inflation in April accelerated more than economists had expected, raising pressure on the European Central Bank to maintain the pace of interest rate rises when it meets next week.

Analysts polled by Reuters expect the ECB to raise rates by 0.25 percentage points to 3.75 per cent, yet “any upside surprise [in inflation figures] would keep the pressure up to stick with the faster hikes”, said Henry Allen, macro strategist at Deutsche Bank.

Line chart of The index has climbed 12 per cent year to date showing Japan's Nikkei 225 pushes to 8-month high

Japanese stocks stood out, hitting an eight-month high after Bank of Japan governor Kazuo Ueda announced a review of the central bank’s ultra-loose monetary policy, opting against an immediate change of tack. The Nikkei 225 rose 1.4 per cent to its highest level since late August, with all sectors bar basic materials in positive territory.

Selling on European markets deepened after economic data showed eurozone gross domestic product rose 1.3 per cent year on year in the first quarter, down from 1.8 per cent in the final three months of 2022 and slightly below analysts’ expectations of a 1.4 per cent increase.

Other Asian stocks also advanced, with China’s CSI index up 1 per cent and Hong Kong’s Hang Seng index gaining 0.5 per cent.

The yen fell as much as 1.3 per cent to ¥135.74 per dollar, its lowest level since early March, following Ueda’s first policy board meeting, with overnight interest rates held at minus 0.1 per cent and its yield curve control policy unchanged.

The BoJ dropped a part of its forward guidance on rates, however, suggesting “an adjustment in policy comes earlier”, said analysts at ING, with speculation likely to build ahead of the central bank’s June meeting.

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