Stocks rise for a third day, Natwest profits boom

European indices are pointing to a stronger start on Friday, building on gains from the previous session as investors brace themselves for a deluge of data and earnings.

•         Eurozone GDP & CPI are due and could raise concerns about stagflation
•         NatWest reports 41% growth in profits after benefiting from rising interest rates
•         Gold rises on an upbeat market mood but falls across the month on fears of Fed rate hikes

The three leading indices on Wall Street posted impressive gains yesterday. The Nasdaq outperformed and closed 3% higher, lifted by earnings optimism and a 17% jump in Meta, as Facebook returned to user growth.

After the close, Apple’s revenue and profits topped analysts’ estimates. However, the stock is falling following warnings about supply chains which are expected to cost the business $4-$8 billion in the current quarter. The warning sent a chill through the US markets, and US futures are heading lower.

In Europe, earnings buoyed the mood yesterday, helping the FTSE close 1.1% higher and the DAX end the day +1.3% higher.

GDP & CPI

Today the focus shifts to the economic calendar for clues over how economic growth held up in the first three months of the year and as Russia invaded Ukraine, sparking a cost of living crisis. Yesterday US GDP unexpectedly and severely contracted -by 1.4%, although this was attributed to rising imports and falling inventory, which consumer spending held up well.

Yesterday, German inflation ticked up to a new record high in April of 7.4%, up from 7.3%. Today the focus is on economic growth. German GDP is expected to grow just 0.1% Q0Q after contracting -0.3% in Q4 amid a resurgence of COVID.

Meanwhile, the Eurozone is expected to see GDP growth of 0.3% QoQ, in line with the previous quarter, and consumer prices are expected to rise to 7.5% YoY. Weaker than expected growth and record-high inflation could underscore stagflation fears. Yet, with the DAX and CAC set to open over 1% higher such concerns aren’t being played out in the stock market. They are more evident in the FX market, where the EUR continues to trade below 1.0550.

NatWest

NatWest is the final of the UK banks to report, posting a 41% rise in profits, boosted by rising interest rates after the BoE hiked across the past three meetings and the economic rebound from COVID. Pre-tax profits came in at £1.2 billion, up from £885 million in the same period last year. NatWest saw a solid quarter; however, concerns over the outlook are rising.

Gold

Gold prices are rising today, extending gains from the previous session, as the USD pauses for breath after a six-day rally, which saw it hit a five-year high. The improved market mood is pulling the greenback lower, lifting gold. However, the precious metal is still on track to lose 1.6% across the month amid expectations of the Federal Reserve raising interest rates and tightening monetary policy at a faster pace. 

Today sees the release of PCE, the Fed’s preferred gauge for inflation which is expected to rise to 6.5% YoY in March, up from 6.4% in February.

The Fed is widely expected to raise interest rates by 50 basis points when it meets next week. A hotter than expected inflation print could prompt bets of more outsized rate hikes from the Fed over the coming months, dragging non-yielding gold back towards $1890.