Disappointing updates from U.S. tech heavyweights overshadowed solid results elsewhere, helping knock European shares off six-week highs, while a MSCI index that tracks shares in 47 countries .MIWD00000PUS pared losses to trade flat.
“Quarterly results continue to be more than good overall, but markets appear to be particularly sensitive to the sporadic negative updates, especially from tech stocks,” JCI Capital strategist and fund manager Alessandro Balsotti said.
“Meanwhile before the August lull - although that’s not always the case for markets - we’re bracing for an intense week, packed with central bank meetings and macro data,” he said.
On Monday, industrial heavyweight Caterpillar (CAT.N) posted higher quarterly profit that beat market forecasts and upgraded the full-year profit outlook, citing robust global demand.
The encouraging update helped Dow futures rise, while Nasdaq and S&P futures remained under pressure from technology stocks.
Apple (AAPL.O). is also among the 140 S&P 500 .SPX companies that report results this week. The iPhone maker will be closely watched after disappointing results from Facebook (FB.O) and Twitter (TWTR.N) shook confidence in tech resilience.
JPMorgan reported relatively aggressive moves into “value” stocks - banks, in particular - and away from shares leveraged to economic growth.
“Tech really began cracking on Tuesday before the floodgates opened on Friday,” JPMorgan analysts wrote in a note.
“The rotation will likely continue, benefiting value categories at the expense of momentum/tech as rates are biased higher,” they said. “Europe’s higher weighting to banks/resource will help it vs the U.S.”
In Europe, 70 companies on the pan-regional STOXX 600 benchmark are due to report their updates this week with figures from big banks, including BNP Paribas (BNPP.PA), Intesa Sanpaolo (ISP.MI) and Lloyds (LLOY.L) in the spotlight.
According to I/B/E/S data, second-quarter earnings of companies on the STOXX are expected to have risen 7.4 percent.
Earnings for the S&P 500 are forecast to have risen 22.6 percent with more than four out of five companies, which have already reported, beating analyst expectations. At 43 percent, earnings beats in Europe have lagged those on Wall Street.
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CENTRAL BANK TEST
Away from earnings, the top focus will be three central bank meetings. Bank of Japan and the Bank of England will be eyed for possible policy tweaks, while the U.S. Federal Reserve is unlikely to deliver surprises.
The Fed meets on Tuesday and Wednesday and is expected to keep rates unchanged and reaffirm the outlook for further rate rises. The market is almost fully priced for a hike in September and leaning towards a further move before the end of the year.
The BoJ meeting that ends on Tuesday will be closely watched amid speculation the central bank might tweak its massive asset-buying program and take a step towards less monetary policy accommodation.
As the market tried to test the central bank’s intention, Japanese government bonds sagged, sending the benchmark 10-year yield to its highest level for almost a year and a half.
That forced the BoJ to conduct a special bond-buying operation for two sessions in a row and to end up buying a record amount to stem rising bond yields.
On currency markets, the chance of a BoJ shift has sent the yen higher in the last week or so, leaving the dollar around 111.07 yen JPY= from this month's 113.18 peak.
Against a basket of currencies, the dollar moved in tight ranges. It last traded at 94.541 .DXY, having repeatedly failed to clear resistance around 95.652 this month.
The euro edged up to $1.1681 EUR= against the dollar, after the European Central Bank reaffirmed last week that rates would remain low through the summer of 2019.
Meanwhile, euro zone government bond yields rose across the board after a strong Italian auction boosted demand for Italian debt at the expense of higher-rated markets in the bloc.
In Asia, eyes were on China's yuan after it suffered the longest weekly losing streak since November 2015. It weakened further, slipping past 6.8400 per dollar CNY=CFXS for the first time since June last year before paring losses.
In commodity markets, oil prices rose as investors remained cautious over the supply outlook, having gained nearly 5 percent in price since the middle of July.
U.S. crude CLc1 added 132 cents to $70.01, while Brent LCOc1 rose 73 cents to $74.83 a barrel.
In metals, copper prices fell as investors focused instead on economic data this week expected to show slowing growth in top metals consumer China.
Spot gold XAU= eased 0.07 percent to $1,221.48.
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