Here are the top five things you need to know in financial markets on Monday, January 8:
1. Global equities continue to rally
Wall Street looked set to continue leading the bullish trend in global stocks on Monday after all three major benchmarks hit new record highs and both the Dow and the Nasdaq registered their best start to year since 2006. At 5:53AM ET (10:53GMT),the blue-chip Dow futures rose 43 points, or 0.17%, S&P 500 futures advanced less than a point, or 0.01%, while the Nasdaq 100 futures edged forward 2 points, or 0.05%.
Elsewhere, European equities moved higher on Monday as investors digested better than expected confidence and retail sales data from the euro zone. Traders also watched as German Chancellor Angela Merkel entered talks with a rival party in a last-ditch effort to form a coalition government after months of political uncertainty in the euro zone’s largest economy.
The benchmark Euro Stoxx 50 advanced 0.39% by 5:54AM ET (10:54GMT), Germany’s DAX rose 0.37% though London’s FTSE 100 slipped 0.05% after having hit a new record high earlier on Monday.
Earlier, Asian shares edged higher on Monday with markets in Tokyo shut for a holiday. China’s Shanghai Composite closed with gains of 0.5%.
2. Earnings season set to capture focus
Investor attention will return to earnings this week as the fourth quarter reporting season kicks off with big banks on Friday.
Traders are betting on a string of solid earnings reports to justify last year’s stock market rally while Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM) will get the ball rolling at the end of the week.
The focus will likely be on full-year guidance with particular attention paid to any comments on how firms will react to the recent Trump administration tax overhaul.
Morgan Stanley (NYSE:MS) already warned last week that it will take a $1.25 billion charge to 2017 earnings primarily because its deferred tax assets will be worth less under the new tax code.
3. Dollar continues recovery from 3 ½ month low ahead of Fedspeak
The dollar moved higher against major rivals on Monday for a second consecutive session, pulling away from a three-and-a-half month low of 91.47 hit on January 2.
Worse-than-expected job creation in the U.S. economy failed to make a lasting dent in the greenback with investors still looking ahead to the Federal Reserve’s next move.
The dollar found support after San Francisco Fed president John Williams said on Saturday that the Fed should raise interest rates three times this year given that economy will benefit from tax cuts.
The comments came a day after Cleveland Fed chief Loretta Mester said she expects about four interest rate hikes this year, thanks to solid U.S. economic growth and low unemployment.
However, not all policymakers were convinced, as Philadelphia Fed president Patrick Harker recommended caution and argued for just two rate hikes this year.
Later on Monday, Atlanta Fed chief Raphael Bostic will speak on the economic outlook and monetary policy while both heads of the Boston Fed, Eric Rosengren, and the San Francisco Fed, John Williams, will participate at the “Should the Fed Stick With the 2 Percent Inflation Target or Rethink It?” Forum in Washington.
At 5:55AM ET (10:55GMT), the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, gained 0.15% at 91.89.
4. Oil breathes sigh of relieve from drop in active U.S. oil rigs
Crude oil prices were hovering near recent multi-year peaks on Monday, helped by news of a decline in U.S. oil rigs, although ongoing concerns over rising U.S. production were expected to limit gains.
Oil services firm Baker Hughes on Friday reported a decline by five to 742 in the number of U.S. rigs in the week to January 5.
However, concerns still remained that rising U.S. production in 2018 could undermine production cut efforts led by the Organization of the Petroleum Exporting Countries and Russia.
U.S. crude oil futures fell 0.49% to $61.74 at 5:56AM ET (10:56GMT), while Brent oil traded up 0.19% to $67.75.
5. Global rating outlooks most positive since crisis
The prospect of rating upgrades outnumbering downgrades this year and next is higher than at any time since the financial crisis, Fitch Rating noted on Monday in its most recent report on the global credit outlook.
However, the credit rating agency warned that credit quality may start to weaken beyond this as ultra-supportive monetary policy is phased out and rising interest rates start to affect funding costs and asset quality.
“The continued tightening of monetary policy, together with significant policy and political uncertainty, is likely to pose increasing challenges to ratings,” Monica Insoll, managing director of Fitch’s Credit Market Research, said in the report.