US stocks subdued as investors digest mixed corporate earnings

Wall Street stocks edged higher on Friday as investors assessed mixed earnings from corporate America and political negotiations over the country’s debt ceiling.

The benchmark S&P 500 traded 0.1 per cent higher in afternoon trade in New York, but was on track to notch its biggest weekly decline in six weeks. The tech-heavy Nasdaq Composite rose 0.2 per cent, but was heading for a 0.4 per cent weekly drop.

The moves come amid lukewarm results earlier in the week from Tesla and AT&T, and a warning about the health of the US consumer from American Express. Shares in Procter & Gamble rose 3.8 per cent as its sales received a boost from higher prices across the portfolio of consumer products.

Aside from the steady stream of companies’ first-quarter results, investors are growing increasingly nervous about the still-remote possibility that the US will default on its debt obligations later this year.

“The Democrats and Republicans seem far apart and investors suspect we will need to see a lot more market stress before adults enter the room,” said Chris Turner, global head of markets at ING, noting that the price to insure US government debt against the risk of default this week hit a fresh cycle high.

He added that weaker tax receipts could bring forward the dates when parts of the US government could begin to shut down.

The yield on two-year Treasuries increased slightly to 4.16 per cent, while the yield on the benchmark 10-year note inched up to 3.57 per cent. Yields move inversely to prices.

Concerns over growth mean the Federal Reserve is widely tipped to raise rates for the last time by a quarter percentage point when it next meets in early May, though investors are split on when the US central bank might begin to cut borrowing costs. US inflation eased last month to its lowest level in nearly two years. Cleveland Federal Reserve president Loretta Mester said on Thursday that she expected further tightening of monetary policy.

Also on Thursday Jonathan Gray, president of Blackstone, the world’s largest alternative asset manager, said the Fed “is likely to pause or maybe go 25 basis points higher from here, but I think they’re unlikely to pivot as quickly as the market is expecting”.

Daleep Singh, chief global economist at PGIM, said March’s rate rise to an upper bound of 5 per cent “likely marked the end of the Fed’s tightening cycle”, and that a credit crunch precipitated by the banking crisis could force the central bank to make “50 basis points to 75 basis points of rate cuts” in the final three months of the year.

In Europe, the region-wide Stoxx 600 added 0.3 per cent after eurozone business activity expanded faster than expected in April. Germany’s Dax rose 0.4 per cent, erasing earlier losses. The FTSE 100 closed 0.2 higher.

In Asia, Hong Kong’s Hang Seng index posted its largest daily drop since late February, falling 1.5 per cent, with all sectors in negative territory. The Hang Seng tech index fell 3.1 per cent, with shares in Alibaba down 4.1 per cent. Chip stocks also dropped, with Taiwan Semiconductor Manufacturing Company down 5.5 per cent.

China’s CSI 300 gave up 2 per cent for its biggest daily slide since October, extending a decline that has taken hold even after the release of stronger than expected Chinese growth figures on Tuesday.