Corporate earnings in focus, Fed direction remains uncertain

investmentnews.com:

Stocks struggled for direction as investors processed a busy day of corporate earnings and fresh signs of strength in the US and UK economies that may support the case for further interest-rate increases.

SAP SE fell, dragging down technology shares and making them Europe’s worst-performing sector Friday, after the software company reported sales for its key cloud unit that missed analyst estimates. Bioprocessing company Lonza Group AG slumped after cutting its 2023 forecast. Contracts for US equities edged higher, after the tech-heavy Nasdaq 100 index dropped the most in nearly five months on Thursday. 

Earnings in Europe have got off to a slow start, according to strategists at Morgan Stanley, with results coming in softer than in previous quarters and only the largest companies showing strong profits. Companies are striking a more cautious tone in their forward guidance and mentions of “weaker demand” are at a record, the strategists including Giorgio Magagnotti said.

Signs of resilience in the US and UK economies challenged investor expectations that central banks may soon be done with their rate tightening campaigns to curb inflation. British retail sales rose more than expected during the warmest June on record, data out Friday showed. On Thursday, an unexpected pullback in US jobless claims prompted higher odds of a further rate hike beyond the Federal Reserve’s meeting next week.

The pound strengthened after the UK retail sales numbers, while the dollar was little changed and Treasury yields were steady.

It’s still difficult to declare that the Fed has succeeded in taming inflation, according to Eugenia Fabon Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB. 

“Going beyond the