US stocks pared early gains on Tuesday as sluggish earnings from some of Wall Street’s biggest banks took the shine off improving Chinese economic growth data.
The S&P 500 and the Nasdaq Composite were both flat in morning trade in New York. The tone was set by declines for Goldman Sachs and Bank of America, which fell 1.3 per cent and 0.7 per cent respectively.
Bank of America said it would cut 4,000 jobs despite strong corporate earnings while Goldman reported a slowdown in dealmaking and underperformance in its trading business. The KBW Nasdaq Bank index was down 0.6 per cent.
Analysts at Citigroup said US bank earnings showed that the panic in March was “rapidly contained . . . [freeing] markets and Fed officials to once again follow data showing resilient growth and persistently too-high inflation”.
The swaps market indicated that the US Federal Reserve would opt for a 0.25 percentage point increase in interest rates at its next meeting in May. During the fallout from last month’s collapse of Silicon Valley Bank, investors had been betting that the Fed’s tightening cycle had come to an end.
Stocks in Europe rose as investors took comfort from signs that China was beginning to recover after lifting its longstanding zero-Covid policy, and further signs that the recent banking crisis had not affected the broader global economy.
The region-wide Stoxx 600 closed up 0.4 per cent, while Germany’s Dax and France’s Cac 40 were up 0.6 and 0.5 per cent respectively.
China reported that its gross domestic product rose 4.5 per cent year on year in the first quarter, well above analysts’ expectations of a 4 per cent rise.
“The data out of China has given a boost to risky assets like stocks, commodities and US futures,” said Neil Shearing, group chief economist at Capital Economics. “There is a sense that the global economy is doing better and is riding out effects of [the banking] crisis, but whether or not that continues remains to be seen.”
The CSI 300 index of Shanghai- and Shenzhen-listed shares erased earlier losses to close up 0.3 per cent. In Hong Kong, the Hang Seng index was down 0.6 per cent.
Lisheng Wang, China economist at Goldman Sachs, said the growth outperformance suggested “a very strong post-reopening recovery”.
The dollar index, which measures the greenback against six other currencies, fell 0.3 per cent, while the euro and sterling both rose 0.3 per cent against the dollar.
Brent crude, the international benchmark, and West Texas Intermediate, the US equivalent, fell 0.4 and 0.5 per cent respectively.