Asian stocks trade warily before US earnings updates and Chinese data

Sydney — Asian stocks traded cautiously on Monday as US earnings season gets into full swing, while much Chinese data will offer insight into how the world’s second-largest economy is recovering.

Markets have also seen a mood shift on the outlook for US interest rates, with CME futures implying an 83% chance the Federal Reserve will hike by a quarter point to 5%-5.25% in May.

Resilience in core US retail sales and a jump in inflation expectations reported on Friday has led investors to trim the amount of easing expected later this year to about 55 basis points (bp).

“Early April data on the labour market, inflation and consumption all indicate the Fed has more work to do and that a soft or bumpy landing is a greater probability than a sharp and relatively sudden contraction in activity,” said analysts at ANZ in a note.

“Our baseline view is for two more 25bp hikes and, if data does not start to weaken soon, the market will need to reprice for no rate cuts in the second half of this year.”

At least eight top Fed officials are speaking this week, including three governors, and could generate many headlines to move the dial further.

The resulting caution caused MSCI’s broadest index of Asia-Pacific shares outside Japan to ease 0.3%, while Japan’s Nikkei went flat.

Euro Stoxx 50 futures edged up 0.3% and FTSE futures 0.2%.

Prices climbing

Chinese blue chips added 0.7% before data on retail sales, industrial output and GDP due on Tuesday, in which analysts suspect the risks are for an upside surprise given recent strength in trade.

Figures at the weekend showed new home prices climbing at the fastest pace in 21 months, supporting consumer demand and confidence.

S&P 500 futures inched up 0.2%, while Nasdaq futures were flat as investors awaited many earnings reports led by Goldman Sachs, Morgan Stanley and Bank of America.

Other big names reporting earnings include Johnson & Johnson, Netflix and Tesla.

Analysts expect first-quarter S&P 500 earnings to fall 5.2% from the year-earlier period, though BofA analyst Savita Subramanian is more concerned about the outlook for 2023.

“Overall, we expect an in-line quarter, but big cuts for the full year,” BofA warned. “Our 2023 [earnings per share] estimate for the S&P 500 remains $200, still 9% below consensus estimates.

“Demand for consumer goods has already softened and now we’re watching services,” Subramanian said. “Airlines, hotels and restaurants are feeling pressure from slowing macro, tough [comparison periods] and no respite from wage pressure.”

In bond markets, the shift in Fed expectations pushed US two-year yields up to 4.12%, having risen 12 basis points last week.

ECB tightening

Yet, the outlook has also turned more hawkish on the European Central Bank (ECB), sending German two-year yields surging 32 basis points over the week for the biggest increase since September.

Futures have 37 basis points of ECB tightening priced for the May meeting and 82 basis points by October.

That sea change caused the euro to gain 0.8% last week, even after a dip on Friday. So far on Monday, the single currency was holding at $1.0980 having hit a one-year high of $1.1075 last week.

The dollar has fared better on the yen as the Bank of Japan remains committed to its supereasy monetary policy, at least for now. That kept the dollar at ¥133.83, after rallying 1.2% last week.

The bounce in the dollar took some of the shine off gold which was back at $2,004 an ounce, off last week’s peak above $2,048.

Oil prices have enjoyed four consecutive weeks of gains, helped by cuts to output and as the West’s energy watchdog said global demand will climb to a record this year due to a recovery in Chinese consumption.

The market was consolidating on Monday with Brent up 19c at $86.50 a barrel, while US crude rose 12c to $82.64.

Reuters