- Asian Stock Markets:
- The Nikkei is flat, S&P 500 futures are up
- Markets are pricing in a higher risk of a Fed rate hike in May
- EU softens as chances of a bigger ECB rate hike slimming
SYDNEY, April 17 (Reuters) – Asian stocks traded cautiously on Monday as the US earnings season is in full swing, while a slew of Chinese data will provide insight into the recovery of the world’s second largest economy.
Markets have also seen a turnaround in sentiment on the outlook for US interest rates, with CME futures implying an 83% chance the Federal Reserve will hike by a quarter point to 5.0-5.25% in May.
Resilience in US core retail sales and a rise in inflation expectations reported on Friday have prompted investors to pare expected easing to around 55 basis points (bp) later this year.
“The early April data on jobs, inflation and consumption all suggest that the Fed has more work to do and that a soft or bumpy landing is more likely than a sharp and relatively sudden drop in activity,” said analysts at ANZ in a note .
“Our baseline forecast is for two more 25 basis point hikes and unless the data softens soon the market will need to re-rate in the second half of this year to avoid any rate cuts.”
At least eight senior Fed officials are speaking this week, including three governors, and could generate plenty of headlines to keep the dial turning.
The resulting caution saw MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MI`J0000PUS) fall 0.3%, while Japan’s Nikkei (.N225) was flat.
EUROSTOXX 50 futures were up slightly by 0.3% and FTSE futures were up 0.2%.
Chinese blue chips (.CSI300) gained 0.7% ahead of Tuesday’s data on retail sales, industrial production and gross domestic product, where analysts suggested there may be a risk of an upside surprise given recent trading strength.
Figures over the weekend showed that new home prices rose at the fastest pace in 21 months, supporting demand and consumer confidence.
PROFIT OUTLOOK AT A GLANCE
S&P 500 futures rose 0.2% while Nasdaq futures remained flat as investors waited for a slew of earnings reports led by Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Bank of America (BAC.N).
Other big names reporting gains include Johnson & Johnson (JNJ.N), Netflix (NFLX.O), and Tesla (TSLA.O).
Analysts expect S&P 500 first-quarter earnings to fall 5.2% from the year-ago period, though BofA analyst Savita Subramanian is more concerned about the outlook for 2023.
“Overall, we expect a running quarter but big cuts for the full year,” BofA warned. “Our 2023 EPS estimate for the S&P 500 remains at $200, still 9% below consensus estimates.”
“Demand for consumer goods has already slowed, and now we’re watching services,” Subramanian said. “Airlines, hotels and restaurants are feeling the pressure from the macro slowdown, hard comps (comparable periods) and no respite from wage pressures.”
In bond markets, the shift in Fed expectations pushed US two-year yields higher to 4.12% after rising 12 basis points last week.
However, the outlook for the European Central Bank (ECB) has also turned more hawkish, causing German two-year yields to rise 32 basis points over the week, marking the biggest rise since September.
Futures have priced in 37 basis points of ECB tightening for the May meeting and 82 basis points through October.
This sea change saw the euro gain 0.8% last week, even after falling on Friday. So far on Monday, the single currency was trading at $1.0980 after hitting a one-year high of $1.1075 last week.
The dollar has outperformed the yen as the Bank of Japan maintains its super-loose monetary policy, at least for now. That kept the dollar at 133.83 yen after rising 1.2% last week.
The dollar’s rally took some of the shine from gold, which was back at $2,004 an ounce, down from last week’s high of $2,048.
Oil prices posted four consecutive weeks of gains, helped by production cuts, and the western energy watchdog said global demand will rise to record levels this year on a rebound in Chinese consumption.
The market consolidated on Monday, with Brent up 19 cents to $86.50 a barrel while US crude rose 12 cents to $82.64.
Reporting by Wayne Cole; Editing by Kenneth Maxwell
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