Asian stocks poised to make profits, and the Chinese economy surprises

SYDNEY (Reuters) – Asian stocks traded cautiously on Monday as the US earnings season entered its climax this week, while a batch of Chinese data will provide insight into how the world’s second-largest economy is recovering.

Markets also saw a mood shift in the outlook for US interest rates, with stock futures indicating an 81% chance the Fed will hike by a quarter point to 5.0-5.25% in May.

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

“Early April data on the labor market, inflation and consumption 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 contraction in activity,” ANZ analysts said in a note. .

“Our fundamental view is for two more 25 basis point increases and if the data doesn’t start to weaken soon, the market will have to reprice the lack of interest rate cuts in the second half of this year.”

No fewer than eight senior Fed officials are speaking this week, including three governors, and could generate plenty of headlines to move the call further.

The resulting warning sent MSCI’s broader index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) down 0.2%, while Japan’s Nikkei (.N225) was flat.

EUROSTOXX 50 futures and FTSE futures contracts rose 0.2%.

Chinese blue chips (.CSI300) added 1.0% ahead of data on retail sales, industrial production and gross domestic product due on Tuesday, as analysts believe the risks present a bullish surprise given the recent strength in trade.

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

Eyes on earnings forecasts

S&P 500 futures rose 0.2%, while Nasdaq futures were flat as investors await 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 earnings include Johnson & Johnson (JNJ.N), Netflix (NFLX.O), and Tesla (TSLA.O).

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

“In general, we expect quarterly, but significant discounts for the full year,” Bank of America warned. “Our estimate for 2023 EPS for the S&P 500 remains $200, still 9% below the consensus estimate.”

“Consumer demand has already fallen and we are now watching services,” Subramanian said. “Airlines, hotels and restaurants are feeling pressure from the big business slowdown (comparison periods) and discomfort from wage pressures.”

In bond markets, a shift in the Fed’s outlook pushed the two-year US yield to 4.12%, after rising 12 basis points last week.

However, expectations also turned more hawkish on the European Central Bank, with German 2-year bund yields rising 32 basis points for the week in the biggest increase since September.

Futures contain 37 basis points for ECB tightening at the May meeting and 82 basis points by October.

This sea change saw the euro gain 0.8% last week, even after its slide on Friday. So far on Monday, the single currency has settled at $1.0985 after hitting a one-year high of $1.1075 last week.

The dollar fared better against the yen as the BoJ remains committed to its ultra-easy monetary policy, at least for the time being. The dollar held steady at 134.13 yen after rising 1.2% last week.

The dollar’s rebound removed some of the luster from gold, which returned to $2,004 an ounce, surpassing last week’s peak above $2,048.

Oil prices enjoyed four consecutive weeks of gains, helped by production cuts, and the West’s energy watchdog said global demand would rise to a record high this year on the back of a rebound in Chinese consumption.

The market was consolidating on Monday, with Brent crude falling 3 cents to $86.28 a barrel, while US crude fell 5 cents to $82.47.

Reporting from Wayne Cole. Editing by Kenneth Maxwell

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