Earnings Season and China’s Recovery in Focus for Asian Stocks

Asian stocks traded carefully on Monday as investors awaited US earnings season, and a variety of Chinese data was set to be released, giving an insight into how the world’s second-largest economy is recovering. With CME futures suggesting an 83% chance of a quarter point hike by the Federal Reserve to 5.0-5.25% in May, markets have seen a change in the outlook for US interest rates.

A rise in inflation expectations and resilience in core US retail sales reported last week has led investors to reduce the amount of easing anticipated later this year to around 55 basis points (bp).

The resulting caution was seen in MSCI’s broadest index of Asia-Pacific shares outside Japan, which eased 0.3%, while Japan’s Nikkei remained flat.

Eurostoxx 50 futures rose by 0.3% while FTSE futures increased by 0.2%. In the meantime, Chinese blue-chip stocks surged by 0.7% before the release of key data on Tuesday, including retail sales, industrial output, and gross domestic product, which analysts believe could exceed expectations due to the strong trade performance.

Recent data reveals that new home prices have risen at the quickest pace in 21 months, which has helped to boost consumer demand and confidence.

Investors await earnings reports from major companies such as Goldman Sachs, Morgan Stanley, and Bank of America as the S&P 500 futures edge up by 0.2%, while Nasdaq futures remain flat. Analysts predict that S&P 500 earnings for Q1 may fall by 5.2% compared to the previous year, with concerns for the 2023 outlook.

The Bank of America warns of cuts for the full year due to a slowdown in demand for consumer goods and services. In the bond markets, the shift in Fed expectations has caused US two-year yields to rise to 4.12%, while German two-year yields have surged by 32 basis points for the biggest increase since September.

The European Central Bank (ECB) has also become more hawkish, with futures pricing in 37 basis points of ECB tightening for the May meeting and 82 basis points by October. As a result, the euro has gained 0.8% and is holding at $1.0980.

The dollar has remained at 133.83 yen, and gold has fallen to $2,004 an ounce from last week’s peak above $2,048. However, oil prices have enjoyed four straight weeks of gains due to output cuts and a predicted increase in global demand for energy.

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