Asia stocks brace for earnings updates, China’s economy

SYDNEY, April 17 (Reuters) – Asian shares traded cautiously on Monday as the U.S. earnings season gets into full swing, while a raft of Chinese data will provide insight into how the world’s second-largest economy is recovering.

Markets have also seen a shift in sentiment on the outlook for US interest rates, with CME futures suggesting an 83% chance the Federal Reserve will hike by a quarter point to 5.0-5.25% in May.

Resilience in core US trade and a jump in inflation expectations reported on Friday have led investors to cut the amount of easing expected later this year to around 55 basis points (bp).

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

“Our baseline is for two more 25bp hikes, and if the data doesn’t start to weaken soon, the market will have to rally for no rate cut in the second half of this year.”

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

The resulting caution sent MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) down 0.3%, while Japan’s Nikkei (.N225) was flat.

EUROSTOXX 50 futures rose 0.3% and FTSE futures 0.2%.

Chinese blue chips (.CSI300) added 0.7% ahead of retail sales, industrial production and gross domestic product data on Tuesday, with analysts suspecting the risk of an upside surprise given recent strength in trade.

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

EYES ON INCOME OUTLOOK

S&P 500 futures rose 0.2%, while Nasdaq futures were flat as investors awaited 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 first-quarter S&P 500 earnings to fall 5.2% from the same period last year, though BofA analyst Savita Subramanian is more concerned about the outlook for 2023.

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

“Demand for consumer goods has already slowed and now we are looking at services,” Subramanian said. “Airlines, hotels and restaurants are feeling pressure from slowing macro, tough comps (comparison periods) and no respite from wage pressures.”

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

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

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

This change saw the euro rise 0.8% last week, even after a fall on Friday. So far on Monday, the common currency was holding 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 remains committed to its super-easy monetary policy, at least for now. That held the dollar at 133.83 yen, after rising 1.2% last week.

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

Oil prices have enjoyed four straight weeks of gains, helped by production cuts and as the West’s energy watchdog said global demand will climb to a record this year on the back of an improvement 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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