Will US company results neutralise ‘earnings recession’ fears?
An “earnings recession” could be looming for the US stock market. Analysts estimate that earnings for companies in the S&P 500 index of blue-chip stocks contracted 4.6 per cent in the first three months of the year, and they forecast that they will shrink another 0.4 per cent in the second quarter. If these estimates prove true it would technically constitute what some analysts term an earnings recession.
However, the initial spate of first-quarter results from US companies indicate that these fears may not come to pass. The large US banks that typically lead earnings season have outperformed estimates. JPMorgan even delivered the best quarterly profit on record for a US bank, hauling $9.1bn in profits, comfortably beating Wall Street’s predictions.
Jonathan Golub, chief US equity strategist for Credit Suisse said the convention of companies downplaying anticipated results to soften analyst estimates before comfortably beating them further reduces the likelihood of an earnings recession. “Assuming historical heads, earnings per share should actually expand 2.5 per cent in the first quarter,” Mr Golub said.
Given the strong stock market recovery of 2019, a scenario where corporate earnings remain robust would constitute a major fillip to investors. But if the coming week of results disappoint, then markets could prove vulnerable to a setback. Richard Henderson
What does hotpot stock say about Chinese stimulus measures?
When looking for a standout success story in Chinese retail, you could do worse than Haidilao Hotpot, a Chinese restaurant group, whose stock is up 68 per cent since its October float in Hong Kong.
The rise is not just down to the restaurant’s mouth-watering morsels. Chinese retail more broadly is experiencing an uplift, with the Hang Seng Consumer Goods & Services Index rising 23 per cent this year so far. The reason why has a lot to do with Beijing’s latest raft of measures to stimulate the economy.
Previous rounds of stimulus in 2008 and 2015 were focused on China’s old-growth, state-owned enterprises and infrastructure projects. This time Beijing has won praise for focusing much more on the private sector with measures like a Rmb2tn (almost $300bn) in value added tax cut to help corporations and smaller businesses cut costs and invest more.
The goal is to boost consumption, which now accounts for more than half of gross domestic product. Ben Luk, senior multi-asset strategist for global markets at State Street, said that was good news for stocks that were consumer and technology orientated — “all things geared toward the domestic demand story”.
The downside for the rest of Asia, Mr Luk said, is less stimulus will spill over to industries in other countries linked to Chinese infrastructure spending and real estate, which got a boost from earlier stimulus packages. The likes of Korean shipbuilders and Australian iron ore miners, for instance, will have to look elsewhere for a pick-me-up.
But for Haidilao and other consumer-focused companies, the stimulus means more Chinese consumers with pocketbooks thick enough to feel comfortable dining out, rather than fretting over every cent spent. Hudson Lockett
Can oily currencies keep on rising?
A rebound in oil prices has provided a boost to currencies of commodity-exporting countries, with the Russian rouble notching up more than 8 per cent gains against the dollar so far this year. The Canadian dollar and the Norwegian krone have been relative laggards despite a 43 per cent rise in oil prices this year.
The underperformance of the krone, which has so far picked up only 1.4 per cent against the dollar and 3 per cent against the euro, makes the Nordic currency the most likely to benefit from further strength in oil. The krone is also set to benefit from the Norwegian’s central bank’s hawkish stance, as policymakers raised rates at their March meeting to 1 per cent and said that another rise in the second part of the year is still pencilled in.
“[The Norges Bank is] one of few hawkish central bank stories we can talk about in the G10,” said Jordan Rochester, an FX strategist at Nomura. “It’s an oil play, we can’t deny that, but at least has central bank pricing to support it too.”
The Canadian dollar also appears to be heading for further gains, albeit potentially more modest than the krone as it lacks the support from a hawkish central bank. The Bank of Canada is teetering on the edge of cutting its key rate of 1.75 per cent in the coming months with the next meeting scheduled for April 24.
“Overall, we judge that there is potentially more catch-up strength ahead for the Canadian dollar and Norwegian krone from the higher price of oil,” said Lee Hardman, a currency analyst at Japanese bank MUFG. Eva Szalay
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