23 April 2019 Issue 805
Global Market Commentary
- US: The US companies’s quarterly performance were better than expected, and the patent litigation between Qualcomm and Apple have reached a settlement, which boosted the US stocks market. For the entire week, the Dow rose by 0.56% to 26,559.54. The S&P 500 index fell by 0.08% to close at 2,905.03. The Nasdaq rose by 0.17% to 7,998.06.
- Europe: The service industry purchasing managers’ index data released last week helped ease the market’s concerns about the economic slowdown. For the whole week, the UK’s FTSE 100 index rose by 0.31%, the German DAX index rose by 1.85%, and the French CAC40 index rose by 1.41%. The STOXX 600 index rose by 0.76% to 390.46 points.
- Asia: The economic data of China is better than expected, boosting the Asian stock markets. Over the week, the Nikkei 225 index rose by 1.51% to 22,200.56 points. The MSCI Asia Pacific Index rose by 0.44% to 163.07.
- US: As the risk of the US economic recession is getting higher, investors turn to the risk-averse market. For the whole week, the US 10-year bond yield fell by 1 basis point to 2.574%.
- Europe: The manufacturing PMI of the Eurozone, France and Germany were all worse than the market expectations, investors turn to the risk-averse market. For the whole week, the German 10-year bond yield fell by 3 basis points to 0.023%.
- Oil: The United States announced that it would stop exempting the Iranian oil sanctions order, triggering market concerns about crude oil supply. Over the week, New York oil futures rose by 0.08% to close at $64.07 a barrel.
- US dollar: Europe’s poor economic data pushed up the US dollar. For the entire week, the Dollar Index rose by 0.419% to 97.378.
- China: China’s economic data is better than expected, and the progress of Sino-US trade negotiations are good. For the whole week, the yuan rose by 0.072% against the US dollar at 6.705.
- US: The Trump administration said it will not extend its sanctions exemption for Iranian oil purchases from some countries, such as China, after its expiration in May. Saudi Arabia and its allies will ensure adequate supply in the global oil market.
- U.S: Pelosi, Speaker of the United States House of Representatives, refused the Democratic Party’s request of impeaching Trump. She said that impeachment was not the only way for Trump to take responsibility.
- U.S: Trump gave up to nominate Herman Cain as a member of the Federal Reserve Board. Senator Democrat Schumer said that Senate Republicans should force Stephen Moore to give up thinking about becoming a Fed nominee.
- Euro-zone: According to the Financial Times, Barclays plans to cut investment banking bonuses, with an aim to lower costs and increase returns.
- Euro-zone: The Italian Statistical Office announced that Italy’s consumer confidence index unexpectedly fell for the third consecutive months in April, decreased from the previous value of 111.2 to 110.5, lower than the market expectations of 111.3.
- Euro-zone: The British Bureau of Statistics announced that after seasonal adjustments, the UK retail sales unexpectedly rose for the third consecutive months in March, and the monthly growth was accelerated from 0.6% to 1.1%, which was higher than the market expectations of 0.3% drop.
- Japan: Japan’s Ministry of Internal Affairs and Communications announced that Japan’s consumer price index (CPI) in March accelerated from a 0.2% increase to 0.5% increase, which was similar with the market expectations.
- South Korea: According to the data of South Korea’s central bank, the South Korea’s producer price index (PPI) rose by 0.3% in March, and rose by 0.1% year-on-year from the previous value of 0.2% decrease.
|China Market Commentary|
|• Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said at a forum that it is necessary to increase the policy support in promoting the qualified futures companies to list as A-shares, and actively promote the establishment of foreign-controlled futures companies.
• The Ministry of Commerce announced that the actual use of foreign capital in March was 95.17 billion yuan, an increase of 8% year-on-year. In the first quarter, 9,616 new foreign-invested enterprises were established nationwide, and the actual use of foreign capital was 242.28 billion yuan, an increase of 6.5% year-on-year.
Earnings is the compass of Wall Street bull run
The optimism of trade talk between US and China has helped US stocks touch to new highs, but this year’s earnings may be the key factors whether the bull market further rose.
According to Refinitiv, Q1 earnings are expected to fall 2.5% YoY. However, the growth in Q2 and Q3 will register tepid growth. And the consensus estimates earnings will rebound in Q4, by rising 8.9%.
S&P 500 companies face tough comparisons with last year, when the tax code overhaul helped boost profits by more than 20%. Investors believe that with low expectation, companies can surprise to beat in their quarterly earnings. Even if the Q1 result decline, the outlooks could lift stocks at the end of the year.
Trade deal can play role in earnings
An agreement between US and China may provide only a limited boost to equities, because many investors believe current market price has been priced in the effect. But the deal can play an important role in earnings outlook for the rest of the year.
Trade deal can release the concern about global economy recession. The US multinationals can recover along with China economic stable growth. Meanwhile, in the technology, there will be significant recovery for the companies’ earnings. Demand for chips will rebound as two countries relationship improved. With the healthy relationship and stimulus in China policies, earnings growth can firm and drive the market higher.
Risk from corporation margin
US companies’ earnings will report a decline in profit even after raking in higher revenues, which has not happened in more than a decade. Analysts see profit margins will shrink 1.1% YoY in Q1, first decline in at least two years. US companies are facing rising input costs from tariffs, labour and foreign exchange.
Cost for some raw materials such as aluminium have increase as US impose tariffs on imports from China and other countries. The rallying dollar will likely be a negative for US multinational companies. The US dollar trade weighted index rose 6.2% YoY in the quarter, which is the strongest performance on a YoY after Q4 of 2015. Others, higher wages and labour costs were also cited on the earnings calls as factor that had a negative impact on earnings in Q1 or are expected to have a negative impact on earnings in future quarters.
First quarter earnings seem to be crucial for market next step movement. Investor should focus on the breadth and consistency top-line growth, also margin trend in the future.