Date: April 8, 2019
United States:
‘Moment of Truth’ Arrives for U.S. Stocks After Fed-Fueled Rally
It’s “gut check” time for U.S. equity investors as the pivot from a Fed-fueled rally back to the foggy fundamentals looms, according to Morgan Stanley. “The moment of truth may be arriving with first-quarter earnings results,’’ Michael Wilson, the bank’s chief U.S. equity strategist, wrote in a note Monday. He said that this year’s stock rally can be entirely attributed to investors pushing up company valuations amid the U.S. central bank’s dovish turn, and the profit reports could mark a turning point. The reporting season begins in earnest with JPMorgan Chase & Co. and Wells Fargo & Co. on Friday. Corporate executives might find themselves in a difficult position. While reporting an expected 4 percent drop in earnings per share from a year earlier, they’ll have to either convince investors that the worst performance is in the rear-view mirror or temper expectations for a second-half — and in particular, fourth-quarter — comeback. Tech is projected to be the largest drag on first-quarter results; without the sector, the shrinkage in profits is a more modest 2.8 percent. It’s unclear which would be preferable to investors: higher conviction in the outlook or a lowered, but more realistic, bar for future quarters, Wilson wrote. Indeed, half of the past four reporting periods have seen investors relatively unmoved by strong showings, with concern about the potential for a deceleration in economic activity rising to the fore.
Europe:
ECB Is Said to Respond Only Slowly on Negative Rate Review
European Central Bank policy makers are in no rush to revamp their negative interest-rate policy despite Mario Draghi’s suggestion to look at the matter. With two days to go before the institution’s April decision, the president’s call to “reflect” on softening the impact on banks has spurred limited action aside from a public debate. ECB committees, whose work is often the basis for formal policy proposals, didn’t discuss the matter in the week or so since his speech, according to people with knowledge of the matter. Euro-area bank stocks extended their decline on the news. The Euro Stoxx Banks index was down 0.8 percent as of 1:27 p.m. Frankfurt time. The Governing Council may also need time to develop more of a consensus. Some officials are still convinced that the benefits of a deposit rate below zero outweigh the drawbacks and see no need to redesign the policy, said the people, who asked not to be identified. While the effects of sub-zero rates have long featured in Governing Council debates, Draghi’s comment took several policy makers by surprise, and speculation that a measure might be imminent left some irritated, according to the people. Among their concerns is that an alternative that exempted some funds from the policy would challenge the ECB’s guidance by signaling that interest rates could stay low for much longer than currently indicated or even be cut. An ECB spokesman declined to comment on the ECB’s discussions on monetary policy.
Asia:
China’s FX Reserves Continue Moderate Gains on Valuation Effects
China’s foreign-currency holdings rose for a fifth month as lower government bond yields in developed markets lifted valuations. Reserves increased by $8.58 billion to $3.0988 trillion in March, the People’s Bank of China said Sunday. The reading compares with $3.09 trillion from the previous month and the median estimate of $3.09 trillion in a Bloomberg survey of economists.“Rising prices of developed markets’ government bonds likely contributed to some positive valuation effect,” although weaker foreign currencies caused some loss to the value, according to Wang Tao, chief China economist at UBS Group AG. in Hong Kong. The stockpile increased on price gains of financial assets in March, the State Administration of Foreign Exchange said in a statement, adding the holdings will likely remain stable due to higher flexibility of the yuan and reasonable economic growth. The price of government bonds in major economies may rise further amid a worsening global economic outlook and dovish monetary policy