Earnings eclipse trade concerns for now
Although frayed round the edges, slightly higher than forecast headline growth readings from China’s data dump was an adequate early pretext for global shares to extend gains. China’s surprise move in the early afternoon to cut the reserve ratio required for most commercial lenders was too limited and verbally nuanced (RRR will remain "relatively high" it said) to set serious cats amongst the pigeons. The timing invited speculation that a worsening trade outlook played a part in the PBOC’s rationale but risk-facing assets did not appear to reflect that view getting much traction. Goldman Sachs earnings helped keep sentiment aloft. It comfortably beat income and revenue forecasts and made better use of recent market volatility than rivals, posting a surprise 23% rise in net trading revenues from bonds, FX and commodity client execution. One caution is that recent reports from other U.S. megabanks have only temporarily lifted their shares, with investors continuing to interpret solid results as already priced by their 'Trump Trade rises'.
Goldman’s volatility win
Still, Goldman results tighten the focus for the week on key corporate earnings due on both sides of the Atlantic. Sentiment was also given a shot in the arm from a better than forecast surge of new Netflix subscribers. This propelled the stock 7% higher overnight as investors signalled a continued sanguine attitude to huge cash burn predicated on continued streaming dominance. With U.S. stock markets set to continue leading global shares as volatility normalises further, the last of the big laggard markets have also found firmer footing. That includes the FTSE’s dollar-sensitive exporters, helped by further signs that sterling’s winning streak is ebbing. The failure of average UK weekly earnings to keep up an increasingly tenuous pace over three months to end-February helped trim pound momentum, enabling the benchmark index to return to the black.
Trade matters remain the main potential stumbling block for global shares' attempts to regain January peaks. Trade conflict was tagged by Germany’s ZEW institute after a slip in its latest survey; coinciding with a cap of the day’s DAX rise. Chinese indices fared even worse, albeit their one percentage point plus falls were exacerbated by a surprise moderation of industrial output. Even so, the bigger weight on stocks there was the flurry of near-consecutive developments in the U.S.-China trade conflict. The U.S. commerce department’s curiously timed (though officially unrelated) sanctions on telecom ZTE were swiftly followed by reports of new surcharges on U.S. shipments of sorghum grain. China’s commerce department said it would charge a 179% fee on the market which is worth almost $1bn last year. That’s a drop in the trade ocean, but it may be akin to a drop of blood in the water for key White House protagonists.
Earnings take the spotlight
Twitter might well be the first medium in which we hear of any further escalation, implying that new higher baselines in volatility measures are unlikely to be crossed on the downside anytime soon. (For instance the VIX has largely settled above 15 in recent weeks and was last around 16). That said, the release schedule for the week’s most market-sensitive economic data has already peaked. True, Wednesday’s UK inflation series may offer another window for investors to toggle sterling/FTSE; Friday’s Canadian CPI could trigger another mini-down leg for the dollar should the pace increase to 2.4% on the year for March from February’s 2.2%. But S&P 500 companies are forecast to report their best Q1 profit rise for seven years, up 18.6% on average. If that forecast is met concerns on trade can be expected to fade, at least for a while.