SYDNEY, April 17 (Reuters) – Asian shares traded cautiously on Monday as the U.S. earnings season gets into full swing this week, while a batch of Chinese data will provide insight into how the world’s second-largest economy is recovering.
Markets saw a mood swing on the outlook for US interest rates, with CME futures indicating an 81% chance the Federal Reserve will hike a quarter point to 5.0-5.25% in May.
A slowdown in core U.S. retail sales and a jump in inflation expectations reported on Friday led investors to cut the level of easing expected later this year to about 55 basis points (bps).
“Data on the labor market, inflation and consumption in early April all suggest the central bank has more work to do and a soft or flat landing is more likely than a sharp and relatively sudden contraction in activity,” analysts at ANZ said in a note. .
“Our baseline scenario is for two more 25 bp hikes, unless the data starts to weaken soon, and the market will have to pay for any rate cuts in the second half of the year.”
At least eight Fed officials, including three governors, are speaking this week and could make plenty of headlines to move the dial further.
The resulting warning sent MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) down 0.2%, while Japan’s Nikkei (.N225) fell.
EUROSTOXX 50 futures and FTSE futures both rose 0.2%.
Chinese blue chips ( .CSI300 ) added 1.0% on Tuesday ahead of data ahead of retail sales, industrial production and gross domestic product, where analysts suspect risks to the upside given recent strength in trade.
Figures at the weekend showed new home prices rose the fastest in 21 months, supporting consumer demand and confidence.
Eyes on Earnings Outlook
S&P 500 futures rose 0.2%, while Nasdaq futures were flat as investors awaited 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 ).
While BofA analyst Savita Subramanian is more bullish on the outlook for 2023, analysts expect Q1 S&P 500 earnings to fall 5.2% from a year earlier.
“Overall, we expect an in-line quarter, but larger cuts for the full year,” BofA warned. “Our 2023 EPS estimate for the S&P 500 is $200, still 9% below consensus estimates.”
“Demand for consumer goods has already softened and now we are looking at services,” Subramanian said. “Airlines, hotels and restaurants are feeling the pressure due to macro, tough comps (comparison periods) and no respite from wage pressure.”
In bond markets, a shift in Fed expectations lifted U.S. two-year yields to 4.12%, up 12 basis points last week.
Nevertheless, the European Central Bank’s (ECB) outlook has turned bleak, sending Germany’s two-year yield up 32 basis points in the week to its biggest increase since September.
ECB futures are a tight 37 basis points for the May meeting and 82 basis points for the October meeting.
That sea change saw the euro gain 0.8% last week, even after a slide on Friday. As of Monday, the single currency was trading at a one-year high of $1.0985, up from $1.1075 last week.
The dollar outperformed the yen as the Bank of Japan remained committed to its ultra-easy monetary policy, at least for now. It held the dollar at 134.13 yen, after gaining 1.2% last week.
The dollar’s bounce took some of the shine off gold, which traded at $2,004 an ounce, above last week’s peak of $2,048.
Oil prices have enjoyed four straight weeks of gains, helped by output cuts and as the West’s energy watchdog said global demand could rise to a record this year on the back of a recovery in Chinese consumption.
The market was down 3 cents at $86.28 a barrel on Monday, while U.S. crude was down 5 cents at $82.47.
Reporting by Wayne Cole; Editing by Kenneth Maxwell
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