Strong earnings underpin equities - but only in the US

Christin Tuxen Danske Bank A/S

Market movers today

Today, the April German Ifo data will give us the first indications of where German Q2 GDP growth is headed - indeed the Ifo is typically a more reliable leading indicator of GDP than the PMIs. In contrast to the weak data points from manufacturing PMIs, the German Ifo showed its first rebound in March since August 2018. Will that be confirmed this month?
Bank of Canada is widely expected to leave policy rates unchanged at today's monetary policy meeting. Consequently focus will be on the central bank's new monetary policy report, rhetoric and not least any signals on the possibility of rate cuts amid markets now pricing roughly a 2/3 probability of a rate cut over the coming 12M. We don't think BoC will deliver much to the doves today. Given the rise in oil prices, the positive inflation surprises and recent strong labour market reports we think BoC will re-iterate its 'on hold' and data dependency stance, and even maintain its modest tightening bias.
Tomorrow morning the BoJ is due to wrap up its two-day policy meeting. We expect the BoJ to keep its 'QQE with yield curve control' policy unchanged and we expect it to move steadily forward with the current policy for the near future. Regarding the updated inflation and growth forecasts, we expect the BoJ to keep its projections largely unchanged. A related question is whether the BoJ expects that it can meet its target within the next two to three years.
No major Scandi events scheduled for today.

Selected market news

Following healthy gains in US equities, risk sentiment was dented in the Asian session which lacked the earnings support the US enjoyed. Yesterday a stream of strong corporate earnings reports came out with notably Twitter beating revenue estimates, leaving its stock up more than 15% on the day; Hasbro and Coco-Cola also published strong earnings and helped underpin sentiment. Around 80% of companies included in S&P500 have so far reported better than expected results in this reporting round, supporting sentiment despite continuous weak US data. The S&P500 closed at a record high, i.e. above the 2933 mark. Separately, weak Australian inflation overnight weighed on AUD. Oil prices continue to linger at year-highs with Brent steadily around the USD74/bbl mark. The USD index strengthened even as Fed pricing shifted in a more dovish direction. US 10 treasury yields under pressure eyeing the 2.55% level again.

Meanwhile, trade talks are due to resume next Tuesday when according to the White House US negotiators Lighthizer and Mnuchin go to Beijing next week. Reportedly the aim is to reach a draft deal by May. Further, China's vice premier Liu is set to go to Washington for talks early May. Hence, the US and China are seemingly targeting to land a trade deal by the end of May. A key outstanding issue seems to be the enforcement mechanism of the deal contents. For our expectations for a trade deal and possible market impact, see Global Research - What a US-China trade deal will bring to the markets .

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Christin Tuxen

Danske Bank A/S

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