Asian Stocks Mixed Ahead of U.S. Earnings Reports

Lower earnings expectations don’t necessarily mean stock market weakness. First, earnings for the first quarter may actually come out positive. Companies have been issuing guidance, but there is always the chance that they were a little too conservative. Secondly, weaker earnings do not necessarily correlate with a decline in the stock market.
James Hyerczyk
Asia Pacific Stock Exchange on board, display or monitor

The major Asia/Pacific stock indexes are trading mixed early Friday ahead of the release of Chinese trade data for March and the start of the U.S. first quarter earnings season. The main focus for investors will be the Chinese import numbers. Investors want to know the strength of the Chinese consumer and the strength of consumption. This will help gauge the strength of the economy given the trade dispute with the United States.

At 05:15 GMT, Japan’s Nikkei 225 Index is at 21858.38, up 147.00 or +0.68 percent and Australia’s S&P/ASX 200 Index is at 6244.80, up 46.10 or +0.74 percent.

China’s Shanghai Index is at 3179.21, down 10.75 or -0.34 percent. Hong Kong’s Hang Seng Index is trading 29746.94, down 92.51 or -0.31 percent and South Korea’s KOSPI Index is at 2230.30, up 5.86 or +0.26 percent.

Investors Nervous Ahead of Earnings Season

Investors are a little nervous ahead of the start of quarterly earnings season on Friday. Experts are saying that earnings for the S&P 500 are expected to decline for the first time since the second quarter of 2016. This, despite the index currently sitting just 2% from its all-time high.

“First-quarter earnings for the S&P 500 are projected to decline 2.5% from last year,” according to Refinitiv consensus estimates.

Lower earnings expectations don’t necessarily mean stock market weakness. First, earnings for the first quarter may actually come out positive. Companies have been issuing guidance, but there is always the chance that they were a little too conservative. Secondly, weaker earnings do not necessarily correlate with a decline in the stock market.

Some investors are actually saying that since the news has been telegraphed for some time, they may not have a huge impact on the market because they represent the past, and the markets discount the future.

Investors are also saying that there is a “bull narrative” on Wall Street, and that a bottoming in China and Europe, could actually stabilize markets. Nick Raich from Earnings Scout said, “The markets have gone from pricing in negative growth in the first half to rapidly reaccelerating growth in the fourth quarter and the beginning of 2020.”

Raich also added, “You’ll hear about a slower Europe, but the key is stabilization in China. China got a lot of stimulus. China stocks are up almost 30 percent this year. If you can stop some of that bleeding, that will go a long way toward stopping the declining earnings.”

U.S.-China Trade Deal Remains at Forefront

Investors remained optimistic that a deal to end the trade dispute between the United State and China was imminent.

“We are hopeful we can do this quickly, but we are not going to set an arbitrary deadline,” Mnuchin said. “If we can complete this agreement, this will be the most significant changes to the economic relationship between the U.S. and China in really the last 40 years.”

Mnuchin’s comments came after the Wall Street Journal reported that China agreed to open its cloud-computing sector to foreign companies in an attempt to sweeten a deal with the U.S.

Furthermore, earlier in the week, Mnuchin told CNBC that Washington and Beijing have “pretty much agreed on an enforcement mechanism” for when the deal is struck.

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