Trade Optimism Lifts Chinese Equities, Europe Mixed, Earnings And Outlook Better Than Expected

Trade optimism supports stocks but traders are still wary, the talks could break down at any minute.
Thomas Hughes

Trade Optimism Lifts Chinese Equities, Others In The Region Mixed

The latest round of trade talks has resulted in good news, much better than the market could have hoped. According to information compiled from various sources, Trump and Xi are planning to meet in late February. Trump says he is hopeful a deal can be reached before the March 1st deadline, Xi says important progress has been made and meeting halfway on important issues is key to success.

Mainland Chinese indices jumped on the news, the Shanghai Composite up 1.30%, despite disappointing manufacturing data. The Caixin/Markit PMI reading, a measure of health among China’s smaller and independently run businesses, fell to 48.3 and much more than expected. The reading shows China’s core economy continues to slow under the weight of government reforms and trade tariffs but were shrugged off in favor of trade hopes. Most other major indices in the greater Asian economic zone were flat on the day with gains or losses less than a tenth of a percent.

Markets In Europe Are Mixed On Earnings And Data

European indices were mixed at midday despite growing optimism a trade deal will be struck between US President Donald Trump and Chinese President Xi Jinping. On the earnings front, shares of Electrolux were up nearly 10% in midday trading on Friday. The company reported better than expected revenue and EPS and provided positive forward guidance. The press release predicts an easing of cost-headwinds and improved profitability in coming months.

On the economic front, all-EU CPI was a bit hotter than expected and helped send the euro moving higher versus the dollar. The news, headline CPI at 1.4% and Core at 1.1%, show consumer-level inflation did not slow over the past months and in fact increased at the core level. This news is hawkish for the ECB and bullish for euro so may provide support over the coming months.

Earnings Beat Expectations

Earnings continue to roll in for US corporations. By this point in the season, more than 40% of the S&P 500 has reported and the general result is better than expected. More importantly, the outlook for 2019 is better than expected and likely to continue improving as the earnings season wears on.

On the trade front, investors are hopeful a deal will be struck before the March 1st deadline. It should be understood such a deal is dependent on many factors and the egos of two powerful men so bad news is still a big risk. Regardless, until the talks break down sentiment is on the upswing and helping to support the market.

In economic news, blowout NFP numbers point to continued strength in employment and wages. The number of new jobs totaled 304,000, nearly double the expectation, and wages increased by 3.2%. The news is bullish for labor, the consumer, and the equities markets although futures trading indicated a flat open for the US markets.

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