Goldman Sachs (NYSE:GS) took the heat out of Wall Street overnight reporting a 20% slump in Q1 earnings. Fellow financial heavyweight, Citigroup (NYSE:C), also produced an “is that it” moment as well, reporting flat revenues for the quarter. Although the S&P 500 is within shouting distance of record highs, the air has been let out of its tires today with a 0.06% drop. The NASDAQ also dropped 0.10%, while the Dow Jones was down 0.11%.
The JP Morgan (NYSE:JPM) afterglow has been quickly forgotten, but with earnings season really just getting underway, we can expect this sort of flip-flop in sentiment as market heavyweights report daily. Two things that do appear to be true though are that a lot of money is sitting on the sidelines awaiting a clearer picture of the U.S. and global economies, and a lot of monetary policy and global recovery is now baked into the prices of equities globally – China and the U.S. being the standouts. You can quite reasonably add emerging market FX, commodities and energy into that mix as well.
The data from both China and the U.S. has been consistently upbeat of late, suggesting things may not get as bad as the doomsayers are proclaiming. That said, without sounding like a broken record, a resolution of the U.S.-China trade issues must occur before a more complete picture of what 2019 holds for the global economy can be built. Europe and Japan will almost certainly receive the same treatment from President Trump once China is resolved, but right now, U.S.-China talks remain the only game in town.
The Reserve Bank of Australia minutes at 0930 Singapore time will be the day’s highlight in Asia ahead of German ZEW data this afternoon and then U.S. Industrial Production this evening. China’s House Price Index at 0930 could provide some short-term volatility should prices rise much less than the previous month's 10.40%, but official China data rarely surprises these days.
Equities
Regional stock markets were a mixed bag yesterday with the Japan Topix rising over 1%. The China CSI 300 and the Hong Kong Hang Seng both started brightly but gave up their gains to finish slightly in the red. Two things should be noted though: China and Hong Kong equities have been the primary beneficiaries of the Q1 global reflation trade, and neither could sustain gains yesterday despite a positive session from Wall Street on Friday.
The local Asian stock markets should start the day cautiously, likely sitting on the sidelines following an inconclusive Wall Street session. More probable, price action will be dictated by the performance of mainland China’s markets today.
FX
The currency markets have gone back into hibernation mode as the Goldman Sachs result nipped the rotation out of dollar trades in the bud. Ahead of Indonesia’s elections tomorrow – and with the first two days of U.S. reporting season giving an ambiguous result – the currency markets will happily stay in wait-and-see mode.
Oil
Oil continues to tread water near its recent highs with Brent Crude falling 0.40% to USD71.25 a barrel and WTI falling 0.60% to USD63.50 a barrel. With both contracts hugely overbought on a technical basis, and with so much good news pumped into prices at these levels, momentum continues to wane. The risk of a correction lower will increase unless the energy markets get a fill-up, and soon.
Gold
Gold remains trapped in a twilight zone around USD1,290.00 an ounce, unable to rally as both the dollar and bond yields remain firm. The USD1,280.00 region remains the critical support region for the yellow metal.