(Reuters) First-quarter profits are pouring in from HSBC and Volvo in Europe to Apple (NASDAQ: AAPL) and McDonald’s on Wall Street. However, will they provide a boost to floundering stock markets?
Marine Le Pen becoming the president in France seemed improbable. In January, it seemed impossible that Russia would default on its national debt. However, that may soon happen.
Some of the people who cover the markets this week say what they think will happen this week. Kevin Buckland in Tokyo, Saqib Ahmed in New York, Danilo Masoni in Milan, Dhara Ranasinghe, and Karin Stroehecker in London are some of them.
1/ VIVA LA FRANCE
Unlike in 2017, investors did not have to worry about the French presidential elections resulting in “Frexit” this year. They also have no reason to fear that far-right contender Marine Le Pen will win Sunday’s runoff vote if opinion surveys are correct.
Emmanuel Macron, who has managed the euro zone’s second-largest economy for five years, led Le Pen by 12 points and emerged as the stronger candidate during a pivotal television discussion.
French bond yield premiums over top-rated Germany have stayed the same, and the euro hasn’t changed, despite Le Pen’s call in 2017 to break away from the single currency.
Nonetheless, a Le Pen president, which would precipitate a constitutional crisis, is closer than it has ever been. Even if he wins, Macron would have a hard time getting enough votes in June’s parliamentary election.
As a result, the true test for markets may still to come. Additionally, history demonstrates that opinion surveys may be inaccurate in predicting election results.
French bond spreads are narrower than they were before to the 2017 election (https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoykeovr/FRANCE2104.PNG).
2/THE REAL DOVE
The Bank of Japan has left no mistake about its commitment to accelerated stimulus ahead of Thursday’s policy meeting, jumping into markets to protect its 0% bond yield goal – even at the risk of a sinking yen.
The divergence between the BOJ and the hawkish Federal Reserve lies at the core of the yen’s two-decade-long slide to a two-decade low at 130 per dollar.
The yen’s 11% decline in a month has sparked cautions from Finance Minister Shunichi Suzuki against excessive depreciation, alerting markets to the possibility of intervention. However, the governor of the BOJ, Haruhiko Kuroda, says that Japan is better off when the yen goes down in general.
The IMF seems to concur. In the words of a senior official, yen movements were caused by the fundamentals and the BOJ’s ultra-low interest rate stance did not need to change.
The dollar-yen pair is seeking higher US interest rates (https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnygjxvq/Pasted%20image%201650521218750.png).
3/DIFFICULTY IN TECHNICAL APPLICATION
It’s been a bleak year for US equities and technology industries so far, and the current earnings season might make matters worse.
Netflix’s (NASDAQ:NFLX) share price decline on the announcement of declining subscriber numbers has caused concern about impending earnings from Meta, the parent company of Facebook, and Alphabet, the parent company of Google (NASDAQ:GOOGL). Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL).
This so-called FAANG cluster reaped enormous benefits from the low-wage, work-from-home atmosphere. However, as interest rates climb, their stocks have together lost around $2.5 trillion in market value this year.
Earnings growth for the S&P 500 as a whole is expected to speed up to 6.3% this year.However, Apple’s quarterly adjusted profits per share are predicted to climb by only 2% year over year, while Alphabet’s earnings per share are expected to decline by 0.7 percent. And Amazon and Meta might see EPS reductions of up to 49% and 24%, respectively, according to Refinitiv statistics.
The FAANG stocks aren’t biting (https://graphics.reuters.com/USA-STOCKS/gdvzyayaepw/chart.png).
Earnings and inflation for Europe, Inc.
As the Ukraine crisis continues, European corporations’ full-year profit estimates have gone negative for the first time since October 2020.
Refinitiv estimates that Q1 profit growth will remain at around 25%, which may be sufficient to boost a bearishly positioned market. Yet, with over 140 firms reporting profits over the week of April 25–29, there are concerns about cost pressures and their ability to be passed on to consumers.
Nestle and Danone made more money in the first quarter even though they raised prices. Smaller competitors may not be able to compete.
Leading banks such as UBS, Deutsche, HSBC, and Barclays (LON: BARC) also reported that after a dismal first quarter, the possibility of increased interest rates is now helping the industry.
Europe Earnings (https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnynyqpq/European%20earnings.PNG)
5/OLD JOB, NEW TROUBLES
Elvira Nabiullina, the Russian central bank governor, begins her new five-year tenure in control of monetary policy with a lengthy to-do list: resolve a full-fledged crisis precipitated by unprecedented and ever-expanding Western sanctions.
The economy is set to decline at its fastest pace since the years after the collapse of the Soviet Union in 1991, Russia is on the verge of defaulting on its debt, and annual inflation has surpassed 20%.
Nonetheless, Nabiullina is expected to decrease interest rates on Friday, potentially by 200 basis points from their current level of 17%. Part of the central bank’s decision to raise interest rates in response to the Kremlin’s February 24 attack on Ukraine would be reversed with this move.
People who set the interest rate are also likely to talk about the possibility of removing capital constraints and the need for some banks to be refinanced.
Russia’s inflation (https://fingfx.thomsonreuters.com/gfx/mkt/zgvomlbqnvd/Pasted%20image%201650568920953.png).
