Asia shares anxious for earnings season, US data deluge

Asian shares faltered on Monday as anxious investors wait to see if US earnings can justify sky-high valuations, while a rally in bonds could be tested by what should be very strong readings for US inflation and retail sales this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was off 1.1 per cent in slow trade. Tokyo’s Nikkei edged down 0.6 per cent, while South Korean stocks were near flat. The Nifty 50 index slid 2.4 per cent as India overtook Brazil to become the country with the second most COVID-19 cases.

Chinese blue chips lost 1.5 per cent ahead of a rush of economic figures from the country. Shares in Alibaba Group Holding Ltd rose 16 per cent after China slapped a record 18 billion yuan ($2.75 billion) fine on the e-commerce giant. Over a third of the stock is held by US investors, and it makes up more than 8 per cent of the MSCI EM index.

“Ever since the Ant IPO was cancelled and with the antitrust laws in the pipeline, the market has expected that Alibaba would pay a price,” said Louis Tse, managing director at Wealthy Securities in Hong Kong. “I think it’s good for the share price now that the news has been delivered and it is cleared up at last.”

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Nasdaq futures slipped 0.3 per cent on Monday, as did S&P 500 futures. EUROSTOXX 50 futures dithered either side of flat, while FTSE futures were down 0.3 per cent. Growth and tech stocks had seen something of a revival last week as US 10-year Treasury yields retreated to 1.66 per cent , from a 14-month top of 1.776 per cent.

Thomas Mathews, a markets economist at Capital Economics, doubted the rally in bonds would last, however.

“Given the pace of the economic recovery and the Fed?s apparent unwillingness to stand in the way of higher yields, we think long-term yields will rise again before long,” he said.

Over the weekend, Federal Reserve Chair Jerome Powell said the economy was about to start growing much more quickly, though the coronavirus remained a threat. Data out this week are expected to show US. inflation jumped in March, while retail sales is seen surging perhaps even with a double-digit gain. Treasury is also set to test demand with offers of $100 billion in debt this week.

“Rapid economic growth, supported by reopening and accommodative fiscal policy, may disproportionately benefit the sectors of the stock market that are more sensitive to the health of the economy,” said Mathews at Capital. “And the composition of that growth is likely to be more skewed towards those sectors than it might have been during a typical economic expansion.”

It is also likely to show in profits. The banks kick off first-quarter earnings season this week with Goldman Sachs , JPMorgan and Wells Fargo scheduled to report on Wednesday. Analysts expect profits for S&P 500 firms to show a 25 per cent jump from a year earlier, according to Refinitiv IBES data. That would be the strongest performance for the quarter since 2018. The pullback in yields was enough to see the dollar come off the boil last week. It was last trading at 92.265 against a basket of currencies, down from a peak of 93.439. It was flat on the yen at 109.60, and short of its March peak of 110.96.

The euro was holding at $1.1889 and above its recent trough of $1.1702. Gold prices were idling at $1,737 an ounce, having failed to sustain a top of $1,758 last week.

Oil prices fell around 2 per cent last week as production increases and renewed COVID-19 lockdowns in some countries offset optimism about a recovery in fuel demand. Brent was quoted up 3 cents on Monday at $62.98 a barrel, while U.S. crude was flat at $59.32. - Reuters