US Q2 corporate earnings’ reports should buoy equities
(by Peter Rosenstreich)
As corporate earnings reports of US companies for 2017’s second quarter start to roll in this week, we expect they will show better returns than other asset classes, thus keeping a floor under stock prices for the time being. While earnings from energy, material and technology sectors are expected to slow, the overall result should be satisfactory to investors. As trading slows down for the summer, earnings results will provide direction for the next few months.
Meanwhile, the US Federal Reserve has signalled that it will continue to raise interest rates and the European Central Bank will in time follow the Fed’s lead. This, we believe, will eventually lead to a sizable equity correction – but we are not at that point yet. Recent data shows outflows from European and US equities and reduced inflows to emerging market stocks, all of which are classic signals of a risk correction.
Economic data from Europe, US and China continue to support corporate earnings. Global trade data remains positive. Outlook for inflation in the US and European is uncertain. So, although the era of ultra-loose monetary policy is not yet over, its days appear to be numbered.
Yen will weaken, as USA hikes interest rates and Japanese economy softens
(by Yann Quelenn)
As the US Federal Reserve signals the end of zero-interest-rates, and the interest rate spread between 10-year government bonds from the US and Japan widens, the JPY is expected to fall against the USD from its recent 12-month highs. This is good news for the Bank of Japan, which for years has been battling deflation, and is likely to capitalise on a softening yen to help reignite inflation.
Also dragging the yen down is a slowing in the Japanese economy. This morning marked the publication of Japan’s machinery orders for May 2017. They were down 3.6% from April, which in turn had fallen 3.1% from March levels.
USD listless ahead of June-inflation release this Friday
(by Arnaud Masset)
The greenback barely moved in response to last Friday’s report of strong US employment growth in June. On Friday the USD rose 0.22% against the Japanese yen and 0.12% against the Canadian dollar. The dollar is expected to keep moving sideways at least until the coming Friday the 14th, when US inflation figures for June 2017 will be released.
Nonfarm payroll employment increased by 222,000 jobs in June, and unemployment was almost unchanged at 4.4%, reported the US Bureau of Labor Statistics. The jobs gain was a solid jump above May’s increase of 152,000. However, a lack of consistent wage pressure scaled down the market’s optimism. Average hourly earnings in June grew less than expected at 2.5% year-on-year, after a downwardly-revised fall of 2.4% in May. Indeed, the solid pace of hiring is failing to translate into higher nominal wages for Americans.
June’s inflation is expected to have eased to 1.7% yoy from 1.9% in May, thanks mainly to falling energy prices. Real, average weekly-earnings will also be released this coming Friday. They contracted 0.6% yoy and 0.5% in January and February, respectively, before bouncing back to +0.6% in April and +0.5% in May. Since August 2016, real wage growth has slowed down significantly.