US stock futures climbed on Tuesday, April 18th, 2023, as investors looked beyond patchy company earnings and the possibility of more central bank policy tightening, and focused on the signs of a Chinese economic bounceback. Contracts on the S&P 500 gained 0.4%, while those on the Nasdaq 100 climbed as much as 0.6%. Investors were preparing for more first-quarter earnings, including from Goldman Sachs Group Inc and Bank of America Corp. Both banks rose in premarket trading, with Goldman advancing more than 1% as it joined forces with Apple Inc. to introduce a new high-yield savings account.
In Europe, the Chinese consumer spending data gave a boost to luxury names, including LVMH, helping lift the Stoxx 600 benchmark. Travel shares benefited from an upbeat report from EasyJet Plc. on bookings.
However, the reaction to the Chinese data was more mixed in Asia earlier, with traders focusing on slower-than-expected industrial production despite the overall acceleration in gross domestic product growth. Concerns about an upcoming recession have pushed investors’ allocation of equities versus bonds to the lowest since 2009, according to Bank of America Corp.’s global fund manager survey.
“We need a bit of time to assess the true state of recovery in China and how strong, or sustainable, this recovery is going forward,” said Stuart Cole, a chief macroeconomist at Equity Capital in London.
Hopes that the current rate-hiking cycle was winding down “have been dashed by the data,” Cole said.
First-quarter earnings have so far failed to reassure, with the current season expected to be the worst since the pandemic began three years ago, and estimates for coming quarters continuing to fall. While several big US banks have posted strong earnings, investors are concerned about the impact on smaller regional US banks following large deposit outflows in March.
Meanwhile, two-year Treasury yields slid more than 3 basis points to about 4.15%, after inching higher on Monday following Richmond Fed President Thomas Barkin’s comments that he wanted to see more evidence inflation is easing to the 2% target. The dollar weakened against its Group-of-10 peers, snapping a two-day rally.
Some other central banks could be poised for more tightening too. In Australia, minutes from the Reserve Bank’s April meeting showed a quarter-point hike had been discussed before members decided on a pause. And an acceleration in UK wage growth is putting fresh pressure on the Bank of England.
The wage data buoyed the pound 0.5% versus the US dollar, while the Australian dollar jumped as much as 0.6%. Oil prices reversed earlier China-fueled gains, as data showed an output rebound in Russia and from shale.
In summary, the signs of a Chinese economic bounceback have helped lift the US stock futures and markets, although investors are still cautious and are preparing for more first-quarter earnings. Additionally, concerns about an upcoming recession have pushed investors’ allocation of equities versus bonds to the lowest since 2009. While several big US banks have posted strong earnings, investors are concerned about the impact on smaller regional US banks following large deposit outflows in March. Finally, some central banks, including the Bank of England and the Reserve Bank of Australia, could be poised for more tightening.
