(Reuters) – From HSBC and Volvo in Europe to Apple and McDonalds on Wall Street, first-quarter earnings are coming in thick and fast. But will they give lacklustre stock markets a lift?
In France, a Marine Le Pen presidency has not come to pass, with Emmanuel Macron winning the Sunday’s election. Now the wait is on to see for another event which in January had seemed impossible — a Russian sovereign debt default.
Here’s a look at the week ahead in markets from Kevin Buckland in Tokyo, Saqib Ahmed in New York, Danilo Masoni in Milan, and Dhara Ranasinghe and Karin Strohecker in London.
1/ VIVE LA FRANCE
French President Emmanuel Macron defeated his far-right rival Marine Le Pen on Sunday by a comfortable margin, securing a second term and heading off what would have been a political earthquake.
The news is a relief for markets, boosting the euro, French bonds and stocks. But gains will likely be short-lived, as focus returns to the outlook for tighter ECB policy and the outcome of French parliamentary elections in June.
That Macron’s problems are far from over, was shown late on Sunday when riot police charged and sprayed teargas on people protesting in central Paris after the election.
GRAPHIC: French bond spreads tighter compared to 2017 election (https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoykeovr/FRANCE2104.PNG)
2/ TRUE DOVE
Ahead of Thursday’s policy meeting, the Bank of Japan has left no doubt about its commitment to supercharged stimulus, leaping into markets to defend its 0% bond yield target — even at the expense of a plunging currency.
The contrast between the BOJ and the hawkish Federal Reserve is at the heart of the yen’s tumble to a two-decade trough near 130 per dollar.
The yen’s 11% fall in the course of a month has prompted warnings from finance minister Shunichi Suzuki against rapid depreciation, putting markets on alert for an intervention. But BOJ Governor Haruhiko Kuroda has stuck to the view that yen weakness overall is a positive for Japan.
The IMF seems to agree. A senior official said yen moves were down to fundamentals and there was no need to change policy, including the BOJ’s ultra-low rate stance.
GRAPHIC: Dollar-yen chases U.S. yields higher (https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnygjxvq/Pasted%20image%201650521218750.png)
3/ TECH TROUBLE
It’s been a gloomy year so far for U.S. stocks and for tech firms, and the ongoing results season could make it worse.
Netflix’s share rout after reporting falling subscriber numbers has sparked trepidation about upcoming earnings from Facebook-parent Meta, Google-parent Alphabet. Apple and Amazon.
This so-called FAANG grouping benefited hugely from the low-rate, work-from-home environment. But with interest rates on the rise, their shares have cumulatively lost some $2.5 trillion in market value this year.
Overall S&P 500 earnings are projected to expand 6.3%. But Apple quarterly adjusted earnings-per-share are seen growing by just 2% versus the year-ago period, while a 0.7% dip is expected at Alphabet. And EPS declines at Amazon and Meta could be as much as 49% and 24% respectively, Refinitiv data shows.
GRAPHIC: All FAANG, no bite (https://graphics.reuters.com/USA-STOCKS/gdvzyayaepw/chart.png)
4/ EUROPE INC: EARNINGS AND INFLATION
As the Ukraine war rages, European companies’ full-year earnings revisions — the number of upgrades minus downgrades — have turned negative the first time since October 2020.
Q1 earnings growth will still be 25%, Refinitiv projects, possibly enough to lift a bearishly positioned market. Yet, with more than 140 companies unveiling earnings during the April 25-29 week, there are questions over cost pressures and whether these can be passed to consumers.
Giants such as Nestle and Danone managed to grow Q1 earnings while raising prices, but smaller peers may struggle to do so.
Leading banks, including UBS, Deutsche, HSBC and Barclays also report; after a disappointing Q1 share performance, the prospect of higher rates is now lifting the sector.
GRAPHIC: European earnings (https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnynyqpq/European%20earnings.PNG)
5/ OLD JOB, NEW PROBLEMS
Russian central bank governor Elvira Nabiullina starts her new five-year term in charge of monetary policy with a big to-do list: dealing with a full-scale crisis caused by unprecedented and ever widening Western sanctions.
The economy is expected to suffer its steepest contraction since the years following the 1991 fall of the Soviet Union, Russia is on the cusp of debt default and annual inflation has soared past 20%.
Still, Nabiullina may cut interest rates on Friday, possibly by 200 basis points, from the current 17%. That will partly reverse the emergency rate hike the central bank was forced into after the Kremlin’s February 24 invasion of Ukraine.
Rate-setters are also expected to discuss lifting capital controls, and the need to recapitalise some banks.
GRAPHIC: Russia inflation (https://fingfx.thomsonreuters.com/gfx/mkt/zgvomlbqnvd/Pasted%20image%201650568920953.png)
(Compiled by Sujata Rao; editing by Kim Coghill)