Tariff headlines and an anticipated response from China continue to dominate market psyche as the first quarter earnings season opens, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
Chinese President Xi Jinping is due to deliver a keynote speech on Tuesday at the Boao Forum for Asia, a Davos-like event in Hainan Province, China. The speech is expected to cover Xi’s views on China’s trade relations and outlook.
“He may also discuss reforms to open the Chinese market,” Krosby said. “No one expects Xi to mention the U.S. specifically, but his speech may lay the groundwork for a more productive, positive atmosphere.”
In trade discussions closer to home, President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Pena Nieto will attend the Summit of the Americas in Peru, and political chatter suggests that the president may offer a more upbeat status report on NAFTA re-negotiations.
Economic data that are key for markets will be focused on inflation reports, including the Producer Price Index (PPI), Consumer Price Index (CPI), and import prices. The release of the Federal Reserve minutes will also be carefully analyzed.
“Keep your eye on the 10-year-yield and 2-year yield,” Krosby said. “What you want to see is the yield curve steepening, instead of flattening. If you see the PPI and CPI move higher, you should see the 10-year move higher as well.”
The earnings season begins its “official” opening this week with a preponderance of bank earnings.
“What the market wants to know is what are these banks hearing from their customers. How is the rate hike cycle affecting them?” Krosby said. “The market is hoping to hear one analyst after another saying that guidance is positive on the top and bottom lines—this would give the market a solid footing.”
Earnings to watch:
This week’s important data releases:
Tuesday: NFIB Small Business Optimism index; Producer Price Index
Wednesday: Consumer Price Index; Federal Reserve minutes
Thursday: Import Price Index
Friday: Job Opening and Labor Turnover Report (JOLTS); Consumer Sentiment
Read Quincy Krosby’s full Q2 Market Commentary: Regime Change.
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.