April 14, 2020

Foggy Earning Season & An Upbeat Chinese Data

Foggy Earning Season & An Upbeat Chinese Data

European futures are trading higher as the earnings season that has been lost in the fog begins. Perhaps, this is the most uncertain earning season in history. U.S. banks will begin the earning season today, and it is JP Morgan that is going to be out of the gate first.

Coronavirus has rattled the world economic growth and it is going to be immensely arduous for companies to get through this period of uncertainty. They hope that investors will give them a free pass and will not beat their stocks down further. There is no doubt that the economic numbers have been getting that privilege, and the question is if the current earning period is going to get any preferential treatment?

Investors do need to keep in mind that it is not this earning period that is going to reflect the actual picture of earnings, in fact, for us, it is the next quarter’s earnings that matters the most. Only then will we be able to see the real impact of coronavirus fully reflected in corporate earnings and more clarity to their forward earnings.

Going back to the topic of economic numbers, there is enormous optimism in the markets after China reported its import and export numbers today. The numbers were feeble, but they were better than the expectations. Market participants are celebrating this today. Imports declined by 0.9% during March from a year earlier, while the exports dropped by 6.6%. The forecast for export was 13.9%, and for imports, it was 9.8%.

The key takeaway from these numbers is that the Chinese economy is restarting and the link to the global supply is re-establishing. All of this translates into more positive optimism. This is despite the fact that the virus outbreak situation in the US hasn’t reached its peak. Thus, one can always question to what extent the element of collapse in demand is baked into today’s export and import data. But for now, the focus is on the silver lining, and things are looking positive.

Commodities

Back in the commodity spaces, oil is trading higher as traders continue to build on the optimism that oil-producing nations have sent a cohesive response to the industry. Although, questions do linger whether the US is going to continue to play an important role in the future and if OPEC does hold the same kind of power that it once had.

The precious metal crossed the level of $1,700 yesterday and this has opened the gates to go through the 1,800 mark—our second target. Yesterday’s move confirmed that traders do believe that the loose monetary policy is here to stay and it will take a long time for the Fed to make a U-turn. Until then, the path of least resistance for the gold price is skewed to the upside. (more on how to trade gold here)

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