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For rates, stocks and the dollar, it’s all about earnings guidance

(ATF) There’s a lot of theorising or simply wild guessing about when and how fast the coronavirus will loosen and release its lock on the global economy.

Securities analysts and economists and now the IMF’s research chief Gita “Great Lockdown” Gopinath, a Bernanke student, have chimed in.

But we’re no closer to solving the V-U-L recovery riddle and that’s reflected in continued greatly elevated VIX (market expectation of 30-day forward looking volatility) levels which peaked above 80 on March 15 and still stand near a historically very high 40, more than triple October to December 2019 averages.

However, we’re about to get a slew of much more valuable data points than either stock or bond – let alone commodities – markets are likely to provide: US and European earnings expectations.

Not the actual Q1 results of some of the world’s 800 or more largest companies, but their forward guidance on employment, revenues and profits. I’ll trust the combined judgement of those company CFOs and CEOs any time over any wily politician’s or dodgy analyst’s.

Tuesday’s reports by Johnson & Johnson, JPMorgan and Wells Fargo came in pretty much as expected and the stock market breathed a sigh of relief. J&J did well as one would expect from a medical/pharmaceutical company; the banks did badly, no surprise, and all three gave the expected cautious guidance.

FactSet sees a 3.9% drop in net income for the S&P 500 in Q1, followed by a 7% drop in Q2. But consensus figures still call for positive growth on the year, for a 0.8% increase in net income.

These are the key numbers worth following if you want the markets’ judgement rather than end-of-the-world or paradise forecasts.

The dollar index (DXY), which had made lows below 99 Tuesday, recovered half a percentage point in Asian trading Wednesday and stood at 99.4020 at 6pm HK time.

Tepid Asian and European equity markets, lower oil after Trump’s deal of the century and negative US futures helped the greenback as risk appetite receded – perhaps not the least because Citigroup, Bank of America and Goldman Sachs earnings reports aren’t expected to be hugely uplifting.

China set central parity at a relatively strong 7.0402 this morning. CNY weakened to 7.0634 by 6pm as the PBoC announced some further across the board monetary easing pumping in funds through the Medium Term Loan facility (MLF) and cutting RRR by 50bps.

In effect, however, the yuan remains pegged to the dollar in a tight range and it’s up to the dollar where that marriage goes in coming days. We see little significant change going forward.


AF China Bond