Shares in Asian markets were mostly lower on Tuesday, as optimism stemming from a Wall Street rally was dampened by concerns about the Chinese economy. While shares in Tokyo edged higher, most other regional markets experienced declines. Hong Kong’s benchmark index lost 2% as it reopened following a weather-related closure on Monday.
China recently reported weaker economic growth for the spring than what was expected by most economists. The country’s recovery after the removal of anti-COVID restrictions has fallen short of forecasts, thus hindering a key engine of growth for the global economy. This underwhelming performance has helped to limit inflation globally.
The benchmark Nikkei 225 in Japan rose slightly by 0.1% to reach 32,424. It is worth noting that markets in Tokyo were closed on Monday due to a holiday observance. Australia’s S&P/ASX 200 lost 0.2% to settle at 7,277.60, while South Korea’s Kospi dropped 0.5% to 2,604.80. Hong Kong’s Hang Seng gave up 387 points and fell to 19,027, while the Shanghai Composite dipped 0.2% to 3,201.75.
On Wall Street, the S&P 500 rose by 0.4% to close at 4,522.79, marking its highest closing level in 15 months. The Dow Jones Industrial Average gained 0.2% to reach 34,585.35, and the Nasdaq Composite climbed 0.9% to settle at 14,244.95.
Despite much higher interest rates aimed at taming high inflation, the United States’ economy has so far remained resilient and avoided recession.
Moving forward, the upcoming week will unveil more details on how the economy has impacted companies as corporate earnings season gains momentum. Nearly 60 companies in the S&P 500 are scheduled to report their profit figures for the April-June period.
Expectations for these earnings reports are modest. Analysts predict that the second quarter will see the worst drop in earnings per share among S&P 500 companies since the pandemic battered the economy in the spring of 2020. They also anticipate a third consecutive quarter of profit declines.
Last week, several banks and Delta Air Lines started off the reporting season with better-than-expected results. This week, Bank of America, Netflix, Tesla, and other major companies are set to release their earnings reports.
Encouraging Start to Earnings Season
Last week’s earnings reports have provided a small glimpse into the season, and so far, the outlook is promising. According to strategists at Bank of America, corporate forecasts for future results have been robust, fueling optimism for the continuation of this momentum. The strategists, led by Savita Subramanian, predict that earnings declines for S&P 500 companies will reach their lowest point in this reporting season.
U.S. Retail Sales Update
This week, investors will also be eagerly awaiting the latest monthly update on sales at U.S. retailers. Strong consumer spending has played a pivotal role in sustaining the economy, thanks to a resilient job market. However, despite the stock market’s impressive performance, critics caution against assumptions that a recession can be avoided. Concerns remain about the trajectory of inflation and the recovery of corporate profits.
Fed Meeting and Interest Rates
The Federal Reserve is widely anticipated to raise rates at its upcoming meeting, marking the highest level since 2001. However, hopes among traders are that this will be the final hike in the current cycle. Lower interest rates generally benefit various stocks, with technology and high-growth companies expected to be among the primary beneficiaries.
On Monday, the market witnessed an upward trend, with key companies like Tesla contributing to the rise. Tesla’s stock climbed by 3.2%, further propelled by the news that its first production Cybertruck electric pickup has finally rolled off the assembly line, albeit with a significant delay from its original schedule.
Energy and Currency Trading
In energy trading, benchmark U.S. oil rose by 31 cents to $74.46 a barrel in electronic trading on the New York Mercantile Exchange. Conversely, Brent crude, the international standard, increased by 31 cents to $78.81 per barrel.
Finally, in currency trading, the U.S. dollar dipped slightly against the Japanese yen, falling from 138.71 yen to 138.58 yen. Meanwhile, the euro rose to $1.1254 from $1.1240.