Asian equities may see a mixed trading session following a positive day on Wall Street. However, there is a prevailing sense of caution among participants regarding China, triggered by the release of China’s lower-than-expected GDP growth rate. While there has been a slight improvement compared to Q1, this report has prompted several participants to revise their yearly growth projections downward by approximately 0.5 percentage points, resulting in an expected annual growth rate of 5.0%. Nevertheless, it is important to note that the current narrative still supports a positive growth outlook. Market desks are eagerly anticipating further economic stimulus measures from China in the upcoming months, as reports suggest that Chinese policymakers are contemplating such actions to achieve their annual GDP growth target. Moreover, recent U.S. data has led to a growing consensus that the likelihood of a U.S. recession within the next 12 months has decreased from 25% to 20%. This shift is attributed to recent data and ongoing fundamentals, which indicate a smooth and relatively painless disinflation process. Consequently, a scenario of a soft landing is considered plausible, with the Federal Reserve potentially considering rate cuts in Q1 of the next year.
Looking ahead, traders will closely monitor U.S. retail sales figures, as a robust performance could reinforce the notion of a soft landing in the short term. This, in turn, may provide support to both equities and bonds. In terms of corporate earnings, approximately 11% of the S&P 500, including prominent companies such as Bank of America, Goldman Sachs, Netflix, and Tesla, are scheduled to report their earnings for the week. Market expectations are mixed, given that companies have faced challenges such as higher costs and margin contraction in a higher interest rate environment. However, if these companies present a positive outlook for the next quarters, it could continue to bolster equities, with the prevailing sentiment suggesting that the worst is likely behind in terms of inflation, and a soft landing remains the prevailing theme.
