Asia refuses US earnings bait

Once again, Asian equity markets are refusing to chase the carrots dangled by an impressive US earnings season, with regional markets all under pressure again today. China, once again, appears to be the culprit, although not all the negativity is its own making. China Industrial Profits rose by a healthy 16.30% YoY this morning, although the YTD number retreated to a still impressive 44.70%.

China concerns weighing on Asian markets

Elsewhere though, the news is somewhat gloomier. Covid-19 cases moved higher to 59 with the fears of wider lockdowns weighing on sentiment. The US withdrew China Telecom’s US license, citing national security fears. The Global Times, China’s English language daily, reported that more real estate bond defaults are likely, and China has halted China/Europe freight trains thanks to massive border congestion. Hong Kong coal futures are also 5.30% higher in early trading and with oil prices stuck at recent highs and winter coming, China’s energy crunch hasn’t gone away. Taken in totality, it appears to be enough to weigh on equity markets in China, and by default, the rest of the region, with Microsoft and Alphabets impressive results unable to lift the malaise in US markets either.

Australian Inflation moved to a 6-year high today, increasing nerves that the RBA will shift from its ultra-dovish stance. The RBA Weighted Mean CPI YoY rose from 1.70% to 2.10% this morning. I suspect those nerves are overdone though, as even at 2.10%, the CPI has only just managed to creep into the RBA’s preferred 2.0% to 3.0% range. Nevertheless, the Australian dollar has gained some support and down under stocks are in the red.

The rest of the day’s calendar is empty in Asia with only German Import Prices to give food for thought ahead of tomorrow’s ECB meeting, where the biggest job for Ms Lagarde will be dousing down inflationary expectation fires and assuring the market that ECB remains on its Japanification track. The euro’s rally has stopped dead in the water, and if the ECB reaffirms that they intend to continue life-support forever, with low longer-term inflation projections, the single currencies retreat should start once again.

The US calendar is more interesting with September Durable Goods Orders and the official US Crude Inventory report. The former is going to be drowned out by earnings from Apple and other heavyweights such as General Motors and Boeing. The music of a strong US earnings season should continue even as it appears that some declining marginal utility is creeping in. Earnings are enough to hold the big three indexes at record highs, but not enough to reinvigorate the rally onto new highs. I wouldn’t bet it won’t happen, but investors may now be quietly turning their attention to next week’s FOMC meeting, which, as yet could be an unpriced judgement day for markets.

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