Earnings season gets into full swing, while the first snapshot of business activity in April could provide a sense of how much pain the turmoil in the banking sector has inflicted on the world economy.
Analysts expect Q1 S&P 500 earnings to fall 5.2% from the year-ago period, Refinitiv I/B/E/S data as of April 7 showed. This would follow an earnings fall in Q4 2022, a back-to-back decline known as an earnings recession that has not occurred since COVID-19 blasted corporate results in 2020. The PMIs should show whether growth is slowing, and, if so, where in the world and how quickly, questions fast becoming a major driver for markets as central banks near the end of rate hikes.
Domestic inflation is muted, exports are rising and credit growth strong. The bear case can easily be made that subdued inflation is betraying a wary domestic consumer, banks are being forced to lend, and the bounce in exports will be short-lived as external demand ebbs and the likes of Apple shift more production to Southeast Asia.
Bank of England policymakers, who expect inflation to ease, may have their fingers crossed for good news. Inflation unexpectedly rose to 10.4% in February, pushed up by higher food and drink prices in pubs and restaurants, data that likely cemented the case for March’s rate hike. The spotlight on net zero targets and addressing climate change could be stolen by the energy crisis, sparked by Russia’s invasion of Ukraine, and ways to tackle it.