UKX FTSE 100 Index

By Paul J. Davies 

U.S. markets were priced to open higher extending recent gains, after stronger Chinese growth data lifted Asian stocks on Wednesday and the recent European rally took a pause.

Futures for the Dow Jones Industrial Average signaled the index up 0.1% and priced the S&P 500 0.2% higher. Corporate earnings are likely helping U.S. stocks as the vast majority of S&P 500 companies that have so far reported first-quarter numbers have seen earnings slow less than analysts expected.

More than 80% of the roughly 30 companies to report so far have beaten expectations, according to Sebastien Galy of Nordea Asset Management. However, he has identified potential inflationary pressure form labor costs. "[Earnings] calls were rife with mentions of either higher minimum wage or a tight labor market," he said.

At the same time, fears of a U.S. recession are ebbing: the latest Bank of America global fund manager survey showed that while two-thirds of managers expect an environment of low growth and low inflation, nearly 90% believe that the steep drop in long-term Treasury yields in March, and the inversion of the yield curve, didn't signal an impending recession.

Evidence of an appetite for risk was visible in rising government bond yields. The U.S. 10-year Treasury rose Wednesday to 2.607%, from 2.592% on Tuesday afternoon. The German 10-year bund yield also climbed, to 0.083% from 0.069%.

Both have now retraced almost all of their moves since a rush into safe assets in late March lifted prices and pushed down yields.

The 10-year German yield, which turned negative in late March and early April, is now at its highest since March 6. In the U.S., the yield gap between three-month and 10-year Treasurys, which also turned negative in late March, is now at its widest since March 11.

The global growth picture was helped by stronger Chinese economic data, which showed first quarter Chinese gross domestic product was better than expected, with growth of 6.4% year-over-year, boosted by very strong industrial production and better retail sales.

The Shanghai A-Share index in China and the Nikkei 225 in Japan were both up nearly 0.3% on Wednesday, but the good mood didn't extend to Europe. The Stoxx 600 and FTSE 100 indexes were both down 0.1% after having hit their highest closing levels in 2019 on Tuesday.

The China data led economists at Citigroup and ING to lift their full-year forecasts for China's GDP growth to 6.6% and 6.5% respectively, although there were differences on how healthy the growth was. Citigroup economists expect a U.S.-China trade deal to be concluded and tariffs slashed in the second quarter and think China's economic policies are becoming more effective at boosting economic demand.

ING's economists thought, however, that state-driven infrastructure investment was much more important than consumer demand, pointing out that cement production jumped 22% in March over the same month last year.

Diana Choyleva, chief economist at Enodo Economics, was also more skeptical. "We have our doubts about the headline official data, but they confirm what our deeper analysis is showing: the government has had little choice but to ramp up state-sector investment spending," she said.

Elsewhere, gold hit its lowest price since the depths of the stock market selloff in late December on Tuesday. It recovered fractionally Wednesday, trading up 0.1% at $1,278.40, but remains at its lowest since late December.

Brent crude oil was up 0.5% at $72.07. The WSJ Dollar Index, which measures the dollar against a basket of currencies, was down 0.13%.

Write to Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

April 17, 2019 08:23 ET (12:23 GMT)

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