Daily Outlook: US equities rally on solid data and earnings

Strong corporate earnings and better than expected economic data in the US overnight propelled equity markets higher.

By Aditya Pugalia

Strong corporate earnings and better than expected economic data in the US overnight propelled equity markets higher. Industrial production, capacity utilisation, manufacturing output and housing data were all in line with or beat consensus forecasts for March. Capacity utilisation rose to a three-year high and industrial production benefitted from increased oil production and a recovery in utilities output.

As expected, the German ZEW survey was softer in April, with the current situation index easing to 87.9 from 90.7 in March (only marginally below forecasts). However the expectations index deteriorated by more than expected, falling to -8.2 in April from 5.1 last month - the first negative reading since July 2016 - as investors worried about escalating trade tensions. In the UK, unemployment unexpectedly declined in the three months to February as earnings growth accelerated, although the 2.8% rise in average weekly earnings was less than the market was looking for.

In China PBOC announced a 1pp cut in its reserve requirement for banks, effective next week. However, maturing medium-term lending facilities mean that the net liquidity injection into the banking system will be less than the headline suggests, and will largely benefit smaller banks and firms.

In Japan the March trade balance showed a bigger than forecast surplus, although this was largely due to a surprise -0.6% y/y decline in imports rather than strong export growth. The annual decline in imports was the first since December 2016. Exports increased 2.1% y/y in March, lower than the forecast of 5.2%.