China rises while US stocks stagnate despite strong earnings

Creeping fears about inflation held US stocks and bonds in deadlock on Friday despite a week of a positive April jobs report, rising interest rates and stronger-than-expected company earnings.

Even as US unemployment rate fell to its lowest level in nearly two decades and Apple announced an additional $US100 billion in share buybacks, markets seem suspicious of the global growth story and fear a wider tightening monetary policy. Investors appear to be neither inspired to play nor convinced they should extract their investments just yet.

“There are a lot of positive signs but there’s not that one big sign that says, ‘This is how we’re going to get to the next stage of gains and growth,’” Tom Stringfellow, chief investment officer at Frost Investment Advisors told the Wall Street Journal.

Few believe the economy has peaked. Corporate earnings have been overall healthy in the first quarter, with a record share of S&P 500 firms posting good results, thanks in part to US President Donald Trump’s corporate tax cuts.

The blue-chip Dow Jones ended Friday’s session at 24262.51, down 1.8% for 2018 and 8.8% from its January 26 high while the yield on the 10-year US Treasury note settled at 2.946%, down from an April 25 high of 3.026%.

Across the Pacific, Chinese e-commerce giant Alibaba Group expects its revenue to grow 60% in the next year, as its commerce business and cloud computing business attracts more customers.

Alibaba reported its fourth-quarter profit fell 29% to 7.56 billion yuan ($US1.21 billion) from 2017, in part due to a one-time gain from the disposal of assets including Chinese internet firm MoMo. Excluding that one-off disposal, net income in the first quarter rose 37% while revenue increased 61% from the year-earlier period to 61.93b yuan.

In Friday’s statement, NYSE-listed Alibaba said revenue in its core commerce unit, which runs China’s two largest online retail sites, Taobao and Tmall, rose 62% to 51.29b yuan. Its cloud-computing business revenue slightly more than doubled to 4.39b yuan.

North Korea/US summit
Mr Trump says a date and place have been set for his expected summit with North Korean leader Kim Jong Un both of which will be announced soon.

“We have a date, we have a location,” he told reporters at the White House over the weekend but failed to reveal either the date or place of the summit.

“I think a lot of good things are going to be happening over the next short period of time,” referring to North Korea. “But I’ll see you over there. It’s going to be very exciting.”

South Korean newspaper Chosun Ilbo, citing diplomatic sources in Washington, says the meeting would most likely be held in Singapore in the third week of June.

He praised Mr Kim’s rapid steps toward resolving the standoff and expressed optimism about the possibility of making a deal to denuclearise the DPRK.

But North Korea media say US sanctions aren’t the reason for its willingness to remove its nuclear weapons, accusing its adversary of trying to increase tensions ahead of the summit.

State media arm KCNA says the US is misleading the public by saying its sanctions are working and isn’t being helpful if it continues to characterise North Korea’s steps as a sign of weakness while pressuring and making military threats.

In a separate KCNA report, North Korea gave credit to Mr Kim for the diplomatic breakthroughs, saying that his “boldness, patriotism and leadership” contributed to peace talks. It warned that US claims of forcing change on the country are a deliberate provocation that will pour “cold water onto the current atmosphere of dialogue and reverse the situation to square one.”

Greek stress tests
Greece’s biggest banks passed a major testing hurdle by Europe’s regulators, an important step toward the completion of an eight-year bailout programme.

The “stress tests” carried out by the European Central Bank on National Bank of Greece SA, Alpha Bank AE, Eurobank Ergasias SA and Piraeus Bank SA reportedly proved the lenders had sufficient capital to cushion them against a hypothetical severe economic downturn.

Subsequently, some €20 billion ($US23.9b) remaining from Greece’s bailout funds that was earmarked for potential recapitalisations could instead be used to tackle other needs such as debt relief.

The sovereign debt crisis in 2010 hit Greece’s lenders hard, collapsing about €120b in deposits, or half of the total, from the banking system. But Greece has come a long way since, having been recapitalised three times in successive bailouts by the IMF and European institutions. But the bailouts also came with political reforms and austerity measures.

According to the results of the stress tests the four banks would lose about €15.5b, or nine percentage points, of their capital by 2020 under an adverse economic scenario. The banks’ capital bases would cover these needs.

No Aussie tax cuts
Australian treasurer Scott Morrison on Sunday warned voters not to expect “mammoth cuts” to taxes and reiterated his government’s commitment to return the country’s finances to surplus.

Expected on Tuesday, the budget will reflect a recent improvement in the treasury due to a rise in revenue, particularly company tax. Mr Morrison has already suggested a corporate tax cut to 25%, from the present 30%, saying the cut is needed to keep Australia competitive for investors.

He also says low and middle-income earners would be the first priority for further cuts, with high-income earners are further down the line.

But he cautioned cuts would likely be modest as Australia continues to rebalance itself away from a once-in-a-century mining investment boom that made it the only OECD country to escape recession during the 2008 global financial crisis.

“I’m not going to pretend that these are going to be mammoth tax cuts. They’ll be what’s affordable, they’ll be what’s real and they will be what the budget can afford,” Mr Morrison says.

“You have to ensure that you build your budget up to surplus, which is exactly what we are doing.”

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