Stocks edge higher, World Bank lowers growth outlook

After two straight weeks of declines, European bourses are pointing to a mildly firmer start, although concerns over the economic outlook could limit gains.

• Stocks head higher but gains could be capped as World Bank downgrades growth outlook
• USD/JPY rises to a fresh 20 year high as hawkish Fed bets build
• Netflix Q1 earnings expect softer subscriber numbers and a focus on content spend

Asia started the week on a slow note as concerns over the economic outlook weighed on risk sentiment. While China reported a Q1 GDP of 4.8% YoY, up from 4% in Q4 2021 and ahead of forecasts of 4.4%, this was overshadowed by signs of weakness in consumer spending in March. March retail sales tanked -by 3.5% MoM after rising 6.7% in February. With parts of China in lockdown, and cities such as Shanghai still sealed off, a sharp drop in retail sales is perhaps not that surprising.

However, with COVID restrictions ongoing, the economic slowdown will deepen in April. The government has lowered official growth targets to 5.5% in 2022. However, the impact is more far-reaching, with global supply chain bottlenecks and freight costs expected to remain elevated, keeping prices elevated.

Economic weakness in China, ongoing supply chain disruptions, and rising energy and food prices amid the Russian war mean that the global growth outlook is deteriorating. Yesterday the World Bank downwardly revised global growth by almost 1% to 3.2%, down from 4.1%. Today, the IMF is expected to apply a similar downward revision to global growth.

Despite the downbeat outlook, stocks are set to push higher, with the FTSE looking at an open over 7600, and the DAX is set to head towards 14100.


USD/JPY

In the FX markets, the USD is extending gains across the board on expectations that the Fed will raise interest rates at a faster pace. St Louis Federal Reserve Governor James Bullard said that inflation is far too high and that the central bank needs to move more quickly to raise interest rates. He added that a 75 basis point rate hike could be an option if required, and he wants rates to rise to 3.5% by the end of the year.

USD/JPY has extended its charge higher, rising above 128.00 and hitting a new 20-year high on central bank divergence and as surging energy prices hurt the economic outlook in Japan.


Netflix

The economic calendar is on the quiet side today. Investors will look ahead to the release of Netflix Q1 earnings after the close. Expectations are for EPS of $2.90 on revenue of $7.93 billion; this compares to EPS of $3.75 on revenue of $7.16 billion a year earlier. The earnings come as the share price has fallen around 50% since its $700 high reached in November. Spending on content will be under the spotlight as competition heats up and consumers rein in spending as surging inflation squeezes household incomes. Data out today Kantar shows that households in the UK are cancelling subscriptions at a record rate as the pandemic streaming boom appears to be over, which doesn’t bode well for the outlook at Netflix. News subscriber numbers are expected to fall to 2.5 million, down from 4 million a year earlier.