US Corporate earning delivered positive surprises, while China’s policy remained uncertainty

Risky assets continued their rally in April after a strong first quarter. Further support for the markets came from a solid start to the Q1 US earnings season. After earnings expectations had been revised sharply lower since the beginning of the year, with Q1 2019 estimates even falling into negative territory, companies were able to deliver positive surprises. This renewed optimism in the equity markets was also reflected in the outperformance of cyclicals vs. defensives in April. On the other hand, Chinese equities lost some momentum in April after a strong rally in Q1, in part on worries the government might begin dialing back stimulus in light of improved growth. Although this was a fair assessment, it should also be noted that Chinese policymakers remain vigilant and will provide support if the economic data softens again. The future success of the policy measures will also depend on China’s ability to sign a trade agreement with the US administration in the coming months. China imports, at -7.6% y/y for March, still haven’t shown any major improvement, which would be a precondition for a broader recovery in economic activity in the region.