Chinese President Xi Jinping waded into the China versus US trade dispute on Tuesday. He soothed investor fears by declaring that China plans on opening its economy further. Moreover, he addressed many of the complaints leveled against China by the Trump administration. Essentially, President Xi cools down trade conflict fear.
Specifically, President Xi declared China will do a better job of enforcing the intellectual property rights of foreign firms. The Trump administration initiated the trade spat because a US government investigation concluded that China was forcing US tech companies to surrender its intellectual property for access to the Chinese market.
Accordingly, President Xi addressing this key point should go a long way in tamping down the rhetoric on both sides.
Moreover, he also promised to lower import tariffs on numerous products and improve the investment environment for international companies. These are also major grievances that the US has against China’s mercantilist policy.
It’s also important to note that President Xi delivered this point at his address to the Boao Forum. The Boao Forum is the Asian equivalent of the Davos Forum in Switzerland. This is where the leaders of Asia’s economies meet to discuss policy and cut deals.
Accordingly, this is a strong sign that China wants to avoid a trade war. That should allow investors to shift their focus.
President Xi cools down trade conflict fear, investors to shift focus towards earnings
As we noted yesterday, earnings season is almost upon us. The financial services industry is kicking things off. That’s likely to be a positive catalyst for markets because economic conditions are conducive to the big banks making bumper profits.
However, analyst expectations for profit growth are high. According to FactSet, the S&P 500’s sales are projected to grow by 10% in the first quarter.
Moreover, earnings for companies in the S&P 500 are expected to grow by a hefty 17.3%. President Trump’s corporate tax cuts are partially fueling this exceptional earnings growth expectation.
Accordingly, both top line and bottom line growth are going into earnings season with very high expectations. If earnings meet or top expectations, the market could get back on track.
However, if earnings miss or guidance for the future is weaker than expected, the markets could resume their downward trend. That means savvy investors need to shift gears and watch how earnings develop. Be especially mindful of corporate guidance for the coming quarters.