Dubai: Global markets will eye the start of another corporate earnings season on Wall Street this week just as the much-anticipated US-China trade deal is also expected to be signed.

Although analysts largely expect both events to be a positive for stocks, they could be negative if earnings don’t meet expectations and there are too few details in the trade agreement.

The prior week ended with major global indices up. The Dow Jones Industrial Average rose 0.66 per cent, the S&P 500 up just shy of 1 per cent and the Nasdaq up 1.75 per cent after an uncertain week of rising and easing military tension between the US and Iran. But the benchmarks ended Friday in the red after the US Labor Department said the December jobs report missed forecasts.

Stocks started out the past week worried about a blow-up in the Middle East, after the US killed Iran’s top general and Iran retaliated by attacking two US army bases in Iraq. But by midweek, tensions dissipated and stocks were higher.

US banks report Q4

The indices worldwide all set new highs in the past week as Wall Street readies for its top lenders reporting their fourth-quarter results. Analysts said investors will find out if the coming quarterly reports will justify the market’s move higher.

US banks will start off earnings season on Tuesday by releasing their fourth-quarter figures, with JP Morgan Chase, Wells Fargo, Citigroup reporting on the first day. Bank of America and Goldman Sachs will report their results a day later.

US banks are heading into earnings having rallied over the past quarter, with the majority of America’s largest banks up over 20 per cent and substantially outpacing the market. Analysts see total fourth-quarter earnings down about 10 per cent, declining due to tough comparisons at Bank of America and Wells Fargo, with the year-earlier tally reflecting a one-time boost from the tax cut legislation.

US-China trade deal

Investors will also keep an eye on US and Chinese officials signing a long-awaited so-called ‘phase-one’ trade deal on Wednesday. China’s Vice Premier Liu He will be in Washington to sign the deal. It was earlier agreed that the US would reduce import tariffs, and China committed to buying more agricultural goods.

The signing of the phase one US-China trade deal should further bolster confidence, said Paul Ashworth, Chief North American Economist at Capital Economics. “With tensions in the Middle East easing, those developments support our view that GDP growth will accelerate this year.”

“But somewhat surprisingly, there are still scant few details on what else the deal might include — on issues such as Chinese intellectual property rights, market access and currency policy,” Ashworth added. “This is probably because both sides are simply being cautious, but it leaves scope for some potential surprises this week.”

Regional markets

The Dubai Financial Market, which hovered near 2,670 points as Middle East tensions peaked, bounced back and closed higher at about 2,750 points. Analysts at First Abu Dhabi Bank Securities said the low-levels attracted renewed buying as US-Iran tension eased off.

“Overall, the near term trend remains bearish as the resistance levels at 2,760 still holds strong,” said Shiv Prakash, senior technical market analyst with FAB Securities, wrote in a note, urging investors to sell the underperformers and shift to outperforming stocks. “Only a close over the recent high at 2,800 points shall turn the market up again.”

UAE banks will too start reporting by the end of this week, although top lenders will mostly report only by next week. Profitability of the UAE banks are expected to moderate in 2020 on the back of low interest rate environment and further weakening of asset quality, according to banking sector analysts.

Data up to the close of the third quarter of 2019 showed despite an increase in asset growth, margins and loan yields are under pressure at regional banks due to interest rate cuts. Analysts expect the impact to continue in the fourth quarter and linger into 2020.