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BlackRock is a lot more bullish on US stocks after tax cuts

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Moore said analysts have been ratcheting up their earnings forecasts based on what companies said during earnings season. The expectation is that earnings growth this year could now be 19 percent. Sixty percent of S&P 500 companies provided guidance that exceeded expectations.

BlackRock monitors earnings revisions, which can be a key indicator for the market, and the percent of positive revisions is at a record pace. They are now running at a rate of two upgrades for every downgrade, or a ratio of 2. That ratio has averaged 0.8 based in the data which goes back to 1988, Moore said.

“What happened to the U.S. on the back of tax cuts and fiscal stimulus is something we’ve never observed,” she said. All regions are showing improvements in positive earnings revisions but nothing like the U.S. Europe also has solid earnings momentum but it lags the U.S., and higher revisions in Japan are “noisy.”

She added: “While we are really making this constructive call on the U.S., in the next three to six months we do recognize the pace of upgrades and the pace of earnings growth will likely slow. We will have to watch very closely…We are on a rocket ship at the moment.”

But Moore said the landing does not have to be messy. “It can take off with a bang. I don’t know if ends with a bang. Rockets can come down and land gracefully, if they’re well engineered,” she said.

Risks to the bull market are higher inflation and rising real rates, and for now the strategists said they see modestly higher inflation and gradually rising rates.

“This is a very different cycle, at a time when fundamentals are already solid,” said Moore. “We will have to be very vigilant and try to stay focused not just on what happens to earnings but as to what happens with inflation pressures, and the impact that could have on margins. The big risk is inflationary pressure eroding margins.”

Moore said her favorite sectors are technology and financials. Technology should gain from increased spending by corporations, benefiting from tax law changes. She said the other boosts to the market from tax law changes should be more corporate buybacks and acquisitions.

Source: BlackRock

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High-level U.S. visits to Taiwan annoy China but did not cross the red line: Eurasoa

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SINGAPORE — Tensions are escalating in the Taiwan Strait and Beijing has been flexing its military might.

While a high-level U.S. State Department official visit to Taiwan last week angered China, it probably didn’t cross any “red line,” said Kelsey Broderick, China analyst at the Eurasia Group.

“Red lines are tricky, the only real red line we know from Beijing for certain is if Taiwan declares formal independence,” Broderick told CNBC’s “Squawk Box.” 

“However, anything that assumes or leans toward Taiwan sovereignty is maybe something of an orange line or a yellow line when it comes to China’s relationship with Taiwan.”

U.S. undersecretary of state for economic affairs, Keith Krach, visited Taiwan last week. It was the highest level visit to the island in decades, and came on the heels of another high-profile visit in August by U.S. Health Secretary Alex Azar.

The visits drew protests from China, which considers Taiwan as part of its territory that must one day be reunified with the mainland and therefore, has no right to participate in international diplomacy.

“For China, that was pretty escalatory in their view and something they were responding to. Was it a red line? Probably not,” said Broderick.

Keith Krach (top center), US Undersecretary of State for Economic Growth, Energy and the Environment, gestures after landing at the Sungshan airport in Taipei on September 17, 2020.

Pei Chen | AFP | Getty Images

Taiwan has been building closer relations with the U.S. recently, raising the ire of China.

Last week on Friday and Saturday, Chinese aircraft crossed the mid-line and entered Taiwan’s air defense identification zone, prompting the island to scramble jets to intercept them. Taiwanese President Tsai Ing-wen called China a threat to the entire region. Taiwanese and Chinese combat aircraft typically do not cross the mid-line of the Taiwan Strait and the rule is unofficially observed by both sides.

“If (the visit) was a red line, we’d be seeing more than Chinese flights across the Taiwan median line, we might be seeing potentially missiles or something a little bit more more destabilizing,” said Broderick.

However, with “a lot” of orange lines crossed recently, the question now is: “how many of those cumulatively become a red line?” she added. “And that’s something that really only Beijing at this point knows.”

“The Taiwan region is an inalienable part of China’s territory,” said Chinese Foreign Ministry spokesman Wang Wenbin on Monday, according to an official transcript. He added that the “so-called” mid-line of the Taiwan Strait does not exist.

Washington has no formal diplomatic ties with Taiwan but is the island’s most powerful international backer and largest arms supplier.

Broderick said China’s aggressive stance toward Taiwan present a rising risk that is “concerning and worth watching.”

In the run-up to the U.S. presidential election, Washington may take more action with regard to Taiwan to further anger Beijing amid U.S.-China tensions, said Broderick.

Immediately after the election, even if Democratic presidential nominee Joe Biden were to win the election, the Trump administration still has a few months before the new president is sworn in to change the status quo, she noted.

So China’s recent actions are a “warning to the Trump administration and the Tsai administration over what they could possibly do in this time period.”

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TikTok deal splits control between U.S. and Chinese owners

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China economy recovering from Covid-19, says ex-Goldman economist Jim O’Neill

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