NEW$ & VIEW$ (5 FEBRUARY 2013)

Earnings. Eurozone services PMI. Eurozone retail sales slump. U.S. car sales weaken. France enters currency war. U.S. factory orders rise. U.S. housing market tightens. Mortgages. Loan demand rises. Gasoline prices jump. Chinese debt. Inflation watch.

 

EARNINGS WATCH

 

Of the 234 companies that have reported earnings to date for the fourth quarter, 70% have reported earnings above estimates. This percentage is about equal to the average of 69% recorded over the past four quarters.  In terms of revenues, 67% of companies have reported sales above estimates. This percentage is well above the average of 50% recorded over the past four quarters.

Corporations and analysts are lowering earnings expectations for Q1 2013. In terms of preannouncements, 50 companies have issued negative EPS guidance for Q1 2013, while 11 companies have issued positive EPS guidance. Analysts have taken down EPS estimates also, as the estimated earnings growth for Q1 2013 has dropped to 0.5% today from an expectation of 2.4% on December 31.

Factset doesn’t seem to take into account the increased pension expense that many companies have elected to record starting in Q4. It is also not clear how analysts will actually treat these higher operating costs.

THE EUROZONEs

 

Euro zone economy shows signs of recovery

The euro zone’s battered economy is probably recovering but the gulf between its two biggest members is widening, according to a survey on Tuesday that showed business optimism in the bloc at an eight-month high.

Markit’s Eurozone Composite PMI, based on business activity across thousands of companies, and a good gauge of economic growth, rose in January to a 10-month high of 48.6 from 47.2 in December – an improvement on the preliminary reading of 48.2. (…)

The German PMI chalked up its biggest one-month rise since August 2009, soaring to its highest since June 2011, while the reading for the bloc’s second-biggest economy France plummeted to its lowest in nearly four years. The French services PMI was even below readings from perennial laggards Spain and Italy.

High five  EUROZONE HEALING? Say that again after reading this:

Lightning  Euro-Zone Retail Sales Slump

The European Union’s statistics agency said Tuesday that retail sales fell 0.8% in December from November and 3.4% compared with December 2011. The month-to-month drop was the largest since April 20012, while the annual decline was the largest since February 2009, when the euro-zone economy was mired in the global recession.

For 2012 as a whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

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Some drop! That’s -2.5% in 5 months, -6% annualized. December, the most important month of the year, is down 0.8%, nearly 10% annualized. Core sales were down 1.0% in December, -3.2% in the last 4 months, that’s -13.4% annualized!!! With Christmas sales so weak, retail inventories are certainly excessive entering 2013.

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December’s change M/M (Y/Y) by country: Germany: -1.7% (-4.7%), Spain: -2.2% (-12.3%), France: -0.2% (+2.2%), Portugal: -1.8% (-8.6%), UK: -0.4% (+1.9%), Austria: -1.4% (-1.5%). If you wonder, Italy’s numbers are not out yet. (Eurostat)

Still hopeful? Markit’s January Retail PMIs point to continued sluggish growth in Germany but deepening problems in France and Italy.

The WSJ article says that

The figures highlight a lack of desire among households in the euro countries to spend their income at a time when economic prospects remain clouded.

I am sure there is “no lack of desire”. Just a lack of jobs and income.

Storm cloud  Europe Fears Return On Italy, Spain Political Turmoil

In Italy, opinion polls showed disgraced former Prime Minister Silvio Berlusconi closing to within 5-6 points of the center-left front-runner, less than three weeks before an election.

In Spain, media reports that Prime Minister Mariano Rajoy received money from a slush fund run by his political party are leading to calls for his resignation. He has denied the accusations. (IBD)

U.K. Triple-Dip Worries Ebb as Services Unexpectedly Grow

A gauge of activity surged to 51.5, the highest since September, from 48.9 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said in London today.

USA

Sad smile  U.S. Vehicle Sales Back Away From Recent Highs

Unit sales of light motor vehicles during January slipped 0.6% m/m (9.4% y/y) to 15.29M (SAAR) according to the Autodata Corporation. That was the second consecutive monthly decline. 

Auto sales slipped 0.4% m/m (+9.7% y/y) to 7.85M. Domestic car sales gained 2.3% to 5.61M (17.5% y/y) but imports fell 6.5% (-5.8% y/y) to 2.24M, the lowest level since August. Light truck sales slipped 0.7% (+9.0% y/y) to 7.44M. Domestic light truck purchases eased 0.2% (+11.8% y/y) to 6.47M while sales of imported light trucks dropped 4.2% to 0.97M, which was off 6.7% y/y.

Imports’ share of the U.S. light vehicle market tumbled to 21.0% in January, the lowest level since August. That share was down from its peak of 29.9% in Q1’09. The lower foreign exchange value of the dollar played a role as it made imports relatively more expensive.

Pointing up  Somebody will soon complain about that.

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Right on cue:

Hollande warns on euro strength
French president says euro ‘vulnerable’ to irrational movements

“The euro should not fluctuate according to the mood of the markets,” the French president told the European parliament in Strasbourg. “A monetary zone must have an exchange rate policy. If not it will be subjected to an exchange rate that does not reflect the real state of the economy.”

He said he was not calling for the European Central Bank to set an exchange rate target, but he demanded “an indispensable reform of [the] international monetary system”. (…)

“The eurozone must, through its heads of state and government, decide on a medium-term exchange rate,” he said.

Smile  U.S. Factory Orders Surge Led By Durables

Orders to all manufacturers jumped 1.8% (0.7% y/y) to close out the year, following a 0.3% November slip. The (…) A 4.3% (-0.2% y/y) surge in December durable goods orders, little-revised from the advance report, accounted for the strength in overall orders in December. It was powered by higher defense orders. Orders for nondurable goods, which equal shipments, fell 0.3% (+1.6% y/y) after a 1.0% November decline. A nearly one-quarter drop (-11.3% y/y) in tobacco shipments led the weakness. (…)

Note that new orders have jumped 2.3% (+9.5% a.r.) in the last 3 months.

Surprised smile  U.S. Homes Sell in Two Weeks With Low Supply for Spring Buyers

The U.S. housing market, entering its busiest season, is tipped so far in favor of sellers that almost a third of listings in areas from Washington, D.C., to Denver and Seattle are under contract in two weeks or less.

One home in Washington attracted 168 offers in December and sold for almost twice the asking price. About 70 people lined up last month for a lottery to select buyers for four available houses in a San Ramon, California, subdivision where, in August, bidders camped for weeks to secure purchases.

A plunge in U.S. home listings to a 12-year low is driving up prices and preventing transactions from returning to historically normal levels. Many potential sellers are holding off until values rise more, while investors are snatching up distressed properties before they reach the market. Builders, reporting their best orders in years, can’t increase production fast enough. As buyers seek to take advantage of record-low mortgage rates, the supply and demand imbalance threatens to further limit deals as the key spring selling season approaches. (…)

New listings in 21 of the largest U.S. cities plunged 21 percent last month from a year earlier, led by declines of more than 35 percent in the San Francisco Bay area, Las Vegas and Atlanta, Redfin said. At the end of 2012, about 28 percent of home listings nationally went under contract within 14 days, with cities in California’s Silicon Valley and Los Angeles areas exceeding 40 percent. In Washington, Seattle and Denver it was more than 30 percent. (…)

Home prices post biggest jump in over six years: CoreLogic

CoreLogic’s home price index rose 0.4 percent from the previous month and added 8.3 percent compared to December a year ago. The year-on-year jump marked the biggest increase in the index since May 2006.

Excluding distressed sales, prices were up 7.5 percent on a yearly basis and 0.9 percent compared to the previous month.

Pointing up  The CoreLogic Pending HPI indicates that January 2013 home prices, including distressed sales, are expected to rise by 7.9 percent on a year-over-year basis from January 2012 and fall by 1 percent on a month-over-month basis from December 2012, reflecting a seasonal winter slowdown. Excluding distressed sales, January 2013 house prices are poised to rise 8.6 percent year over year from January 2012 and by 0.7 percent month over month from December 2012.

Just 16% of Refinancers Increase Their Mortgage Debt  The majority of homeowners who refinance maintained or reduced their mortgage debt in the latest quarter, according to a report from mortgage-finance company Freddie Mac.

Of these borrowers, 46% maintained about the same loan amount, while 39% reduced their principal balance in the latest period.

Freddie Mac said the average interest rate reduction was about 1.8 percentage points, or 33%, the largest percent reduction recorded in the company’s 27 years of analysis.

Banks Say Demand Grows for Loans

U.S. banks reported stronger demand for business, home and auto loans over the winter, a sign of health for the economy despite its slowdown at the end of last year.

The Federal Reserve, in its quarterly survey of senior bank loan officers, on Monday said demand for consumer loans—particularly to buy homes—was up strongly toward the end of December and early in January. (…)

Pointing up Nearly 31% of banks surveyed said demand for business loans from midsize and large firms grew, up from 20% during the fall. Meanwhile, 26% of the surveyed banks said loan demand from small firms increased, compared with about 21% last fall. (…)

The Fed said the survey found that “demand for business loans, prime residential mortgages and auto loans had strengthened, on balance, while demand for other types of loans was about unchanged.”

Among the banks surveyed, nearly 34% said demand for loans made to purchase homes strengthened—apart from normal seasonal factors—compared with 39% in the previous quarter. Banks reported little change in their standards for home loans. But they eased standards on auto loans amid increasing demand.

PARTY CRASHER?

Gasoline at U.S. Pumps Jumps Most in Two Years on Crude Rally

Regular gasoline in the U.S. jumped 18 cents, or 5.4 percent, from a week earlier to $3.538 a gallon yesterday, the biggest gain since Feb. 28, 2011, according to data compiled by the Energy Information Administration, an Energy Department agency.

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Investors stocks sentiments at a high

My anecdotal experience this week at the World Money Show in Orlando, Florida supports the view that investors are going “all-in” for equities, as the exhibit hall and conference rooms were packed with thousands of enthusiastic investors looking to gain insights. (Frank Holmes, US Global Investors)

CHINA ABOUT TO SEE THE DARKER SIDE OF CAPITALISM

 

Chinese Firms Shrug at Rising Debt

Chen Qiang runs a Chinese shipbuilding company that expects to post a net loss for 2012 and whose $4.5 billion in debt is six times what it was three years ago. But Mr. Chen is unfazed.

Analysts at Standard Chartered PLC estimate that Chinese corporate debt was equivalent to 128% of gross domestic product by the end of 2012, up from 101% at the end of 2009. In a 2011 research paper, economists at the Bank for International Settlements found that when a country’s corporate debt exceeds 90%, it becomes a drag on growth. (…)

Meanwhile, China’s state help to troubled industries will likely exacerbate global overcapacity and put off recovery in businesses ranging from shipbuilding to solar panels, analysts say.

Rongsheng’s woes have been played out repeatedly elsewhere in the economy. Many of China’s solar-equipment companies are being kept afloat by loans from state banks, local-government subsidies and even direct investment by state-owned investment groups.

China’s steel sector is plagued with overcapacity, but unprofitable firms are still able to tap bank credit. (…)

The relationship between business and government has become an impediment to China’s long-term growth prospects, analysts say, with resources not going to the most efficient firms but those with political connections. There are more than 100,000 state-owned enterprises in China, primarily backed by local-level governments. Most of the state-owned firms compete with the private sector.

According to a 2011 report by the Unirule Institute of Economics, an independent think tank in Beijing, once government support such as cheap loans, rent-free land and direct subsidies—cash injections—are stripped away, China’s industrial state-owned enterprises were unprofitable between 2001 and 2009. Many private firms—like Rongsheng—that regional governments deem to be important to local interests also get similar perks. Often, private firms struggle to obtain loans from the banks. (…)

Fingers crossed  China aims missile at Japanese destroyer Stand-off in Japan-China islands dispute hits danger zone

INFLATION WATCH

Will this become a new feature here?

The inflation rate was 7.1 percent, jumping from 6.6 percent the previous month, the Federal Statistics Service in Moscow said today in an e-mailed statement. Prices rose 1 percent from the previous month.

Inflation quickened more than forecast in December to 4.95 percent, exceeding the central bank’s 2012 target, on rising food and electricity prices.

Steaming mad  MIS-SOLD!

Barclays Ups Provision for Mis-Sold Products

The U.K. lender said it will increase its provision for mis-sold products by more than $1.5 billion, as its new chief executive prepares to present a plan to rebuild the bank’s reputation.

 
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