NEW$ & VIEW$ (2 APRIL 2013)

Eurozone employment keeps falling.  U.K. also looks weak. So is China’s recovery. Global eco slowdown accelerates. U.S. construction worries. Chain store sales lackluster. Earnings watch. Sentiment watch.


The euro area1 (EA17) seasonally-adjusted unemployment rate was 12.0% in February 2013, stable compared with January. The EU27 unemployment rate was 10.9%, up from 10.8% in the previous month. In both zones, rates have risen markedly compared with February 2012, when they were 10.9% and 10.2% respectively.

Eurostat estimates that 26.338 million men and women in the EU27, of whom 19.071 million were in the euro area, were unemployed in February 2013. Compared with January 2013, the number of persons unemployed increased by 76 000 in the EU27 and by 33 000 in the euro area. Compared with February 2012, unemployment rose by 1.805 million in the EU27 and by 1.775 million in the euro area.


Gavyn Davies has a good piece today in the FT (Preventing contagion from Cyprus). This chart illustrates the divide between the North and the South and the ECB’s challenge, especially since France’s current rate advantage may not last for very long…

U.K. Data Point to Weak Growth

Data firm Markit and the Chartered Institute of Purchasing & Supply’s monthly Purchasing managers’ index for the manufacturing sector rose to 48.3 in March from February’s 47.9, but remains below the key 50 level which separates expansion from contraction, confirming the sector continues to shrink.

New orders fell again in March, although at a slightly slower pace than in February, while output fell at a faster pace. Job cuts continued at a similar pace to that reported in the previous month (…).

Lending to nonfinancial businesses, net of repayments, declined by £2.2 billion in February, and new mortgage approvals fell. Overall consumer lending was up as households took out unsecured loans and borrowed on their credit cards.

China In A Weak And Fragile Recovery

China’s official Purchasing Managers Index, released on April 1st, rose to 50.9 in March from 50.1 in February. March’s 50.9 reading, the lowest March PMI reading in recent years, indicates that the current recovery remains weak. Based on recent economic data and our survey results, we believe the current recovery remains fragile and will need the support of neutral-to-loose liquidity conditions in order to continue along a mild-recovery path. Economic data might not reflect a strong recovery in 2Q13. Due to the base effect, investment growth in 2Q13 will be relatively low. (CEBM Research)


Global Economic Slowdown Accelerates Again

It would appear that between the historical revisions of over-optimistic initial prints in macro data in the last few months and the reality of the weakness in Europe, the global economy is in Slowdown. Goldman’s Swirlogram has now seen its Global Leading Indicator in the ‘slowdown’ phase for two months as momentum fades rapidly and seven of the ten major factors in the index declining with Global (Aggregate) PMI, and Global New Orders-less-Inventories worsening. (…)

Firms Stay Cautious on Renting

Businesses moved slowly to fill office space in the first quarter, reflecting continued caution about the recovery.

[image]An additional 4 million square feet of office space was leased during the quarter, increasing the amount of occupied space by just 0.12%, according to real-estate research service Reis Inc.  Asking rents increased 0.7% to $28.66 a square foot annually, while the national office vacancy rate fell to 17% from 17.1%.

The vacancy rate is still well above its 12.5% level at the office market’s peak in 2007. Employers today occupy about 101 million square feet less than they occupied then, according to Reis, which tracks 79 markets.

At the current rate of growth—which is about one-third the pace of the recovery that followed the dot-com bust last decade—it would take more than five years to return to that peak level.

U.S. Construction Spending Rebounds

Building activity improved in February. An expected 1.2% rise (7.9% y/y) in construction put in place followed a little-revised 2.1% January decline. December figures, however, were lowered sharply. Improvement in building activity was broad-based in February.

Private construction improved by 1.3% (12.6% y/y) led by 2.2% gain (20.1% y/y) in residential construction activity. That reflected a 4.3% rise (34.1% y/y) in new single-family building but multi-family construction fell 2.2% (+51.8% y/y). Spending on improvements ticked up 0.5% (1.1% y/y).

In the nonresidential sector, construction activity nudged up 0.7% (2.6% y/y). (…) Public sector building activity regained some momentum with a 0.9% rise but it still was down 1.5% y/y. Highways & streets construction rose 3.4% (5.1% y/y). Activity here accounts for nearly one-third of public sector building activity. (…)

Pointing up  What worries me is that the sequential trend has turned negative in the last 3 months, in all segments except residential:

image(Haver Analytics)


Sales surged 4.7% last week but Easter sales failed to reverse the weak trend observed since February. The 4-week moving average remains below its last 3 peaks and its Y/Y change is a slow 1.7%.



Fingers crossedimage


Investors Ignore Negativity

While the S&P 500 erased losses and strategists are raising year-end targets, the only people with legal inside information are surprisingly cautious.

[image](…) But a look at consensus earnings-per-share expectations for the companies with the 10 highest weightings in the S&P 500—making up close to a fifth of the total—shows a similar pattern. Relative to where forecasts stood at the start of the year, they have fallen for seven and risen for three.

Apple had the largest drop, with estimates down 17%. Of those companies actively lowering guidance, materials companies such as Peabody Energy were overrepresented.

Ignore corporate worrywarts at your peril. In the last bull market, the negative corporate guidance ratio hit a peak of 2.38 in the third quarter of 2007—just as that bull market was ending. Meanwhile, one of the lowest ratios of negative guidance, 0.97, came during the second quarter of 2009, when many analysts and investors still were very pessimistic and stocks hit a 13-year low.

If you have missed yesterday’s New$ & View$, you should be aware that the above deals only with quarterly guidance. However, as Factset points out, negative annual guidance has stepped up in recent weeks.

For the current fiscal year overall, 168 companies have issued negative EPS guidance and 77 companies have issued positive EPS guidance. As a result, the overall percentage of companies issuing negative EPS guidance to date for the current fiscal year stands at 69%. This marks the third consecutive month that the percentage of negative EPS guidance has increased, as companies in the index transition to issuing annual guidance for 2013 as the new current fiscal year (instead of 2012).

The chart below, courtesy of Morgan Stanley via ZeroHedge, shows that 2013 estimates have stabilized at the $112 level, in spite of the worsening guidance. 



IPO Pricing Signals Surge In Demand

In the first quarter, 36% of U.S. IPOs were priced above the range originally outlined in registration documents filed with the Securities and Exchange Commission. That was the highest proportion in any year since at least 2004, according to Renaissance Capital, an IPO research and investment-management firm.

Meanwhile, less than one quarter of IPOs so far this year have priced below expectations, also the lowest rate in at least 10 years.


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