NEW$ & VIEW$ (16 OCTOBER 2013)

Empire Manufacturing Weaker Than Expected

While economists were expecting the headline reading to come in at a level of 7.0, the actual reading was just barely positive at 1.5.  This was the weakest reading seen since May.

New orders were good, though.


MBA: Shutdown impacting Purchase Mortgage Application Activity

Mortgage applications increased 0.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 11, 2013. …

The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. …

The government shutdown had a notable impact on the mortgage market last week. Purchase applications for government programs dropped by more than 7 percent over the week to their lowest level since December 2007, and the government share of purchase applications dropped to its lowest level in almost three years,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Conventional purchase applications dropped as well, but not to the same extent, falling almost 4 percent for the week.”


European Car Registrations Recover

New car registrations in the European Union rose 5.4% on year in September, underscoring confidence that demand for new vehicles in the region is on the cusp of a sustained recovery after a more than five-year slump.

New car registrations, a proxy for sales, rose to 1.16 million with strong increases in some crisis-hit southern European countries, according to the European Automobile Manufacturers’ Association, or ACEA. The rise amounts to the first quarterly rise in sales since 2008.

That narrowed the decline this year to 4 percent, for total deliveries of 9.34 million cars.

Last year, EU registrations were almost a quarter below the 2007 level.

(…) Mr. Fuss cautioned, however, that sales “continue to be artificially boosted by huge discounts and self-registrations by dealers.” (…)

In September, registrations in the region were boosted by an almost 29% increase in Spain, helped by a scrapping program and a low figure in the same period last year. Other crisis-hit markets are also rebounding, with Hungary up 32%, Ireland up 28% and Portugal up 16%. (…)

Sales rose 12 percent in the U.K., where consumer confidence was at a six-year high in September, and climbed 3.4 percent in France. Registrations fell 1.2 percent in Germany, Europe’s biggest economy, and 2.9 percent in Italy. (Bloomberg)

Letta Reshapes Italy Austerity With Tax Cut, Spending Curbs

Italian Prime Minister Enrico Letta reshaped the country’s two-year commitment to austerity by approving a labor-tax cut and relying on 3.5 billion euros ($4.7 billion) of spending reductions to meet 2014 deficit targets.

The central government will bear 2.5 billion euros of the cuts and regional administrations will deliver 1 billion euros, Letta told a news conference in Rome after his cabinet approved next year’s budget yesterday. The labor-tax reduction will give an extra 1.5 billion euros to workers next year and a total of 5 billion euros through 2016, he said. Companies will get tax breaks of 5.6 billion euros in that span. (…)

While VAT increased under Letta on Oct. 1 to 22 percent from 21 percent, the premier said yesterday he’s focused on easing fiscal pressure in the long term. Italy’s tax burden will fall to 43.3 percent in 2016 from 44.3 percent, Letta said. (…)

The government said last month it plans to reduce the deficit to 2.5 percent of gross domestic product in 2014 from its target of 3 percent this year. Italy’s 2 trillion-euro debt is about 130 percent of GDP, the second-highest ratio behind Greece in Europe.

“A decrease in labor costs will be positive but this is not the Italian problem,” Romano Prodi, a two-time Italian prime minister, said in an interview. “The problem is bureaucracy, the anti-business behavior of the public administration.” (…)


Scotia Capital’s charts exude prudence…and hope:



Although U.S. corporate profits are still growing, the pace of improvement has slowed meaningfully since mid-2011. From double-digit growth in 2011, U.S. corporate profit growth has slipped to the low single digit range. Based on the latest corporate profit figures released by the Bureau of Economic Analysis (BEA), profit growth expanded 5% YOY in Q2, a modest rebound from the 2% to 3% pace seen in preceding two quarters. The impact has also been felt on the S&P 500 index with YOY EPS growth stalled since Q3/12.

A breakdown of U.S. corporate profits indicates that profits earned abroad have been declining since mid-2011 while profits generated on U.S. soil have continued to expand.

Global PMIs bouncing. The global macro picture has improved in the past couple months. Europe is out of recession and modestly growing, while the latest macro figures out of China are suggesting the economy is stabilizing. As illustrated in Exhibit 12, the upswing in the global PMI index bodes well for a positive reversal in U.S. corporate profits earned abroad in coming quarters.

U.S. earnings have been firing on only one of two cylinders (i.e., domestic earnings) for the past two years, but this could be about to change. Earnings earned abroad account for about 20% of the overall corporate earnings picture and rebound could help overall U.S. earnings growth visibility, especially for U.S. large caps.


Small and mid-cap companies derive a larger part of their profits domestically:

Midcaps, Smallcaps Hit New All-Time Highs

(…) Smallcaps and midcaps, however, did indeed hit new all-time highs today.  As shown in the second and third charts below, three days of huge gains pushed both the S&P Midcap 400 and the Russell 2,000 (smallcaps) above their all-time highs from the first trading day of this month.  Smallcaps and midcaps are both seen as market leaders, so technicians will take this is a bullish sign.

Forward earnings (Ed Yardeni):

Crying face  Your graphical clownshow


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