NEW$ & VIEW$ (17 OCTOBER 2013)

Congress Vote Ends Impasse to Be Revisited in January

After the partisan passions and heated rhetoric, the disruptions of a government shutdown and displays of dysfunction, Congress did what it could have done weeks ago: voted to fund the government and lift the debt limit. (…)

The shutdown shaved 0.6 percentage point from annualized fourth-quarter growth, taking $24 billion out of the economy, S&P said in a statement yesterday. In September, the company forecast a growth rate of about 3 percent.

German Growth Outlook Cut

(…) The institutes said Europe’s largest economy would grow only 0.4% this year and would pick up next year, expanding 1.8%. This marks a lowering of their forecasts from April when they said the German economy would grow 0.8% and 1.9%, respectively.

The official announcement confirms earlier reports in the German media.

“The German economy is on the verge of an upturn driven by domestic demand,” the institutes said. “The improving global economic climate and decreasing uncertainty are fueling investment. Private consumption is benefiting from favorable employment and income prospects,” they said. (…)

Corporate Germany Looks Away From Home

Germany’s biggest companies say they are looking to invest overseas rather than at home in the year ahead, suggesting that low investment in Europe’s biggest economy won’t improve soon.

(…) Lack of sales growth in Germany and Europe, now and in companies’ expectations for coming years, is deterring many corporations from increasing their investment spending in Germany, where capital expenditure has sunk to near-historic lows as a share of gross domestic product.

High production costs—especially high energy prices in Germany compared with the U.S. and some European or emerging economies—and lingering uncertainty about the longer-term cohesion of the euro zone are also commonly cited reasons for holding back on domestic investment. (…)

Most of the companies that responded to The Wall Street Journal survey—all of them nonfinancial companies from among the leading German corporations that make up the DAX-30 stock-market index—say they are aiming to maintain or slightly increase their overall investment in the year ahead. But they are mostly planning to spend money on maintaining rather than significantly upgrading their domestic production facilities.

Only a minority of polled companies listed Germany among their planned investment targets.

The survey’s findings challenge hopes in Germany that investment will take off in coming months, following two years of weakness that has held down Germany’s growth rate. German GDP is projected to increase by about 0.4% this year, due in part to companies’ reluctance to invest. (…)

Meanwhile, foreign companies’ appetite for investing in Germany is also waning. Foreign direct investment in Germany plummeted to €5.1 billion ($6.9 billion) in 2012, from €58.6 billion in 2007, according to data from Germany’s central bank. The decline continued in the first six months of this year, when a mere €800,000 of FDI landed in Germany. (…)

CHINA

Several charts from CEBM Research suggest slow and slower growth in China:
 
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IBM blames China for slide in revenues
Investor disquiet at sixth successive quarter of sales falls sends shares down 6%

Mark Loughridge, chief financial officer, said much of the problem was caused by Chinese state-owned enterprises and other public sector customers pulling back from buying computer hardware as the country’s leaders prepared an economic reform plan. IBM had suffered “enormous reductions on a year-to-year basis in a geography we tend to see [high] growth rates”, he said.

EARNINGS WATCH

Still early (61 companies) but here’s the tally as of yesterday courtesy of RBC Capital:

Beat rates are 34% on revenues and 56% on earnings. Of the 15 Financials that have reported so far (out of 81 total), 40% beat on revenues and 60% on earnings. Ex Financials, the beat rate is 54% so far.

 

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