NEW$ & VIEW$ (23 JANUARY 2014)

EMPLOYMENT SUPPLY/DEMAND (Cont’d)

Lance Roberts points out the jump in the Quits/Layoffs ratio which also suggests un tight supply/demand balance.

“Quits are generally voluntary separations initiated by employees. Quits are procyclical, rising with an improving economy and falling with a faltering economy. Layoffs and discharges are generally involuntary separations initiated by an employer and are countercyclical, moving in the opposite direction of quits. The ratio of the number of quits to the number of layoffs and discharges provides insight into churn in the labor market over the business cycle.

 
Boost for Spain as unemployment dips
Latest sign pointing to a nascent economic recovery

The number of unemployed people in Spain dropped slightly in the final quarter of last year, the first such fall in a decade and the latest in a series of broadly encouraging signs that point towards a nascent economic recovery in the country.

The data, contained in a labour market survey released on Thursday, are likely to bolster confidence in the Spanish economy at a time when investors are piling into the country’s sovereign debt and other assets on a scale not seen since the start of the crisis.

S Korea records fastest growth in 3 years
Robust domestic demand powers strong growth

Gross domestic product rose by 3.9 per cent in the last three months of 2013 from a year earlier, broadly in line with economists’ forecasts. In a break from the trend of recent years, the contribution to growth of domestic demand – or total purchases of goods and services – outstripped that of exports, the Bank of Korea said on Thursday.

However, confidence in South Korea is tightly linked to exports, which account for more than half of GDP, and economists said the improved domestic demand was based on growing faith in the strength of the global recovery, with South Korean exports growing 4.3 per cent last year. (…)

Companies’ investment in machinery and transport equipment fell heavily over most of the past two years, reflecting nervousness among manufacturers about overseas demand. But it rose by an annual 9.9 per cent in the fourth quarter, and this rebound was set to continue into the new year, said Kwon Young-sun, an economist at Nomura. (…)

Dollar sinks below 90¢ as Poloz ‘declares open season on loonie’

(…) Yesterday, it plunged below 91 cents U.S. after the Bank of Canada released its rate decision and monetary policy report that, over all, suggests interest rates aren’t going anywhere at any time soon because of its focus on stubbornly low inflation.

Pointing up Coupled with that was a line in the report that warned the currency “remains strong and will continue to pose competitiveness challenges for Canada’s non-commodity exports” even with its stunning loss over the past year.

“Until today, the Bank of Canada had been careful not to open talk down the loonie,” chief economist Douglas Porter of BMO Nesbitt Burns said late yesterday in a research note titled “BoC declares open season on loonie.”

“They effectively gave sellers the green light in today’s monetary policy report by stating that even with the big drop in recent weeks, it remained high and would still ‘pose a competitiveness challenge for Canada’s non-commodity exports,” he added. (…)

Some observers also believe that this is a deliberate move by Canadian policy makers to devalue the currency in a bid to boost the country’s exports, as a weaker loonie lowers the cost of Canadian goods in the United States.

The Bank of Canada denies any such thing, but everyone agrees that Mr. Poloz, while not driving down the dollar, is pleased with the outcome. (…)

THE BoC DOES NOT NEED TO CUT RATES
 

In Canada, low inflation and disappointing job creation have prompted many to ask whether the Bank of Canada (BoC) will need to ease in 2014. At this writing the OIS market is putting the odds of a rate cut by September at 33%. The question is legitimate, but we think the depreciation of the Canadian dollar is doing the job for the Bank.

An old rule of thumb was that a 10% depreciation of the Canadian dollar would add 1.5% to GDP over time. That was when the penetration of
Canadian exports in the U.S. market was stronger. Our share of U.S. imports has been declining since even before the last recession. Moreover, Canadian manufacturing capacity has shrunk as producers have restructured their operations in the wake of the Great Recession. So that rule of thumb is surely too optimistic by now.

Yet even if the impact of the exchange rate on the economy were only a third of what it used to be, the 9.5% drop in the effective exchange rate since January 2013, if sustained, would over time add 0.4% to GDP. As
today’s Hot Chart shows, that is probably as large a boost to the economy as would be expected from a BoC rate cut of 50 to 75 basis points. (NBF)

image
 
Rouhani outlines growth plan for Iran
President calls for greater engagement with rest of the world

Hassan Rouhani, president of Iran, on Thursday predicted that his country had the potential to be one of the world’s top 10 economies in the next three decades if sanctions were lifted and economic ties normalised.

In an upbeat and conciliatory speech at the World Economic Forum in Davos, Mr Rouhani reiterated that developing nuclear weapons “has no place in Iran‘s security strategy” and forecast that ties with Europe would be “normalised” as the interim nuclear agreement is implemented.

Mr Rouhani said he intended to remove “all political and economic impediments to growth” in Iran and that one of his priorities was “constructive engagement with the world”. (…)

For its part, Iran intends to “reopen trade, industrial and economic relations with all of our neighbours”, he said, naming Turkey, Iraq, Russia, Pakistan, Afghanistan and Central Asia. (…)

Iran’s economy shrank more than 5 per cent in the last fiscal year as international sanctions imposed in response to the country’s nuclear programme took their toll. (…)

Benjamin Netanyahu, the Israeli prime minister, who is due to address the forum later on Thursday, described the speech as a continuation of “the Iranian campaign of deception”.

In a long post on his Facebook page he warned: “The international community mustn’t fall for this deception once again, and it must prevent Iran from being capable of manufacturing nuclear weapons.” (…)

SMALL IS BEAUTIFUL?

Chart from Citi Research (via ZeroHedge)

BUYBACKS BACK PRICE GAINS

Investing in the 100 stocks with the highest buyback ratios had a 49 percent total return for 2013. The S&P 500 Index gained 32 percent, and the CDX High Yield Index returned about 14 percent, including the 5 percent coupon. (BloombergBriefs)

image

EARNINGS WATCH

Bespoke give us its tally of all NYSE companies:

Earnings and Revenue Beat Rates Decent So Far

Of the 121 companies that have released earnings since the Q4 2013 reporting period began, 68% have beaten bottom-line EPS estimates.  As you can see, 68% would be a strong reading if it holds. Keep in mind that it’s still very early, though.  More than 1,000 companies are set to report over the next few weeks, so the beat rate could fluctuate a lot.

Top-line sales numbers have been a little less rosy than the more-easily manipulated bottom-line numbers.  As shown in the second chart below, 57% of companies have beaten revenue estimates so far this season.  While this isn’t a stellar reading, it is better than all but one of the earnings seasons we’ve had since the start of 2012. 


CFOs Warn Investors on Impact of Expired R&D Tax Credit

Companies are flagging investors they may face higher tax rates this year because the U.S. tax credit they use to offset some research and development expenses expired at the end of last year.

As first quarter conference calls get going, companies ranging from Johnson & Johnson to Textron Inc. are providing detailed information about the missing credit. While chief financial officers widely expect Congress to reinstate the credit, companies cannot factor in the tax credit into their financial results unless it is current law.

Companies, including Johnson & Johnson, are warning the lapsed tax credit for research and development could boost their tax rate.

The impact for many companies could be significant. Because the credit was retroactively extended for 2012 at the beginning of 2013, many companies recognized five quarters of tax credits in the first quarter of last year, but will recognize zero in the first quarter of 2014. (…)

While the credit often expires and is retroactively enacted, Congress has only once allowed it to lapse completely in 33 years. Some companies are confident enough to continue giving financial guidance with the assumption it will be extended, while others are hedging their bets. (…)

 

Leave a Reply

Your email address will not be published. Required fields are marked *