NEW$ & VIEW$ (4 FEBRUARY 2014)


The media and analysts are tripping over themselves to explain the recent setback:

  • Growth Fears Hit Stocks European and Asian stocks fell Tuesday, following a sharp selloff the previous day in the U.S., as jitters about global growth continued to weigh on investors.

European and Asian stocks fell Tuesday, following a sharp selloff the previous day in the U.S., as jitters about global growth continued to weigh on investors.

Signs of a sharp slowdown in U.S. manufacturing on Monday reignited concerns about the health of the world’s largest economy, a further worry for investors who have already been spooked by the turmoil in emerging markets over the past two weeks.

Sentiment worsened markedly in Asia, where the Nikkei Stock Average fell 4.2%, leaving it 14% lower in the year to date—currently the worst performer among major global markets. A strengthening of the yen against the dollar after the poor factory data weighed heavily on Japan’s exporters. (…)

Goldman’s Global Leading Indicator’s January reading and the latest revisions to previous months paint a significantly softer picture of global growth placing the global industrial cycle clearly in the ‘Slowdown’ phase. They add, rather ominously, While the initial shift into ‘Slowdown’ (which we first noted in October) had a fairly idiosyncratic flavor, the recent growth deceleration now looks more serious than in previous months. Of course, as we noted yesterday, Jan Hatzius is rapidly bringing his optimistic forecasts back to this slowdown reality.

Swirlogram solidly in “slowdown” phase…

Yesterday’s U.S. ISM shook edgy investors even though Friday’s Markit U.S. PMI was not bad at all. Ed Yardini agrees with me and shows some evidence:

Perplexing PMI

Yesterday’s report was unexpectedly weak, with the overall index plunging from 56.5 during December to 51.3 last month, led by even bigger dives in the production index (from 61.7 to 54.8) and the new orders index (from 64.4 to 51.2).

The chairman of the Institute for Supply Management, which conducts the survey, blamed the weather for some of the weakness in the results. The eastern half of the US is experiencing one of its 10 coldest winters on record, with thousands of local records for cold already tied or broken. So the M-PMI hit an ice patch rather than a soft patch.

I’m not sure that makes sense. Why would orders be down so much just because the weather was bad? More perplexing is that the average of six regional business surveys showed solid gains last month, although they too were mostly hit by the bad weather. Furthermore, Markit reported yesterday that its final M-PMI for the US dipped from 55.0 during December to 53.7 last month. No big deal.

ISI’s Ed Hyman keeps the faith:

We still remain constructive and think US GDP is on 3% trajectory, AND despite EM pass through fears, globally the synchronized expansion remains in place.

The soft patch theme remains quite possible, however. Housing is weaker, retail is slowing and car sales may have seen their best time this cycle.

U.S. Vehicle Sales Continue to Decline as Weather Turns Frigid

Temperatures below zero in some parts of the U.S., and just unseasonably cold elsewhere in the country, took their toll on light vehicle sales last month. Unit motor vehicle sales slipped 1.0% to 15.24 million (SAAR, +0.1% y/y) during January, according to the Autodata Corporation. Sales have fallen 7.1% from the recovery high of 16.41 million in November.

The decline in overall sales was a function of fewer auto purchases, off 4.6% to a 7.30 million annual rate (-6.0% y/y). Sales of imported autos declined 12.3% to 2.17 million (-2.8% y/y). Sales of domestics fell 2.4% to 5.12 million (-7.4% y/y).image

CalculatedRisk quotes WardsAuto’s slighly lower estimate:

Based on an estimate from WardsAuto, light vehicle sales were at a 15.14 million SAAR in January. That is down slightly from January 2013, and down 2.5% from the sales rate last month.

I have been warning that auto sales could well have reached a cyclical peak as we should not expect a repeat of the excesses of the early 2000s.

large imageU.S. Construction Spending Growth Moderates

The value of construction put-in-place ticked 0.1% higher in December (5.3% y/y) following a revised 0.8% November increase, initially reported as 1.0%. For all of last year, growth in construction activity moderated to 5.5% from 8.1% in 2012.

Private sector construction activity jumped 1.0% (8.0% y/y) in December following 1.7% growth in November. Residential building surged another 2.6% (18.3% y/y) as single-family home building activity jumped 3.4% (21.6% y/y). Spending on improvements gained 2.0% (12.0% y/y) while multi-family building rose 0.5%, up by roughly one-quarter y/y. Nonresidential building activity declined 0.7% (-1.7% y/y) following its 2.4% November jump.

Offsetting the private sector gains was a 2.3% decline (-0.7% y/y) in the value of public sector building activity. The shortfall reflected outsized declines in many components but spending on highways & streets surged 1.8% (11.3% y/y). Spending here accounts for 30% of total public sector construction activity.

The U.S. government’s spending on construction tumbled 14.2% to $23.49 billion in 2013, the Commerce Department said Monday. That was the sharpest decline in records dating back to 1993, enough to return spending to 2007 levels.

Washington’s clash over government spending took a bite out of federal expenditures last year. A series of cuts known as the sequester slashed spending by tens of billions of dollars early in the year, until a deal to restore some of the reductions this year.

Spending by state and local governments, which account for a much larger portion of total construction expenditures, fell by 1.6% to $247.69 billion last year. That was more than the 1.2% decline for the category in 2012, but less than the 6.6% drop in 2011.

Falling Prices Hurt Firms American companies are struggling with falling prices for some key products amid intense competition and pressure from cost-conscious customers.

Executives from companies as varied as General Electric Co. GE -3.10% , Kimberly-Clark Corp. KMB -3.55% and Royal Caribbean Cruises Ltd.RCL -3.23% said some prices slipped in the last three months of the year—sometimes significantly.

Falling prices for adhesives weighed on Eastman Chemical Co. EMN -2.37% , cheaper packaged coffee dragged on Starbucks Corp. SBUX -3.02%, and “value and discounts” hit McDonald’s Corp. in the fourth quarter in what the fast food chain called a “street fight” for market share. XeroxCorp. XRX -4.06% is eyeing acquisitions that can “help us be more competitive on price pressure. (…)

Not every company reported price drops. 3M Co. said prices increased 1.4% in the fourth quarter, attributing the gain to research gains and adjustments made in emerging markets designed to offset currency devaluation. Harley-Davidson Inc. HOG -0.75% said price increases helped boost motorcycle revenues by 1.4% in the quarter even as shipments fell 1%. Altria Group Inc. MO -3.15% said a 13.2% rise in income for cigarettes and cigars in 2013 came “primarily through higher pricing.”

But the trend is evident in government data. While economic growth in the fourth quarter came in strong, helped by expanding consumer spending, firms aren’t raising prices. For the last two years, the consumer-price index has increased less than 2%, the first time in 15 years it has been that low in consecutive years. And in the year since December 2012, the consumer-price index for goods, excluding food and energy, declined 0.1%. (…)

That said: Chief Executives in U.S. More Confident on Economy, Survey Shows

The Young Presidents’ Organization sentiment index climbed to 63.5 from 60.5 in the previous three months. Readings greater than 50 show the outlook was more positive than negative. (…)

Fifty-two percent of executives surveyed said the economy has improved from six months ago, up from 38 percent who said so in October. Nine percent said the economy will worsen, down from 20 percent last quarter. (…)

Fifty-eight percent of chief executives in the YPO survey expect conditions to improve in the next six months, up from 42 percent in the previous period.

The Dallas-based group’s outlooks for demand, hiring and capital investment also advanced. The gauge of sales expectations for the coming year rose by 2.9 points to 68.7. The employment index climbed to 59.9 from 58.9.

Globally, business confidence grew in most regions. The YPO’s Global Confidence Index also rose to the highest level since April 2012.

The nonprofit service organization’s findings for the U.S. are based on responses from 2,088 global chief executives, including 940 in the U.S., to an electronic survey conducted during the first two weeks of January.

G-20 Inflation Rate Falls The rise in consumer prices slowed across the world’s largest economies in December, fueling concerns that too little inflation, rather than too much, could threaten the global economy’s fragile recovery.

The Organization for Economic Cooperation and Development Tuesday said the annual rate of inflation in its 34 developed-country members rose to 1.6% from 1.5% in November, while in the Group of 20 leading industrial and developing nations it fell to 2.9% from 3.0%.(…)

The European Union’s statistics agency Tuesday said producer prices rose 0.2% from November, but were 0.8% lower than in December 2012. Prices had fallen in both October and November, by 0.5% and 0.1%, respectively. Excluding energy, producer prices were flat on the month and fell 0.3% when compared with December 2012. (…)

In addition to the euro zone, inflation rates fell sharply in two of the largest developing economies during December, to 2.5% from 3.0% in China, and to 9.1% from 11.5% in India.

However, inflation rates rose in the U.S., Japan and Brazil.


Winter Weather Worries

Winter weather can negatively impact economic activity and the labor markets as freezing temperatures and mounds of snow keep consumers at home and workers off the job.  But what sort of impact does the weather have on the markets?  Generally speaking, less economic activity and a softer labor market should hurt stocks.  But using data from the National Oceanographic and Atmospheric Administration’s National Temperature Index (NTI), we found that cold weather during the winter months (December, January and February) does not have a meaningful implication for stock market returns.  (…) As shown, that correlation isn’t very robust. 

In months that are abnormally cold, there is a small correlation between the NTI and the S&P 500, but it peaks in December…and December still has positive average returns in chilly months!  The second chart shows that cold weather is also a bad predictor of the next month’s returns.  The correlation between the NTI in a given winter month with cold weather and the month following is actually negative, but still very low.

Devil  I.BERNOBUL, a good friend and an all-star croquignole player, sees verbal inflation and self-serving complacency in this comment from John Mauldin in his Jan. 26 comment:

My friend, all-star analyst, and Business Insider Editor-In-Chief Henry Blodget makes a compelling point: Anyone who thinks we need a ‘catalyst’ for a market crash should brush up on their history… There was no ‘catalyst’ in 1929. Or 1966. Or 1987. Or 2000. Or 2008…”

Blodget’s point is as compelling as his investment recommendations as head of the global Internet research team at Merrill Lynch during the dot-com bubble. The reality is that when equity valuations get on the high side, nervous investors tend to hold on as long as they can, waiting for reasons to sell to show up. These reasons are often not what one would expect at the time but they are enough to shake investors confidence. Once markets begin to waver and the media amplify the fears, the negative momentum feeds on itself. This time, it was the EM problems that started the turn.



Should we take comfort from a more moderate pace of declines?

The Markit Eurozone PMI® Composite Output Index fell from 50.4 in January to 49.7 in February, according to the preliminary ‘flash’ reading based on around 85% of usual monthly replies. (…) The latest reading was nevertheless the second-highest of the past six months, and suggests that the Eurozone economy has stabilised over the first two months of the year having contracted in the final quarter of 2011.


Output rose in Germany and, to a lesser extent, in France. In both cases, however, the rate of expansion was slightly weaker than in January. Output fell across the rest of the region, and at a slightly steeper rate than in January (albeit less severely than late last year).


Service sector activity contracted slightly, reversing the modest return to growth seen in January. Meanwhile, manufacturing saw a marginal increase in output for the second month running.


imageIncoming new business fell for the seventh month running, but the rate of deterioration eased for the fourth month in a row to register the smallest drop in demand for six months. Rates of decline eased in both manufacturing and services, with the latter showing the smaller decline. Manufacturers reported the weakest drop in demand for seven months, led by an easing in the rate of loss in new export orders, while the decline in service sector new business was the smallest in the current six-month sequence.

imageBacklogs of orders fell across the region for the eighth successive month, but at reduced rates in both manufacturing and services. The overall fall was the smallest for six months. However, a combination of falling inflows of new business and lower backlogs of work caused companies to trim their headcounts, leading to a slight drop in employment for the second successive month.

Prices charged showed a minor fall for the third month in a row, as service sector charges fell at the steepest rate since July 2010. Factory gate price inflation hit a five-month high, but nevertheless remained only moderate.



Asian economies are not falling apart as the recent Markit PMIs revealed.


Asian manufacturers saw a stabilisation of business conditions in January. The PMI for the region rose from 49.4 in December to 50.1, breaking above the 50 no-change level for the first time since October, though signalling only a marginal improvement in operating conditions during the month.

Both output and new orders indices edged above 50, the latter pointing to a welcome steadying of demand following marked declines in November and December. Export orders for the region showed a marginal rise, up for the first time since last May.


India saw the steepest rate of expansion, with the PMI surging to an eight-month high of 57.5, led by rising domestic demand. Japan’s PMI imagealso rose further above 50, though at 50.7 continued to register only modest growth, reflecting weak trends in both domestic and export orders.

At 48.8, China’s PMI remained in contraction territory, but the rate of decline eased for the second month running, reflecting markedly slower rates of decline of order books compared with that seen in the final two months of 2011.

With the U.S. PMI steadily above 50 with pretty good reports on new orders, the world ex-Europe is staying above water so far.



The PMI registered 54.1%, an increase of 1 pp from December’s reading of 53.1%. The New Orders Index increased 2.8% to 57.6%. Orders backlog rose 4.5% to 52.5.


Nine industries reported higher new orders while five saw decreases.

image image

ISM’s Employment Index registered 54.3% in January, down 0.5%. Eight of the eighteen industries reported employment gains.

Interestingly, ISM Customers’ Inventories Index registered 47.5% in January, which is 5 pp higher than in December. Customers’ inventories have registered at or below 50% for 34 consecutive months. The ISM says that a reading below 50% indicates customers’ inventories are considered too low. This flies in the face of people worried that inventories are getting out of line in the U.S.


The five manufacturing industries reporting customers’ inventories as being too high during January are: Petroleum & Coal Products; Primary Metals; Electrical Equipment, Appliances & Components; Fabricated Metal Products; and Chemical Products. The five industries reporting customers’ inventories as too low during January are: Plastics & Rubber Products; Transportation Equipment; Paper Products; Computer & Electronic Products; and Food, Beverage & Tobacco Products. Eight industries reported no change in customers’ inventories in January compared to December.



The downturn in the Eurozone manufacturing sector eased further at the start of 2012. The seasonally adjusted Markit Eurozone Manufacturing PMI® rose for the second month running in January. Although below 50.0 and therefore still signalling a worsening of business conditions, the index hit a five-month high of 48.8, up from 46.9 in December and just above the earlier flash estimate of 48.7.

Signs of recovery were seen in Germany and Austria, where PMIs rose back above the 50.0 no-change mark. Rates of contraction eased in Italy, Spain and the Netherlands.


The PMI was boosted by Eurozone manufacturing output rising marginally, up for the first time since last July and an improvement on the flat trend signalled by the earlier flash estimate. Growth was led by a solid increase in Germany, alongside modest output gains in the Netherlands and Austria. Rates of output contraction eased sharply in Italy and Spain, but slightly steeper declines were seen in France and Ireland. Greece fared the worst, however, with production falling at the fastest pace in the survey history.

Demand remained lacklustre in January, reflecting ongoing weakness in certain domestic markets and lower levels of new export business. However, the rate of loss of new orders eased for the second month in a row to register the smallest decline since last July. Total new orders nevertheless continued to decline in all of the nations covered except for Austria. This meant that manufacturers relied on backlogs of work – which fell sharply again across the region – to support production volumes.

New export orders declined for the seventh month running in January, which companies partly attributed to lower levels of intra-region trade. The pace of contraction was steeper than the earlier flash estimate, but nonetheless the weakest since July 2011. Higher new export orders were seen only in Ireland and the Netherlands, although the rates of decline eased in all of the other member states covered.



January data showed a further deterioration in Chinese manufacturing sector operating conditions, with both output and new business falling further over the month. Companies reduced their purchasing at a marked rate in response, with many reporting a preference towards stock depletion. Meanwhile, job shedding persisted at the start of 2012. On the price front, a combination of lower average cost burdens and competitive pressures meant that manufacturers continued to reduce their output charges at a sharp rate.


After adjusting for seasonal variation, the HSBC Purchasing Managers’ Index™ (PMI™) registered 48.8 in January, broadly unchanged from December’s reading of 48.7, and a level indicative of a moderate deterioration in Chinese manufacturing sector conditions.

Manufacturers reported a third successive monthly reduction in factory output during January, decreasing at a moderate rate that was faster than in December. Where a decline in production was recorded, this was commonly linked to lower levels of incoming new business.

New order volumes fell further in January. The overall decrease was the third in as many months, and mainly reflected muted client demand according to survey participants. However, the rate of decline in new work was only marginal. In contrast, a slight expansion of incoming new export business was recorded in the latest survey period.
Backlogs of work returned to growth in January, although the pace of expansion was only slight. Meanwhile, manufacturing firms continued to reduce their total staff numbers at a marginal rate. 

The rate of reduction in purchasing activity was solid, and the sharpest in 34 months. A number of manufacturing firms reported a preference towards stock depletion, with January data signalling a solid decline in pre-production inventories. Despite this, the average time taken by vendors to deliver inputs to manufacturers continued to lengthen.
Average input costs fell for the third consecutive month in January, although the rate of decline was the slowest in that sequence. Companies attributed lower cost burdens to reduced commodity prices on both domestic and global markets. Easing input price pressures, coupled with growing competition for new business, meant that manufacturers continued to reduce their factory gate charges at a marked rate.

China’s official purchasing managers’ index rose to 50.5 in January from 50.3 a month earlier.

New export orders declined by more than 1ppt to 46.9, reflecting both weak demand and the impact of the festival break. The import sub-index dropped even further, from 49.1 to 46.9, and there was very little seasonality in this series. Together with a depressed level  of backlog orders,  at only 43.2, the boost in total orders  looks  temporary, and  suggests that manufacturers are not very optimistic about the near-term outlook.

China PMI new export orders, year-on-year official - AlsoSprachAnalyst


NEW$ & VIEW$ (31 Jan. 2012)


  • The leaders agreed that the European Court of Justice will be empowered to impose fines on euro countries running excessive deficits. Fines will be capped at 0.1% of gross domestic product. For Italy, for example, that could mean fines as high as $2 billion.
  • It will require governments to keep their budget deficits to an average of 0.5% of GDP over the economic cycle—and to reduce their total government debt toward 60% of GDP over time.

Please note:

The EU has long-standing rules that are supposed to limit budget deficits in any year to 3% of GDP, and limiting government debt to 60% of GDP, but they have never been enforced.

“The history of rules-based approaches in Europe is that the rules get interpreted flexibly over time, according to the desires of the day,” rather than the intentions of their creators, said Michael Saunders, economist at Citigroup in London.

THE BIG BAZOOKA will wait a bit more…

While the leaders were expected to endorse a treaty creating the €500 billion ($660 billion) permanent bailout fund, known as the European Stability Mechanism, expected to come into operation at midyear, officials said a proposal to boost the bailout resources would be delayed until the leaders’ next scheduled summit on March 1.


Italian Auctions Remain A Worry

If Spain is the hare in Aesop’s fable, then Italy is the tortoise. While Madrid has raised 20% of its total funding in January alone thanks to a series of blowout auctions, Rome’s latest auction fell short of raising the maximum €8 billion targeted, with €7.5 billion of bonds sold. In the context of the strong recent market performance, this was disappointing.

Monday’s auction did contain some good news: demand for the closely-watched 10-year portion of the auction was solid, with the full €2 billion target sold at a yield of 6.08%, down from 6.98% at December’s auction.

Banks set to double crisis loans from ECB
Emergency funding take-up could reach €1tn

Several of the eurozone’s biggest banks have told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29. (…)

Goldman Sachs has told clients that banks could ask for twice as much in the February auction as in December when more than 500 lenders raised €489bn. “They could do another €1tn easily in February,” said one senior banker. “It could be way more than that if things get worse in the markets.”

BECAUSE ON EURO MAIN STREETS, things are not rosy

The euro area (EA17) seasonally-adjusted unemployment rate was 10.4% in December 2011, unchanged compared with November. It was 10.0% in December 2010. The EU27 unemployment rate was 9.9% in December 2011, also unchanged compared with November. It was 9.5% in December 2010.


Some countries: Italy 8.9% from 8.8% in November, France 9.9% vs 9.8%, Spain 23.4% vs 23.3%.


Retail sales fell 1.4% in inflation-adjusted terms in December from the previous month. They were down 0.9% in real terms in December from a year earlier.

In France, consumer spending dropped 0.7% in December. Spending was 3.1% lower than in December 2010.

These were for the all-important December. January looks better in Germany but still weak in France and just awful in Italy as the just released Markit Retail PMI reveals:

A reading of 52.8 in Germany for January, up from 50.5 in December, contrasted with a 35-month low of 43.6 in France and an all-time low of 28.4 in Italy.


The downturns, and fear of further weakness in coming months, led retailers to cut staffing levels in France and Italy, but an increase in employment was reported for the twentieth successive month in Germany.

During Q3’11, Eurozone real gross disposable income declined -0.4%, while real final consumption expenditure recorded a small increase (+0.1%). Real income fell due to a decrease in nominal income (-0.1%) while prices rose (+0.4%). It was the 3rd consecutive quarterly decline in real disposable income which has increased in only 3 quarters since Q2’08. Will Europeans dip any further into their savings?





CHICAGP PMI slips from 62.2 to 60.2.


New orders also slipped from 67.1 to a still strong 63.6 but order backlogs dropped sharply from 57.3 to a weak 48.3, probably due to European order cancellations.



Texas factory activity increased in January. The production index rose from 0.2 to 5.8.
The new orders index jumped to 9.5, its highest reading in six months, after two months in negative territory. Similarly, the shipments index turned positive after two negative readings, rising from –1.1 to 6.1. Twenty-eight percent of manufacturers noted higher capacity utilization, the highest share in nine months.

Perceptions of broader economic conditions were notably more positive in January. The general business activity index shot up to 15.3 after dipping into negative territory in December. Nearly a quarter of manufacturers noted improvement in the level of business activity, while nine percent noted a worsening. The company outlook index also increased markedly, rising from 5 to 13.5. Both indexes reached their highest readings in 10 months.

Labor market indicators reflected continued labor demand growth. The employment index came in at 12.2, up from 9.9 in December. Twenty-one percent of firms reported hiring new workers, while nine percent reported layoffs. The hours worked index continued to suggest average workweeks lengthened. (Complete Dallas Fed release)

U.S PERSONAL INCOME ROSE 0.5% in December following an unrevised 0.1% November uptick. Personal income has increased at a 4% annualized rate in the last 3 months. Wage & salary disbursements increased 0.4% (3.8% y/y), also gaining 4% annualized in Q4. Disposable income increased 0.4% (2.3% YoY) and 2.4% annualized in Q4. Adjusted for prices, disposable income increased 0.3% MoM but slipped 0.1% YoY. It has increased at a 2.4% annualized rate in Q4.

Real personal consumption expenditures slipped 0.1% MoM (3.9% y/y), and have been essentially flat for the third consecutive month. (Chart from Haver Analytics).


imageIntuit’s January employment index rose 0.2% to 96.14.  The index has been rising for just over two years but this month’s gain was the weakest since November 2010. Regardless, the index was up 4.1% y/y and built on its 3.3% increase in 2011 and 0.1% in 2010.

Intuit also surveys average monthly compensation and it has been fairly weak. A 0.1% January slip was the seventh in as many months. In addition, the 0.3% y/y gain was its weakest since the change became available in 2008. Also, small business hours worked have gone nowhere. A negligible January slip was the eighth month down in a row and they’re off 0.4% y/y.

AND U.S. Auto Sales Seen Surging 6% in January

Light-vehicle sales in January, set for release tomorrow, may have run at a 13.4 million seasonally adjusted annual rate, the average estimate of 14 analysts surveyed by Bloomberg. The pace probably accelerated from 12.7 million a year earlier while automakers’ spending on incentives stayed steady or slid from a year earlier, according to analysts at JPMorgan Chase & Co., RBC Capital Markets LLC and Barclays Capital.


On January 25, I reported on the American Trucking Association tonnage index which had jumped a remarkable 6.8% in December. My post included a chart from the ATA which, even though it said used seasonally adjusted data, was in fact using non-s.a. data. Yesterday’s WSJ carried the same “old” news but with the actual s.a. chart which better displays the chart jump in December.

Rail traffic was just as strong in December, by the way.

image image



GUIDANCE WEAKENS (Bespoke Investment)

As it stands now, just 57.9% of all US companies that have reported have beaten analyst earnings estimates.  This would be the weakest reading since the bull market began in early 2009 if it stands.  The top line revenue beat rate has been even worse at just 54%, which would also be the weakest reading seen since the bull market began.

(…) Below is a chart showing the spread between the percentage of US companies that have raised guidance minus the percentage that have lowered guidance this earnings season.  As shown, the number currently sits at -3.3 percentage points, meaning more companies have been lowering than raising guidance. 

Last quarter was the first earnings season since the financial crisis ended where the guidance spread finished negative.  Unless we get a pretty big reversal by the time earnings season ends in mid-February, it looks like we’re now going to have two consecutive quarters with a negative guidance reading.

Zacks Research:

The growth picture is weaker than what we have seen in recent quarters, but it is largely in-line with expectations and better than some of the more exaggerated fears.

The year-over-year earnings growth rate for the companies that have already reported is about half of the roughly 14% growth that the same firms reported in the third quarter. Growth deceleration aside, there are other signs of a weakening trend. The proportion of companies beating estimates and the size of the beats also don’t compare favorably to the last few quarters.

But none of this was a big surprise. In fact, the market appears to have taken a collective sigh of relief after seeing these earnings reports. And justifiably so, since earnings can’t keep growing at double-digit rates forever. The overall tone and guidance from management has been neutral to modestly negative, but estimates for 2012 appear to be stabilizing after consistently trending down over the last few months.

Nomura on global earnings:

Although those companies that have missed or beaten the analysts’ consensus predictably garner the headlines, the fact is that, so far, the Q4 results have been close to expectations. The 43% of companies producing EPS numbers in line with analysts’ forecasts is the highest we have seen in recent years.

Similarly on revenues, 55% of companies have produced in-line figures, once again the highest we have seen in recent times. (FT Alphaville)






[JECON]Japan Output Beats Forecasts

Japanese industrial production rose 4% in December from the previous month, as the impact of the flooding in Thailand on Japanese manufacturers receded.Output fell 2.7% in November.The ministry’s data showed that companies expect output to rise 2.5% in January on month, and 1.2% in February.


Saudi oil minister reassures on global supply

Naimi pledges to cover shortfall as tensions rise over Iran embargo

Without naming Iran, he told an audience in London that Saudi Arabia would continue to be a “reliable, steady and dependable supplier of energy to the world”.

Keep in mind that our Saudi “friends” have recently declared that they need $100 oil to meet their budget requirements.




The Markit Eurozone PMI® Composite Output Index moved into positive territory for the first time in five months in January, according to the preliminary ‘flash’ reading which is based on around 85% of usual monthly replies. The index rose for the third month running, up from 48.3 in December to a five-month high of 50.4. That signalled a marginal increase in private sector economic activity.


Output rose at a robust pace in Germany, which saw the largest increase for seven months, and a modest expansion (the first growth for four months) was also reported in France. In contrast, output continued to fall across the rest of the region as a whole, dropping for the eighth successive month. However, the rate of contraction was the weakest for four months.

Eurozone service sector activity rose very slightly, expanding for the first time since last August. Meanwhile, manufacturing output was unchanged, improving on the declines reported by the goods-producing sector throughout the previous five months.

imageIncoming new business continued to fall in both sectors, although the rates of decline eased to a five-month low in services and a six-month low in manufacturing. Goods producers also reported the smallest drop in new export orders for six months. Measured across both sectors, new business fell for the sixth month in a row, but at the slowest rate since last August.

image image

With inflows of new orders continuing to deteriorate, backlogs of work fell across the region for the seventh successive month, declining in both manufacturing and services. The overall fall was the smallest for four months, but nonetheless sufficient to lead firms to cut employment for the first time since April 2010 (albeit only marginally). The decline in jobs was driven by services, as manufacturing headcounts rose slightly on average.

Employment growth slowed to the weakest since June 2010 in Germany, and to near-stagnation in France. Across the rest of the region, the average rate of job losses was broadly unchanged from the near two-year record seen in December.