Weekly Market Update
In a “risk on” week for the markets that saw equities rally, particularly outside the U.S., WTI rose midweek to $42/barrel, a level last reached in early December 2015. Fedspeak has generally been dovish over the past few weeks with the Philadelphia Fed President Harker and Dallas Fed President Kaplan arguing for caution on the next rate hike and Atlanta Fed President Lockhart changing his view on hiking at the April meeting, in light of weakening growth. Markets are currently pricing in a zero percent chance of a rate rise at the next meeting on April 27th.
Q1 Earnings Season
- The first quarter earnings season kicked of last week but the sample size of reports is much too small to issue a verdict on the overall period. So far, 7% of the companies in the S&P 500 have reported earnings to date. 71% have reported actual EPS above the mean EPS estimate, 17% have reported actual EPS equal to the mean EPS estimate and 11% have reported actual EPS below the mean EPS estimate. The percentage of companies reporting EPS above the mean EPS estimate is above both the 1 year (69%) average and the 5 year (67%) average. Q1 results from the banks in the US have so far came in strong so far versus low expectations, boosting overall sentiment. EPS growth is expected to be -7.8% for Q1 YoY and excluding energy -2.6%. For the entire 2016 calendar year, EPS growth is expected to be +1.3% and +4.4% excluding energy.
- The Telecom Services sector is expected to report the highest earnings growth at 13.6% for Q1 YoY, boosted by the combination of AT&T and DIRECTV. If excluded, the estimated earnings growth rate for the Telecom Services sector would fall to 2.1%.The Consumer Discretionary sector is expected to report the second highest earnings growth at 9.8% (Q1 YoY).
- The Consumer Discretionary (+10.0%) sector is also reporting the largest upside aggregate difference between actual earnings and estimated earnings. In this sector, Carnival ($0.39 vs. $0.31), Lennar ($0.63 vs. $0.52), and Nike ($0.55 vs. $0.48) have reported actual results above estimates by the widest margins.
Notable events over the last week
- U.S. economic news was mixed, with the Empire State Manufacturing Survey rising to its highest in more than a year while U.S. industrial production for March fell more than expected. The University of Michigan index of consumer sentiment slipped to 89.7 in the preliminary April estimate, coming in below consensus expectations. Globally, Chinese data showed the country’s GDP slowing to 6.7%, but came in line with expectations and China’s own growth target.
- Initial jobless claims in the U.S. fell 13k, to 253k, in the week ending April 9, well below consensus expectations of 270k. The four-week moving average of initial claims ticked down to 265k (previous: 267k). With initial jobless claims now at the lowest level since 1973 and the four-week average at 265k, while not quite as favourable as some of the figures reported a few weeks ago, it still sends an upbeat signal regarding conditions in the labour market.
- The March US CPI headline inflation rate rose 0.1% MoM (vs. 0.2% expected), pulling the YoY rate of increase down to 0.9% (vs. 1.0% expected). Core inflation also rose 0.1% MoM, softer than consensus (0.2% expected), leaving core CPI inflation up 2.2% YoY. Both core and headline inflation have stabilised over the past few months as the direct effects of the decline in oil prices and appreciation of the dollar have fallen out.
- US Retail sales were down -0.3% MoM (vs. -0.1% expected). The decline in headline sales was led by motor vehicles, which posted a 2.1% MoM decline, in line with the sharp decline in March motor vehicle sales. Motor vehicles and parts account for a bit more than 20% of retail sales and the decline in March vehicle sales weighted heavily on the headline.
- In the UK the tone of the April MPC meeting as indicated by the minutes released last week, was broadly unchanged from March, maintaining the view of a strong domestic demand momentum. The key difference however, is that the Committee now fully acknowledge that EU referendum uncertainty is impacting economic momentum. In particular, the committee felt the impact from EU referendum uncertainty would be more felt on investment, with the impact on household consumption less clear. Furthermore, the Committee felt that the global activity environment has marginally improved, claiming that Chinese downside risks had lessened and Q1 16 weakness in the U.S. was temporary, although the long-term outlook of the latter was said to be unclear.
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