World Week Ahead: Corporate clouds keep rolling

Monday 29th October 2012

Wall Street is starting the week on edge, wary of what the next wave of corporate results will bring and amid uncertainty about the strength of the world's largest economy.

Ratcheting up the pressure is the final week of campaigning for the US presidency with President Barack Obama holding a razor-thin lead over Mitt Romney, the latest Reuters/Ipsos poll showed.

But ahead of the November 6th vote, there are more key US corporate earnings to stomach in the coming days from companies including Chevron, Visa, Starbucks and Ford Motor.

Earnings and especially revenue have proven to be extremely lacklustre this quarter, both falling short of expectations that were not particularly high to begin with.

With slightly more than half of the S&P 500 companies having reported results, 62.5 percent have surpassed earnings expectations, compared with the 67 percent average over the past four quarters, while 37 percent have exceeded revenue forecasts, down from 55 percent over the past four quarters, according to Reuters.

And that's certainly affected the mood on Wall Street. In the past five days, the Standard & Poor's 500 Index sank 1.5 percent, while the Dow Jones Industrial Average dropped 1.8 percent. The S&P 500 is now on track to end October at a loss.

Still, some investors see reasons to pick up shares at a relative bargain.

"We'll use any pullback as an opportunity to buy," Chip Cobb, senior vice president at Bryn Mawr Trust Asset Management in Bryn Mawr, Pennsylvania, told Reuters.

That appears to have happened to Apple, which saw its shares pare most of its early losses by the market close on Friday. As solid as the company's results the previous day were, they failed to meet expectations and the company reined in expectations for the holiday season.

Key economic data this week include reports on personal income and outlays, manufacturing and employment-the highlight of which will be the payrolls report.

Analysts polled by Reuters expect Friday's non-farm payrolls report to show 124,000 jobs were added in October, up 10,000 from September. However, the unemployment rate is anticipated to rise to 7.9 percent from 7.8 percent.

Last Friday, data showed that US gross domestic product advanced at a 2 percent annual rate in the third quarter, following a 1.3 percent increase in the prior quarter. While better than expected, the pace of expansion clearly remains modest and a deeper review of the data showed that a key contributor was what's seen as a temporary burst of defence spending.

In Europe, the Stoxx 600 Index also posted a loss for the week, shedding 1.3 percent. The euro declined 0.7 percent against the greenback. There remains little to cheer about anything in the euro zone.

Last week's corporate earnings and economic indicators did little to alleviate the concern about the EU's suffering economies amid the ongoing sovereign debt crisis. At the end of the week, data showed a surprise drop in German business confidence while in Spain unemployment climbed to a record.

Meanwhile, it seems evident Spain is unlikely to ask for a full bailout any time soon. That sent the nation's benchmark bonds down, pushing the yield on the 10-year bond up 22 basis points over the past five days to 5.59 percent.

"The market's now bracing for the possibility there's not going to be any attempt to ask for aid for another month. Uncertainty is something that a bondholder hates," Peter Chatwell, a strategist at Credit Agricole Corporate & Investment Bank in London, told Bloomberg.

Into this market, Germany, Italy and France are all set to auction bonds this week.

Reflecting the struggles of the EU is speculation swirling UBS. The Swiss bank will cut as many as 10,000 jobs companywide as the trading business shrinks, the Financial Times reported on Friday.

An announcement may come when UBS reports third-quarter earnings on October 30, the newspaper said.

BusinessDesk.co.nz

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