World Week Ahead: US earnings, Spanish worry

Monday 16th April 2012

A big week of US first-quarter earnings might help lift the mood in coming days, though the euro zone's sovereign debt crisis is again front and centre on every investor's radar screen.

The American first-quarter earnings season got off to a good start as companies including Alcoa, JPMorgan Chase and Wells Fargo posted results that beat expectations last week. Of the 32 companies in the S&P 500 that have reported earnings so far, Thomson Reuters data showed that 75 percent have exceeded Wall Street's expectations.

This week, 91 companies in the S&P 500 are scheduled to announce results, according to Bloomberg News. They include Citigroup, Goldman Sachs Group, Bank of America, as well as International Business Machines, Intel and Microsoft.

"Earnings are beating expectations. Outlooks still look pretty optimistic," Jack Ablin, chief investment officer of Harris Private Bank in Chicago, told Reuters. "Overall pretty good news, but it takes one lousy headline out of Europe to trump the whole thing."

Indeed the headlines from Europe — Spain in particular — clearly helped ruin the positive mood last week, as did China's lacklustre GDP report. Both Wall Street and European stock markets ended the week in the red as China's economy faltered, slowing more than expected in the first three months of 2012.

The world's second-largest economy grew 8.1 percent in the first quarter, the slowest pace since 2009. It was a double whammy after a rumour before the release of the report said that China's GDP was set to surpass predictions.

The disappointment was especially reflected in copper prices. Copper futures for May delivery fell 2.5 percent on Friday, bringing its weekly decline to 4.4 percent.

Also souring the mood were Spain's borrowing costs as they climbed above 6 percent, raising the spectre of another euro zone financial rescue.

US stocks dropped on Friday as a result, also declining for the week. In the past five trading sessions, the Dow Jones Industrial Average dropped 1.6 percent, while the Standard & Poor's 500 shed 2 percent.

In Europe, the Stoxx 600 Index posted its fourth consecutive week of losses, dropping 2.2 percent in the last four days of trading. European markets had been closed for the Easter holiday on Monday.

European stocks, bonds and the euro suffered amid renewed concern that Spain is next in line for a financial intervention.

A Spanish cabinet minister has called on the ECB to do more to stem the debt crisis as the cost of insuring the country’s bonds against default surged to a record.

“They should step up purchases of bonds,” Jaime Garcia-Legaz, a deputy minister in Luis de Guindos’s Economy Ministry, told Bloomberg on Friday in an interview.

Spain is set to sell two- and 10-year bonds on April 19. Germany, the EU safe haven for investors, also is set to sell debt this week.

Managing the European Union's debt crisis will be on the agenda of the International Monetary Fund spring meeting in Washington at the end of the week.

The world's 20 biggest economies look set to agree to increase the fund's resources by between US$400 billion and US$500 billion, rather than the US$600 billion initially sought by the IMF, Reuters reported, citing Group of 20 officials.

Among the indicators on the state of the US economy released in the coming days are the Empire State and Philadelphia Federal Reserve's manufacturing surveys, retail sales, housing starts and existing home sales. Investors will be looking for good news after unexpectedly poor payrolls data earlier this month.

"It will be interesting to see if this is the beginning of a soft patch, if this unemployment number is a harbinger of more," Stephen Massocca, managing director of Wedbush Morgan in San Francisco, told Reuters.

(BusinessDesk)

BusinessDesk.co.nz

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