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||Asean Affairs 21 October 2012
Global Equities Preview
Economist Shayne Heffernan of www.livetradingnews.com takes a look at the week ahead on equity markets
The global economy is still facing major risks as US Earnings fall and emerging markets slow from China to Brazil, investing this week should remain cautious the underlying economic data is unsound and as Warren Buffett has said, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.
Europe must stop shuffling paper money around, they have real debts and the answer is simple, fix it or let it collapse, while the half measures and nonsense promises continue Fund Managers like myself, Banks and large investors will remain cautious, companies will reduce spending and investment. Europe's failure has resulted in Global Contagion.
Worsening macroeconomic conditions, namely sluggishness in the U.S. economy along with a dramatic slowdown in Europe and weakness in China, have been among the chief reasons cited by companies in their warnings about earnings and revenue.
U.S. economic indicators to watch next week will include new home sales for September on Wednesday and durable goods orders for September on Thursday, followed by the first look at third-quarter GDP on Friday, as well as the final reading for October on consumer sentiment from the Thomson Reuters/University of Michigan surveys.
Market Correction to Continue
EuroCrisis to Worsen
Selling USA, Hong Kong, Thailand and Indonesia
Buying Value in Shanghai and Singapore
Exiting USD and Euro
Selling Yen as BoJ is set to intervene
The AAPL Effect will Reverse
Only buying Value Equities in the USA
Preparing for European Deleveraging
Our research and warnings over the past quarter have proven to be exteremly accurate, from 116 companies and estimates for the rest, earnings for S&P 500 companies are expected to decline 1.8 percent from a year ago, the first such decline since 2009.
Just 38 percent of S&P 500 companies beat expectations on revenue in the past week, compared with 41 percent since the start of the reporting period, and well below the 62 percent long-term average, Thomson Reuters data showed.
On the earnings side, the data has been slightly more upbeat: 62 percent of companies that reported this week beat expectations versus 60.3 percent since the start of the earnings period, and the 62 percent long-term average, the data showed.
This week is full of earnings and data
Earnings reports for Caterpillar, Rent-A-Center and Yahoo.
Federal Reserve policymakers will begin a two-day meeting to set interest rates.
Earnings reports for Facebook, Whirlpool, Xerox, Netflix, Harley-Davidson, Coach, 3M, Radio Shack and United Parcel Service.
U.S. Commerce Department will report on new-home sales for September.
Earnings reports for Boeing, Bristol-Myers, Dr Pepper Snapple Group, Equifax, General Dynamics, Lockheed Martin, Nasdaq, Northrop Grumman, AT&T and US Airways.
U.S. Labor Department will release its weekly jobless claims report.
U.S. Commerce Department will unveil durable goods figures for September.
National Association of Realtors will release its pending home sales index for September.
Freddie Mac will report on weekly mortgage rates.
Earnings reports from MidWestOne Financial, Apple, Aetna, Amazon.com, Coca-Cola Enterprises, Colgate-Palmolive, Sprint Nextel and Meredith.
Commerce Department will release third-quarter gross domestic product numbers.
Earnings reports from American Axle & Manufacturing and Lear.
But selective buying in the USA is still viable, there are signs of improvement that have been negated by the Euro Mess
• US corporations remain flush with cash and the nation’s banks are back on solid financial ground.
• Household balance sheets are being repaired more quickly than anticipated. Indeed, the deleveraging trend among consumers has nearly run its course, while the rebound in equity prices and, more recently, home values has led to a sharp recovery in the value of household assets. As a result, consumer balance sheets are as strong now as they were before the recession began.
• Sales of big-ticket items (such as autos) have picked up to multi-year highs.
• Most importantly, the beleaguered US housing sector has finally begun to turn up, with positive and broad-based implications ranging from increased consumer confidence to improved labor market mobility and reduced pressure on bank balance sheets.
International credit rating agency Moody’s said the outlook for Germany’s banking system remains negative owing to intense competition, low interest rates and a weaker environment.
“The outlook for Germany’s banking system remains negative,” Moody’s said in a new Banking System Outlook. “Intense competition and low interest rates are causing margin pressure that will likely further erode the banks’ already-weak revenues and profits over the 12-18 month outlook period.’’
Banks were re-focusing on their domestic operations to reduce risk exposures but that would “exacerbate structural pressure on earnings in the context of additional costs, weakening economies of scale and low loan-growth prospects,” the report said.
Operating conditions for the sector would be “challenging” in the next 12-18 months, even if indicators for the German economy remained sound so far.
Moody’s said in was penciling in growth of 1-2 percent for Europe’s top economy next year.
“However, significant downside risks from the ongoing euro area crisis will persist in view of the German economy’s high dependence on other EU countries for its exports and the resulting economic interdependence with other European nations,” it said.
German banks could be “vulnerable to a worsening of the sovereign debt crisis in Europe and to macroeconomic stress,’’ Moody’s said.
“High balance-sheet leverage and low pre-provision profits will make it difficult for many German banks to cope with major [unforeseen] losses,” it added.
<strong>China is a Buy</strong>
Macro indicators point to strong growth, demand pickup in China during fourth quarter, economists say
Higher retail sales and a continued investment pickup during the fourth quarter will provide enough cushion for China to ride out the economic turbulence and post solid full year growth numbers, economists say.
The prediction comes after China's economic growth slowed for the seventh straight quarter, and fell below the government target for the first time since the global financial crisis, to 7.4 percent from 7.6 percent in the second quarter. The lower numbers also sparked fears that China may not be able to achieve the government target of 7.5 percent GDP growth for the full year.
"It was the weakest quarter for China in terms of year-on-year growth," says Stephen King, global chief economist at HSBC.
According to King, GDP growth is likely to accelerate from the fourth quarter and extend well into the next year on the back of government stimulus measures. King, however, expects the acceleration to be modest and more along the lines of the numbers seen in 2009 and 2010.
"Exports continue to be in a tailspin and exporters are reeling from heavy losses, not only in China, but all over the world. It is a situation that has caught everyone by surprise and losses have come much earlier than expected," he says.
However, other indicators released alongside the GDP during the third quarter have been showing recovery signs, indicating that stimulus efforts are finally paying off.
Fixed-asset investment, a key sign of construction activity and demand for machine equipment, rose marginally to 20.5 percent during the first nine months of the year, compared with 20.1 percent during the first eight months. But the numbers are still lower than the 25 percent mark that prevailed for most of 2011.
Industrial value-added output surpassed economists' year-on-year estimate of 9 percent to 9.2 percent in September and higher than the 8.9 percent recorded in August.
Consumption continued to be on firm ground, with the nine-month retail sales posting a year-on-year growth of 14.2 percent, and higher than the 13.2 percent in August.
Shayne Heffernan Ph.D.
Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
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