Weekly Market Update
October 21, 2015 Market Update
- Last week marked the official start of the Q3 earnings season and whilst the majority of reported earnings have beaten expectations many companies are wary of the headwinds which lie ahead. Of the 57 S&P 500 companies to have reported, 75% have beaten on EPS by an average of 2.7% however revenues were more of a mixed bag with half of the companies falling short. Of the 57 firms, EPS and revenues are on track to fall 7.4% and 2.7%, respectively.
- In the US, CPI dropped to 0% in September from 0.2% in August. The 0.2% decline marks the steepest drop for the annual inflation indicator in eight months. The energy sector was the largest drag on the index which dropped 4.7% over the period. However core inflation which strips out oil and food prices climbed to 1.9% YoY from 1.8% in August. This was supported by a tick up in the consumer sentiment index which rose to 92.1 in early October from 87.2 in September. The index is now the highest it’s been since 2007 suggesting US consumers are now the most optimistic they have been about their personal finances since the start of the global financial crisis.
- Mixed data continued in the US as retail sales and industrial production disappointed to the downside. US retail sales edged up just 0.1% MoM (2.4% YoY), versus an expected 0.2% rise, in September after being flat in August. Core retail sales which exclude automobiles, gasoline, building materials and food services, slipped 0.1% after a 0.2% increase in August and were predicted to advance 0.3%. US industrial production also underwhelmed, declining 0.2% in September after falling 0.1% in August. Manufacturing output – the largest component of the index – fell 0.1% during the month on the back of a 0.4% decline in August.
- Eurozone data presented a cloudy outlook for the region, fuelling expectations for further ECB QE this year. CPI notched in at -0.1% for September, in line with expectations and down from 0.1% in August. September is the first month since March that the index turned negative. Industrial production also disappointed dropping 0.5% August, causing YoY growth to slump to 0.9% when a rise of 1.8% had been predicted.
- Chinese inflation data for September provided a lacklustre back drop as CPI rose just 1.6% YoY, against 1.8% forecast and down from 2% in August. Whereas PPI fell 5.9%, in line with expectations after the same decrease in August. This marked the 43rd consecutive month of declines for the index as producers battled with increasing spare capacity and wavering demand. Imports also recorded lower than expected in September falling 20.4% in US dollar terms YoY after a 13.8% decrease in August. Exports also disappointed dropping 3.7% in September after a 5.5% fall in August increasing concerns over the region’s growth prospects.
- The theme of disappointing CPI figures continued with the UK which saw inflation turn negative in September. CPI clocked in at -0.1% down from 0% in August and below expectations of 0%. Core CPI also undershot expectations coming in at 1.0% versus 1.1% consensus.