Weekly Market Update
Notable events over the last week
Last week’s existing US home sales provided further evidence that the US recovery is likely to be supported by the strengthening domestic economy. Sales of previously owned U.S. homes rebounded last month to the second-highest level since February 2007, growing 4.7% to 5.55 million, beating expectations of 5.39 million. In addition, US housing starts rose 6.5% in September, above forecasts to the second-highest level in eight years. The NAHB (National Association of Home Builders) housing market index also rose to a 10-year high of 64 in October, up from 54 last October. An index above 50 is considered positive for sentiment.
The People’s Bank of China cut its policy interest rate and the bank reserve-requirement ratio, for the sixth time in less than a year, in response to a weak Q3 GDP growth rate. The country’s central bank reduced the one-year benchmark deposit rate by 25bps to 1.50% and lowered the RRR by 50bps to 17.5% in a bid to boost credit growth and revive the country’s slowing economy. Chinese GDP grew at an underwhelming 6.9% for the period, down from 7% in the previous quarter, albeit slightly better than 6.8% forecast. The YoY growth is the lowest it’s been since 2009 with many banks suggesting the gap between estimated Chinese GDP growth and the official figure is widening. Barclays are now estimating effective growth of 5.2% from 2015.
Japanese export data out last week supported the case for further monetary easing by the Bank of Japan. Shipments rose just 0.6% YoY in September, marking it the third month of waning growth. Analyst expectations had been for an average 3.8% gain on the back of August’s 3.1% pickup. Imports also declined by 11% YoY causing the trade deficit to narrow to $955million. Members of the BOJ are set to meet on Friday.
In Europe, the flash PMI rose in October to 54.0 from September’s 4 month low of 53.6, significantly above expectations of 53.4. Business activity was particularly strong in France and Germany with the French PMI climbing to a 4-month high of 52.3 and Germany’s PMI printing 55.2, its highest reading in 7-months. Despite the index surprising to the upside there is still little sign of inflationary pressures, which resulted in the ECB leaving its monetary policy unchanged in October and hinting at further QE in December.
Q3 Earnings Season Update
In the US, 21% of S&P500 companies have reported. 74% beat EPS estimates with actual EPS growth at -6% YoY and -4% ex-Energy. 53% of the companies missed top-line estimates, with sales down 3% YoY and up 2% ex-Energy.
In Europe, 17% of DJStoxx companies have reported. 58% beat EPS estimates with actual Q3 EPS growth is coming out at +1% YoY. Only 43% of the companies beat sales expectations, with revenues up 2% YoY.
In Japan, 10% of Topix companies have reported with only 30% beating EPS estimates. However, the actual Q3 EPS growth is positive at +4% YoY and 58% of the companies beat revenue estimates.
Coming up this week (Source Bloomberg)
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