SCOREBOARD: Earnings anxiety

Wall Street was hit by earnings season jitters overnight, though new data showed US consumers buoyant.

It appears that anxiety over this coming earnings season exacerbated overnight, and stocks took another hit as a result. On Wall Street we’re talking falls around 0.5 per cent for the Dow (13316) and S&P500 (1454) (bit over an hour left to trade), while the Nasdaq is off 0.3 per cent (3090). There really wasn’t any more to it. Data was light and not really view changing – marginally positive is probably the best way to view it.

Small business is more optimistic in December according to NFIB – but only just as the index rose to 88 from 87.5. Then consumer credit growth was very strong again in November, rising $16 billion following a $14 billion increase in October. That’s a 7 per cent annual increase, which tells us a couple of things. US consumers aren’t deleveraging and they are becoming more confident. They are more confident. And this bodes well for the recovery.

Outside of the US there was quite a bit of data – most of it in Europe, but unlike the US, it wasn’t so good (details below). It wasn’t universally bad I guess. The picture being painted is probably one that you would expect. Things aren’t great on the continent as we speak – recessionary conditions weigh. But confidence is improving. Investors, business and even consumers are seeing light at the end of the tunnel and that was provided most visibly, for last night at least, by a highly successful Irish bond auction.

Recall Ireland tapped the market for funds for the first time since their crisis last year. The auction this time round saw bids of €7 billion for the €2.5 billion that was on offer (5-year bond) which went out at a yield of 3.32 per cent rather than the indicative yield of 3.45 per cent. This is a great sign for what can happen, how market perception can change with the right policies. Don’t forget that on paper, Ireland is still a mess. Debt to GDP is expected to reach 122 per cent this year and the budget deficit is still around 8-9 per cent. Yet they have successfully tapped the market for funds, the market is happy to provide these and Ireland’s Treasury expects to issue a further €10 billion this year to shore up their 2014 funding.

Other than that there really wasn’t much – price action was non-descript. Nothing happened. So in the commodity space, oil was flat at $93.3, gold was $14 higher at $1660) while copper was also flat. Likewise for forex, there wasn’t a lot of action. The Australian dollar is a tad higher from 1630 at 1.0491 and the euro a touch lower (1.3080). Sterling was one of the biggest movers, down 40 pips or so to 1.6052, while the yen sits comfortably at 87.19. Finally in the rate space, US Treasuries pushed a little higher (and so yields fell) after solid demand at a 3-year Treasury note auction. Magnitudes were small though and the 10-year yield is at 1.87 per cent (down about 2bps), the 5-year is at 0.78 per cent, while the 2-year sits at 0.26 per cent.

So to the European data specifics – the German trade balance rose to €17 billion in November, which admittedly is better than the €15 billion recorded in October, but this reflects a fall in exports of 3.4 per cent and a drop in imports of 3.7 per cent. German factory orders were then down 1.8 per cent although this one isn’t perhaps as bad as a casual glance would suggests, as it follows a 3.8 per cent gain the month prior.

For the eurozone more broadly we saw the unemployment rate edged up a little to 11.8 per cent in November from 11.7 per cent – Italy’s unemployment rate was steady at 11.1 per cent, lower than the eurozone average, while retail sales were up 0.1 per cent after a fall of 0.7 per cent in October. The only good news came from the business climate indicator, which rose to -1.12 from -1.17.

Otherwise it’s worth noting a few items out of Japan. Firstly, the government is expected to confirm on Friday a stimulus package (promised during the recent election) of up to 2 per cent of GDP – (12-13 trillion yen or about $137 billion). This would be the largest package since the GFC. Then we had Japan’s finance minister coming out stating that the country would use its considerable foreign currency reserves to buy bonds issue by the European Stability Mechanism.

That done and looking to the day a head, the SPI suggests the Aussie market will be little changed and then there is a bit of macro data as well. At 1130 AEDT we see Aussie retail sales (November data) and job vacancies. Tonight there is very little US data so the focus will be on German industrial production and UK trade.

Have a great day…

Adam Carr is a leading market economist.

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