Friday, 26 October 2012

Week in review: Earnings visibility declines

Having spent too long bemoaning the departure of the Ford Transit from our green and pleasant lands - a subject close to my family's heart as the plant provided (modestly) gainful employment to my father-in-law for thirty years, I have little time spare to review the week’s economic and corporate news.

Nevertheless, the earnings season rumbles on with modestly disappointing results. While the beats to misses ratio (number of companies announcing surprisingly good news relative to those announcing surprisingly bad news) remains at a healthy 72:26, investors have been concerned about the lack of sales growth and downbeat outlook statements. With this in mind equities struggled to make progress. At the time of writing, the US and UK both look set to finish the week with losses of around -1.5%.

The euro declined as purchasing managers indices in Europe continued to show stagnation - not just for the unfashionable periphery but also for the formerly robust core. German Services were the major negative surprise. By contrast, Chinese Flash HSBC PMI reading provided some cheer showing the economy was close to an expansionary pace, although it was not enough to help prevent the Chinese market retracing recent gains.

Source: Markit

In the US, however, economic data continued to underpin the economic recovery.  Continuing employment claims stabilised, the housing market continued to recover and finally GDP was estimated to have expanded by 2% in the third quarter (at an annualised rate). This was ahead of expectations and continued a theme started by the UK (see my post below) which also beat expectations to provide a positive economic tone for the week.

Guy Foster
Head of Portfolio Strategy

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