In the immediate term, the uncertainty of the third quarter earnings season began to unwind as Alcoa released announced its earnings on Tuesday before today’s results from the financial bellwether, JP Morgan.
Alcoa, as an aluminium fabricator, does not provide much data through its financial results on the state of the global economy but the commentary can provide some nuggets. These were not encouraging this quarter with declines in Alcoa’s forecasts of China’s demand; particularly for heavy trucks and trailers. The Chinese are attempting to rebalance their economy away from heavy industry and towards consumption and higher value-added produce, but few would believe their progress has been sufficient to explain declines in the demand for heavy industry tools or electricity.
It remains early days in the current earnings season but things have started to look up slightly since Mike’s note on the message earnings season might send to Congress. With 35 companies having reported, the beats-to-misses ratio has risen to nearly 70% for earnings.
That particular source of uncertainty grew after a lacklustre showing by President Obama placed new doubt in the minds of election watchers. A repeat of the status quo (Democratic White House, Republican House of Representatives and Democratic Senate) remains our preferred formulation, even though that cocktail yielded the disastrous stand-off of last summer. The likelihood, we believe, is that policymakers will avoid a second casting as enemies of the states they are supposed to be representing, by passing a series of compromises in the form of reduced fiscal tightening measures.
Perhaps surprisingly Mr Dimon backed several proposals put forward by the Democrats including a higher tax rate for the wealthy. “I don’t mind paying 39.6% in taxes” he said.
If he’s so keen, he can pay that and more by having his $12m remuneration package met by JP Morgan’s London payroll!
Head of Portfolio Strategy