Month: July 2014

This morning: flash PMIs reassure on China, Germany.

• Global Stocks Rise on Economy as Metals Advance on China
• Global economy starts second half on solid footing: PMIs
• China Manufacturing Gauge Rises to 18-Month High on Stimulus
• China Stocks Rise to Three-Month High as PMI Data Signal Growth on Target
• Euro Economy Shows Unexpected Strength After ECB Action
• Euro-Area PMI Surveys Show Strengthening Recovery
• As U.S. strengthens, sluggish wages explain Fed’s caution

RECESSION WATCH

David Rosenberg agrees with me that the Conf. Board’s LEI is perhaps the most reliable recession indicator. After analysing past relationships, he writes

(…) based on where both the YoY LEI trend and the diffusions indices are now, and tracing them through the classic business cycle, we are between 12 months and 36 months away from the next recession. While there may be a ton of other stuff to worry about globally, the one risk we don’t have to fret about too much right now is the state of the U.S. economy.

Record Student-Loan Debt Prompts Treasury Push to Stem Defaults

The U.S. Treasury, which finances more than 90 percent of new student loans, is exploring ways to make repayment more affordable as defaults by almost 7 million Americans and other strapped borrowers restrain economic growth. (…)

Among the options under consideration is boosting participation in underused Education Department programs that reduce monthly payments by tying them to a percentage of income for those who struggle, while extending the term of the loan. (…)

With 40 million Americans having student loans, and while Congress is too gridlocked to legislate solutions, Raskin is in a position to help consumers who may face another wave of unsustainable debt, according to analysts and her former colleagues. (…)

China Provinces Report Growth Pickups

Twenty-two of 27 provinces and provincial-level cities that have reported first-half expansion through today indicated a pickup, based on local-government data and state-media articles compiled by Bloomberg News. Nationwide, the first-half and first-quarter numbers were identical at 7.4 percent, while expansion was 0.1 percentage point faster in the second quarter.

Thirty of 31 provinces previously reported first-quarter expansion that was below regional goals for 2014.

Eight provinces reported first-half expansion that was at least a half percentage-point higher than the first-quarter figure.

GERMANY BOUNCES BACK, FRANCE NOT

Spain sees biggest jobless fall since 2006

The latest labour market survey, released on Thursday, showed the economy created more than 190,000 new jobs over the past 12 months, breaking a series of year-on-year declines stretching back to 2008. The number of jobless fell 310,000 to 5.6m, and the unemployment rate dropped from 26 per cent in the first quarter to 24.5 per cent.

(…) the second-quarter drop came about despite an increase in the labour force, suggesting a genuine shift in the trajectory rather than a statistical blip. (…)

(BMO Capital)

EARNINGS WATCH

From Zacks Research:

A few pockets of weakness aside, the overall picture emerging from this earnings season is one of strength and resilience, not weakness. Earnings aren’t great, but they aren’t weak either. This is our takeaway from the Q2 earnings reports thus far – reports from 149 S&P 500 members that combined account for 43.9% of the index’s total market capitalization.

Total earnings for these 149 companies are up +8.6% from the same period last year on +4.3% higher revenues, with 69.8% beating EPS estimates and 61.1% coming out with positive revenue surprises.

This is better performance than we have seen at this stage in other recent reporting cycles. The growth rates are better, more companies are coming ahead of estimates, and notably, there is an ever so modest improvement on the guidance front as well. The guidance improvement isn’t so much in terms of a bigger proportion of companies starting to guide higher, but rather marginally fewer of them guiding lower. The qualitative discussion of business outlook on the earnings calls has become marginally more positive.

The composite picture for Q2, combining the actual results from the 149 S&P 500 members that have reported with estimates for the still-to-come 351 companies, total earnings are expected to reach a new all-time quarterly record, and increase by +5.9% from the same period last year on +2.5% higher revenues. This is a material improvement over the preceding quarter, when total earnings and revenues were essentially flat.

Net margins (total earnings/total revenues) are expected to be up in 2014 Q2, both year over year as well as sequentially.

We are not seeing negative revisions to estimates for the current period (2014 Q3), as was the norm in other recent quarters.

SENTIMENT WATCH

Here’s a new debate on participation rates (from BloombergBriefs)

(…) only 58 million or 18 percent of Americans are both invested in stocks and are presently bullish, down from 97 million in December 2010. This is because only 54 percent have stock-market investments, the lowest since 1999 according to a Gallup poll. And those investors have a below-average level of bullishness.

EU to weigh extensive sanctions on Russia Proposal includes ban on buying new debt or stock of Russian banks

World’s Biggest Wealth Fund Reviews $8 Billion Russian Stake

Calpers Pulls Back From Hedge Funds The largest public pension fund in the U.S. is expected to cut its hedge-fund investments this year by 40%. Other public pensions also are cutting or reconsidering investments in hedge funds.

(…) because of concerns about high fees and lackluster returns. (…)

The officials overseeing pensions for Los Angeles’s fire and police employees decided last year to get out of hedge funds altogether after an investment of $500 million produced a return of less than 2% over seven years, according to Los Angeles Fire and Police Pensions General Manager Ray Ciranna. The hedge-fund investment was just 4% of the pension’s total portfolio and yet $15 million a year in fees went to hedge-fund managers, 17% of all fees paid by the fund. (…)

Average public-pension gains from hedge funds were 3.6% for the three years ended March 31 as compared with a 10.9% return from private-equity investments, a 10.6% return from stocks and 5.7% from fixed-income investments, according to a Wilshire review of public pensions with more than $1 billion in assets.

After peaking at 1.81% in 2011, pension allocations to hedge funds dipped to 1.21% of total portfolios as of March 31, according to Wilshire’s review.

The average amount committed to private equity, by comparison, still is climbing. Those investments jumped to a decadelong high of 10.5% as of March 31, according to Wilshire. (…)

Macy’s Workers Win Labor Ruling

A group of 41 cosmetics and fragrances workers at a Macy’s Inc. M +0.88% store in Massachusetts is large enough to attempt to unionize, the National Labor Relations Board decided in a ruling that could advance organized labor’s quest to unionize subsets of workers in varied industries.

In a 3-1 decision issued Tuesday that sided with the United Food and Commercial Workers union and raised concerns among business groups that it would lead to fragmented workplaces, the board’s three Democrats said the workers at the store in Saugus, Mass., are an appropriate bargaining unit and share “a community of interest.” Their employer, Macy’s, had argued otherwise but failed to meet “its burden of demonstrating” that the smallest appropriate unit should include all employees at the store or at least all the selling employees, according to the written decision.

Macy’s said in a statement it was “disappointed” and considering its options, including an appeal. “Organizing a selected portion of a store’s selling associates into multiple collective bargaining units is impractical and an impediment to providing a consistent level of customer service,” Macy’s said. (…)