EARNINGS WATCH
Earnings just keep getting better. As of last night, 330 companies (76.7% of the S&P 500’s market cap) have reported. So far, EPS ex-Energy are seen up 9.5% (9.4% last Thursday). Total S&P 500 EPS are seen up 6.4% (6.4%) excluding the likelihood of continued beats. So far, they are beating by 5.0% (5.0%). Strength appears broad based with ~72% of those reported surprising to the upside on EPS. Revenues ex-energy are seen up 4.2%.
Retail is one of the few groups yet to report. Traditional Staples and Discretionary Retailers (excluding Internet Retailers) are projected to see 5.8% earnings growth. Early reporters have beaten by 4.0%, largely the result of margin upside. (RBC)
Syriza offers compromise as Greek government blinks first A four-part plan put forward by a new Greek government has signalled that the left-wing Syriza could be willing to broker a deal with its creditors
First currency warning (there will be many, many, many…):
U.S. warns G20 against using exchange rates to boost exports
“Secretary Lew strongly emphasized … that we are highly focused on ensuring that U.S. workers and firms play on a level playing field and no country should use their exchange rate to increase exports,” the official said.
China Inflation Drops to Five-Year Low
China’s consumer-price index rose 0.8% on year in January, down from an already low 1.5% rise on year in December, according to data from the National Bureau of Statistics released on Tuesday. The pace fell slightly below market expectations of a 0.9% rise and marked the lowest rise since November 2009, when the CPI was up 0.6%. Producer prices, which have been dropping for nearly three years, declined 4.3% in January on year, the sharpest fall since late 2009.
Food price rises eased to 1.1 percent in January from 2.9 percent in December, contributing about 80 percent of the decline in January inflation, the statistical bureau said.
Food prices, which account for as much as half of China’s inflation, rose just 1.1% in January, compared with 2.9% in December. That should rebound in February. And there are reasons to think pork prices, a major component of the food basket which fell more than 5% in January, could turn later this year as China’s massive pig population shrinks.
Oil-Price Rebound Predicted The IEA said a recovery in oil prices seems “inevitable.” The energy monitor cited spending cuts by oil producers and a decline in U.S. drilling.
A wave of spending cuts by oil producers and a sharp decline in the number of rigs drilling for crude in the U.S. likely will slow the nation’s oil-output growth, spurring a rebound in prices, the International Energy Agency said in a report released Tuesday U.K. time. The benchmark U.S. oil price rose 2.3% to $52.86 a barrel on Monday and is up 19% from a nearly six-year low hit last month.
The IEA, which coordinates energy policy among industrialized countries, is adding its voice to the chorus of experts who say that the global glut is abating. (…)
From 2017, the organization expects U.S. shale-oil output to surge again, stimulated by a recovery in prices. It forecasts supply will rise to about 5.2 million barrels a day in 2020, compared with 3.6 million barrels a day in 2014. (…)
The IEA forecasts demand for OPEC’s oil will start rising in 2016 and reach 32.1 million barrels a day by 2020, 2.7 million barrels a day above demand in 2014. (…)
Trading oil with USO ETFs? Be aware of this from Bespoke Investment:
(…) Finally, it’s important to remember that it’s tough for individual investors that only use ETNs or ETFs to play moves in the price of oil. Check out the performance of the “USO” ETF that’s meant to track the price of oil that you see on the ticker every day. Back in April 2006, USO was introduced on exchanges at very nearly the same price that oil was trading at the time (right around $68). Today USO shares trade at $19.77, while oil — the commodity — is around the $50/barrel mark. You can see the price movements of the two in the chart below:
These Experts Know Exactly Where Oil Prices Are Headed
So what’s going to happen next? Here’s a sampling of predictions from the last two weeks:
- Oil will probably continue to decline and could reach as low as $30 a barrel, said Gary Cohn, president of Goldman Sachs Group Inc. “We’re probably in the lower, longer view,” said Cohn, a former oil trader.
- Oil has the potential climb to $200 per barrel from a lack of investment in new supply, warned OPEC’s Secretary General Abdell El-Badri. “If you don’t invest in oil and gas, you will see more than $200,” he said, without giving a time frame.
- Shale oil will soon be needed to make up for production declines around the world,pushing U.S. prices to as high as $65 a barrel, the head of Astenbeck Capital Management wrote in a Feb. 2 letter obtained by Bloomberg News.
- In a Bloomberg News survey of analysts and traders, 12 of 32 respondents predicted futures will decline through Feb. 13, while 10 forecast an increase.
- “We don’t think we’ve seen the bottom yet,” said Giovanni Staunovo, a commodities analyst at UBS in Zurich.
- “We are establishing a bottom,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. “In the long run, probably $60 is going to be your pivot point.”
- Oil could fall as low as $30 because supply surpluses won’t disappear overnight, said Barclays analyst Miswin Mahesh.
- “The fundamental supply and demand does remind me of 1986 a bit, where we could go into a period in this decade of lower oil prices,” said BP CEO Bob Dudley. Prices may stay below $60 for as long as three years, he said. “It will be a long time before we see $100 again.”
- Oil could fall to the $30 a barrel range, said Fumiya Kokubu, CEO of Tokyo-based Marubeni Corp. He said he doesn’t see much of a price rebound in the next two or three years.
- The recent surge in oil prices is just a “head-fake,” and oil as cheap as $20 a barrel may soon be on the way, said Citigroup analyst Edward Morse. He sees afourth-quarter rebound to about $75.
What’s an investor to think? In 2015, the average price is likely to be anywhere from $35 to $80, according to a Bloomberg Intelligence survey of 86 investment specialists. That’s a pretty big range.
Q: What Will Be the Average Price of Crude in 2015?
