In U.S., Fewer Non-Homeowners Expect to Buy Home
More Americans who do not currently own a home say they do not think they will buy a home in “the foreseeable future,” 41%, vs. 31% two years ago. Non-homeowners’ expectations of buying a house in the next year or five years have stayed essentially the same, suggesting little change in the short-term housing market. As a result, what may have been a longer-term goal for many may now not be a goal at all, and this could have an effect on the longer-term housing market. (…) These results come in the same poll that finds a drop in the percentage of all Americans who say it is a good time to buy a house.
EARNINGS WATCH
- 211 companies (55.1% of the S&P 500’s market cap) have reported. Earnings are beating by 5.8% while revenues have missed by -0.7%.
- Expectations are for revenue, earnings, and EPS of -3.4%, -1.6%, and +0.1%. Excluding Energy, growth would be 2.4%, 6.7%, and 8.6%, respectively. This excludes the likelihood of beats.
SURPRISING SURPRISES
The current earnings season is bringing its usual positive surprises. Factset said last Friday that 73% of S&P 500 companies positively surprised so far in Q1. Bespoke Investment’s tally shows a 67% beat rate while RBC Capital’s is also at 73%.
The real surprise comes from S&P. Not that its tally gives a 71.6% surprise beat, rather that S&P’s “official” EPS estimate for Q1 keeps falling amid all these positive surprises.
RBC Capital calculates that the earnings of the 211 companies that have reported as of yesterday are beating by 5.8% and that total EPS will likely end the season flat, much better than the –5.6% forecast at the end of March.
Yet, S&P says that Q1’15 EPS will come in at $26.67 (-2.4% YoY), down from $26.94 one week ago and $26.72 on March 31.
The reason is that S&P treated BAC’s $6 billion ($0.40/sh) Q1’14 charge in litigation expenses as “unusual items”. Taking BAC’s results as reported (+$0.27 vs –$0.05), the bank is not only this year’s largest contributor to earnings growth for the banking sector, but also for the S&P 500 as a whole. But S&P’s tally show BAC’s Q1’15 operating earnings down 20% in Q1’15 ($0.28 vs $0.35).
Trailing 12-month EPS are now expected at $112.36, down from $112.63 one week ago and from $113.01 after Q4’14. They are forecast to decline another 0.5% to $111.78 after Q2’15 before climbing back to $117.25 after Q4’15.
CHINESE LTRO:
China Readies Fresh Easing to Tackle Specter of Debt China’s central bank is planning to launch a fresh credit-easing program, as Beijing’s flagship plan to restructure trillions of dollars of local-government debt hits snags.
Under the plan, which could be put in place in the next couple of months, the People’s Bank of China will allow Chinese banks to swap local-government bailout bonds for loans as a way to bolster liquidity and boost lending, the officials said. The strategy—dubbed Pledged Supplementary Lending—is similar to the long-term refinancing operations, or LTROs, used by the European Central Bank.
(…) China’s commercial banks—long the main buyer of bonds issued in China—have balked at buying the new local bonds as they view the yields on offer as too low. At the same time, banks are worried that purchasing those bonds could choke off funds available for lending. As a result, a number of provinces, including Jiangsu, Anhui and Ningxia, have either delayed or plan to put off their bond offerings. (…)
Under the planned LTRO-like strategy, China’s commercial banks will be permitted to use local-government bonds they purchase as collateral to take out low-interest-rate, three-year loans from the central bank. By doing so, officials at the PBOC will try to direct the banks to lend to small and private businesses, among other sectors favored by the government.
The interest rates on those loans could serve as a medium-term benchmark rate, potentially giving the PBOC another tool to guide interest rates, according to the officials with knowledge of the central bank’s thinking. Currently, the PBOC influences market rates mainly through its benchmark lending and deposit rates, and through the rates in the interbank market where banks borrow from each other.
JAPANESE BULL:
JAPAN’S EQUITY RALLY STILL HAS LEGS
This is from Fathom Consulting which says it is “a different kind of economics and financial markets consultancy”. It is different indeed. Try finding any supporting argument to the remaining legs in this piece:
The Nikkei 225 closed above 20,000 points for the first time in 15 years on 24th April. Although we remain extremely sceptical about the merits of Abenomics, and the prospects for the macro-economy, we believe that there is more to come from the equity rally.
The fundamentals of the Japanese economy remain poor. The boost to inflation is starting to fade and the substantial depreciation of the yen has done relatively little for exports. Japan provides us with a reminder, were it needed, that QE is not a panacea. However, in spite of Japan’s poor macro-economic performance, the Nikkei has rallied significantly, and broadly in two states. The first followed Shinzo Abe’s election victory in December 2012. The second began last autumn and has intensified in recent weeks.
Why the name “Fathom Consulting”? Must be as in “nobody can really fathom their reasoning. 
BTW, from their web site:
Our clients include some of the world’s leading financial institutions and corporates, as well as governments and policy groups. (…) Specifically, we focus on the relationship between the macro economy and financial markets. Ultimately where others see a clear distinction, we see the two as inextricably linked.
Yet, they admit that “they remain extremely sceptical about the merits of Abenomics, and the prospects for the macro-economy” and that “the fundamentals of the Japanese economy remain poor”.
True cheerleaders!