Consumer Spending in U.S. Rose Less Than Forecast in February
The 0.1 percent gain followed a 0.2 percent drop the prior month, Commerce Department figures showed Monday in Washington. The median forecast of 74 economists in a Bloomberg survey called for a 0.2 percent gain. Adjusted for inflation, spending declined for the first time in almost a year.
Frigid temperatures and snow in much of the Northeast and Midwest last month emptied malls and auto-dealer lots as Americans huddled at home to keep warm.
Incomes climbed 0.4 percent in February for a second month, propelled by a jump in dividends.
The saving rate increased to 5.8 percent, the highest since December 2012, from 5.5 percent.
Weather or not, this is the 4th consecutive weak month as this Zerohedge chart shows:
Mortgage Picture Brightens for Banks Lenders say demand for mortgages has been stronger than expected, and many expect it to keep rising. That could boost bank earnings.
The Mortgage Bankers Association’s most recent weekly mortgage-applications survey showed the unadjusted purchase mortgage index up 3% from a year ago. In Fannie Mae’s recent quarterly survey of senior mortgage-lender executives, more than half said demand for mortgages for home purchases had increased over the past three months.
When Fannie Mae surveyed lenders in December, 17% said they expected increased demand for purchase mortgages that can be sold to Fannie Mae,Freddie Mac or Ginnie Mae, known as GSE-eligible loans. A slightly larger share saw mortgage demand falling.
Seventy-one percent of lenders see demand for GSE-eligible purchase loans rising in the next three months.
That has led to a swing in profit hopes. At the end of 2014, just 13% of executives expected better margins from mortgage lending. Now, 41% do. Larger mortgage lenders are more upbeat. (…)
China Delivers Stronger Medicine in House Call After China’s cautious easing measures failed to revive real-estate prices, officials took more decisive action.
China is finally getting serious about fighting the property slump. Investors better hope it works this time.
After several rounds of cautious easing measures that have failed to revive real-estate prices, officials took more decisive action Monday. Down payment requirements were lowered for various kinds of mortgages, including for second home buyers to 40% from 60%.
While the requirements are still high by Western standards, the changes are essentially saying to China’s cash-rich buyers that Beijing wants them to get back into the game.
As part of the signaling effort, the Ministry of Finance said it would partially waive a thinly enforced, but unpopular tax on housing transactions that had perversely led to couples divorcing to avoid paying. This move is largely symbolic.
The moves came after a pep rally of sorts from Chinese officials at the Boao Forum, a Chinese version of Davos that took place over the weekend. Terrible economic figures the past month have investors wondering if China still has the magic touch when it comes to getting the economy going again.
China’s leaders essentially said: Trust us, we still have plenty of firepower. President Xi Jinping spoke of having “enough room to leverage a host of policy tools.” Central bank chief Zhou Xiaochuan said he is vigilant on deflationary risks, code that more monetary easing is coming. Further cuts to bank reserve requirement ratios seem imminent.
“Trust us, we still have plenty of firepower”: is this whatever it takes in Chinese? (Charts below from BNP Paribas via FT Alphaville)
Japan Industrial Output Falls Japanese industrial production contracted for the first time in three months in February, the latest data indicating continued sluggishness in Japan’s economy.
Industrial output, covering everything from cosmetics and computers to semiconductor and construction cranes, slid 3.4% from the previous month, according to government data released Monday. The fall was much larger than a decline of 1.8% expected by polled economists.
The ministry said it expects output to fall again in March, by 2.0%, before increasing 3.6% in April, based on surveys of companies.
Oil Prices Fall as Iran Deadline Nears
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Obama Ramps Up Lobbying On Iran The White House has expressed a willingness to accept legislation that would give Congress some oversight over a nuclear deal with Iran.
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Final push for Iran nuclear deal Key elements of negotiations show signs of unravelling
(…) Tense discussions with Iran had reached a deadlock over the weekend on the key issue of sanctions relief.
Iran demands the speedy unwinding of UN-level blockades in any deal. But world powers regard them as the cornerstone of a safety framework with which they could intensify international pressure again on Tehran should the Islamic Republic renege on any nuclear commitments. (…)
Unity among the P5+1 will be critical: some, such as Russia or China, have more to gain economically from the dropping of UN-level restrictions first. However, both have so far strongly supported the common position. (…)
Among the measures being discussed to bridge the gap between both sides of the table on UN sanctions are so-called “snapback” mechanisms, by which loosened UN sanctions could be hastily reimposed without going to a security council vote should Iran fall foul of a tightened inspection and verification regime by the International Atomic Energy Authority.
“We have all the pieces and they are floating around,” said one P5+1 diplomat. “But they also all have to fit together. The parts and the whole have to be right. It’s usually in the evenings that things move . . . at some point you feel that things are starting to come together. We are not there just yet, but diplomacy is like nature — it hates voids. It fills the void.” (…)
No Hibernation For Euro Bears
In the week to March 24, bets on a fall of the euro against the dollar in the futures market rose to $30.2 billion, a record in relation to the number of contracts outstanding. Bearish euro bets grew at the fastest pace since May last year. (The numbers cover the week to last Tuesday.)
The CFTC data also show that overall positive bets on the dollar are very close to record highs.
EARNINGS WATCH
Factset calculates that total S&P 500 EPS will decline 4.6% in Q1, a little worse that the -4.5% estimated one week ago. Ex-energy estimates have improved from +3.1% to +3.4%. Negative pre-announcements rose from 83 to 85 in the last week, representing 84% of the 101 pre-announcements so far this quarter. The ratio is in line with that of last year at the same time but the actual number of negative pre-announcements declined from 93 to 85. This could signify that the weak economy and retail sales in Q1 have not had a big impact on earnings.
S&P’s calculations go the same way as Q1 EPS estimates are up $0.02 to $26.77 during the week and full year estimates are up $0.27 to $118.55.
The Rule of 20 P/E is exactly at 20x currently using trailing EPS of $112.48 (Q1 estimate) and inflation of 1.7% (core CPI to exclude temporary effect from lower oil prices). The 20x barrier is again proving difficult to cross. Stable core inflation coupled with declining trailing earnings are keeping investors prudent (see recent decline in yellow line in chart).
Wall Street banks recover trading revenue Quarter set for first year-on-year fixed-income rise since 2009
Combined revenues from trading fixed income and equities at JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley could rise as high as $25bn in the first quarter, according to Barclays, compared with $21.6bn in the first quarter of 2014. (…)
At Morgan Stanley, analysts expect net income — boosted by improved trading revenues — to hit $1.55bn, its best result in more than seven years, or 31 quarters.
At Goldman, first quarter fixed income trading revenues are expected to enjoy their first year-on-year rise since 2009.
Last year, Wall Street’s first-quarter revenues were the lowest since the financial crisis, when the engines of the big investment banks began to sputter. The start of the year is typically the strongest. Since the first quarter of 2009, total trading revenues have dropped about a third, with the starkest declines in the once-prized fixed income, currencies and commodities divisions. (…)
Analysts say that revenues from banks’ trading businesses are unlikely to rebound sharply, thanks in large part to a squeeze on proprietary trading in the wake of the Dodd-Frank Act, a shift to central clearing of derivatives, and ongoing pressure from regulators. (…)
SENTIMENT WATCH
Stocks Revisit Last Spring’s Selloff — With a Difference
(…) This time, stocks have to deal not only with a bad winter’s impact on the economy, but also with sharply lower oil prices and a strong dollar.
Neither was a problem a year ago and both are hurting corporate earnings. That leaves many worried that this year the trouble could be longer-lasting. (…) investors are dealing with the prospect of weak earnings while the Federal Reserve is preparing to raise interest rates.(…)
Money managers already have factored in weak first-quarter results and don’t expect real improvement until the second half of the year, Mr. Freeman said. He said he is hoping to see mid-single-digit percentage gains for the S&P 500 this year, including dividends, similar to what many expect. But if he sees evidence that companies will “finish the year with earnings flat or down, I would revise my outlook. It would be very difficult” for stocks to rise in that kind of environment, he said.
Part of the problem, BNY Mellon’s Mr. Grohowski noted, is that stocks are in a “dead period,” when investors are short of hard news. Earnings reports won’t begin in earnest for almost two weeks. Meanwhile, one of the main supports for the market, stock buybacks by big corporations, is on hold as companies prepare their reports. That, combined with the uncertainty about the reports, could mean that the pullback might not be over, he said.
S&P 500 Profit Reversals Hard to Stop as Bad Quarters Add Up
Analysts predict Standard & Poor’s 500 Index profits are going to decrease for three straight quarters. Investors better hope they don’t.
History shows that once earnings drop for that long, they almost always keep falling, and usually take the market with them. In fact, among 17 declines that got to nine months since the Great Depression, exactly one stopped there, in 1967.
Any sign that U.S. earnings are about to collapse is enough to strike fear in money managers who have watched shares triple as profits rose almost every year since 2009. Even if analysts are right about the duration of the skid, earnings contractions of three quarters or more have triggered bear markets 82 percent of the time over the past eight decades. (…)
Among S&P 500 members, combined quarterly profit growth has turned negative in 33 instances since 1937, data compiled by Bloomberg and S&P Dow Jones Indices show. While half of them lasted no more than six months, the others almost always dragged on, spanning five quarters on average. Out of the 17 occasions where earnings fell for at least three quarters, 14 occurred within three months of a bear market. (…)
As earnings estimates deteriorate, chief executive officers have accelerated share buybacks, a strategy that has boosted per-share profit at a time when sales prove harder to come by. More than 120 companies, including Home Depot Inc. and Comcast Corp., in February announced a record $104.3 billion in planned stock repurchases, according to TrimTabs Investment Research. (…)
Clients of exchange-traded funds have pulled about $9 billion from U.S. equities this quarter and added $38 billion to international stocks, a reversal from the last two years, when money flowing to the U.S. was more than double that going elsewhere.
The percentage of global money managers who are underweight American equities is the highest since 2008, according to a March 6-12 poll by Bank of America Corp. A net 35 percent of respondents in the survey picked the U.S. as the worst place to invest in the next 12 months, the most in almost a decade.
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Retail Investors Fuel China Stock Surge Despite slowing economic growth, corporate earnings under pressure and a property market in a funk, China’s long-maligned stock market is among the strongest in the world.
(…) The country’s legions of retail investors are fueling the surge. On the streets in Shanghai, stock tip sheets sell for one yuan, or 16 cents. Near the city’s People’s Square, where small-time investors have for years gathered to discuss—and lament—the market, the crowds are larger and the voices louder.
“The higher the stock prices are, the more people are buying them,” said Gao Haibao, a 58-year-old electrician who says he has dabbled in stocks since 1990.
He was one of a group of investors last Saturday afternoon looking for an edge by studying trend lines on a laptop labeled as a “one minute” tutorial in the strategy of U.S. investor Warren Buffett. “If the prices go down,” he added, “no one wants to buy.” (…)
And while brokers have received new power to lend to clients for stock purchases—outstanding margin loans now total now total 1.459 trillion yuan, or $234.7 billion, up more than 40% so far this year alone—regulators have in recent weeks punished brokerages for overdoing it. Stock lending was about 4% of last year’s 35 trillion yuan total market capitalization, compared with 2% currently in the U.S., according to Markit.