How transitory is this?
Target Corp (TGT.N) said on Friday that it lowered prices on thousands of items, from cereal to baby formula, further hurting retail stocks already pressured by Kroger Co’s (KR.N) disappointing quarterly results spurred by price cuts. (…)
Canada Wages Speed Up as Jobs Gain for Ninth Month
- The country added 22.2k jobs in August, the ninth straight monthly gain, versus market expectations for a 15k gain
- Annual average hourly wage gains hit 1.8%, the highest since October 2016
- The jobless rate fell to 6.2%, the lowest since 2008
Strong Summer for China Auto Sales, but Fall Could be Chilly China’s car market sustained its recent run of growth in August, continuing to expand after a weak start to the year brought about by a rise in the country’s auto-sales tax.
Total vehicle sales increased 5.3% compared with August 2016 to 2.19 million, the government-backed China Association of Automobile Manufacturers said Monday. That is consistent with the 6.2% expansion recorded in July, and with June’s 4.5% growth.
Even so, the manufacturers’ association struck a bearish tone, warning for the first time that the Chinese auto sector would likely fall short of the 5% growth forecast it made in January, saying the increasing maturity of the Chinese market all but rules out anything beyond modest single-digit growth. (…)
The Chinese auto market grew 4.3% in the first eight months of the year—a jarring slowdown for a market that grew 13.7% last year, buoyed by strong passenger-car sales, which were up 15.9%.
This year, in contrast, passenger-car sales have dragged back the sector’s expansion. They increased only 2.2% during the January to August period, although August sales of 1.88 million, up 4.1%, beat this year’s average.
Sales of commercial vehicles, up 16.9% so far this year and up 12.8% in August, improved the overall picture. (…)
Chinese Exports Grow Again China’s economy got another boost from foreign trade last month, with exports posting modest growth, though the recent surge in the yuan’s value is starting to weigh on Chinese exporters.
China’s exports increased 5.5% from a year earlier in August, according to customs data released Friday. Some economists said the pace, while lower than July’s 7.2% rise and the 6.0% forecast in a poll of economists, is steady enough to help prop up growth in the world’s second-largest economy. (…)
Imports expanded 13.3% in August from a year earlier, more robust than the 11.0% gain in July or the 10.0% gain expected in the poll. (…)
Shipments to the U.S., China’s biggest export market, held steady at 8.45% in August, according to the customs data. Exports to Southeast Asian countries accelerated to 6%, while shipments to the European Union dropped to 5.2% last month, official data showed. (…)
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China Pulls Back on Measures Aimed at Bolstering Currency Beijing is starting to unwind some of the extraordinary measures aimed at bolstering its currency, after the yuan’s recent surge in value began taking a toll on Chinese exporters.
Global economy grows at fastest rate for over two years, inflationary pressures rise
Global economic growth rose to its highest for over two years in August, according to PMI data. The headline JPMorgan Global PMIâ„¢, compiled by IHS Markit, rose from 53.6 in July to 53.9, its highest since April 2015. Historical comparisons suggest that the latest PMI indicates that global GDP (at market prices) is rising at a solid annual rate of just over 2.5%.
Global PMI* & economic growth
Even more marked improvements were seen in order book and employment trends. Inflows of new business showed the largest rise for almost three years, and August saw one of the quickest increases in backlogs of uncompleted orders recorded over the past four years. Employment growth edged up to its best for over six years as companies’ expectations of future output levels also revived, with optimism approaching the recent high seen back in June.
EARNINGS WATCH
With only Oracle left to report, 499 S&P 500 companies have reported Q2 results. Thomson Reuters calculates that EPS rose 12.4% overall (5.%% above estimates), +9.7% ex-Energy. Revenues are up 5.3% overall (1.1% above estimates), +4.3% ex-Energy. Margins keep rising.
Credit Suisse shows the drivers for the earnings beats: mainly revenues and SG&A cost management.
Latest revised data reveal the boost from declining real compensation costs:
Trailing 12-m EPS are now $125.94 per TR and could reach $131.61 for the calendar year if current estimates of +6.1% in Q3 and +12.1% in Q4 are met.
The estimated earnings growth rate for the S&P 500 for Q3 2017 is 6.5%, ex-energy +4.6%.
There have been 68 negative EPS preannouncements issued by corporations for Q3 2017 compared to 46 positive EPS preannouncements. By dividing 68 by 46 one arrives at an N/P ratio of 1.5 for the S&P 500 Index. This 1.5 ratio is below the N/P ratio at the same point in time in Q3 2016 (1.9), and below the long-term aggregate (since 1995) N/P ratio for the S&P 500 (2.8).
The LPL Research Corporate Beige Book Barometer — a measure of corporate sentiment that reflects an analysis of earnings conference call transcripts — shows that companies remained generally upbeat during the second quarter earnings season.
SENTIMENT WATCH
A new surge of optimism among U.S. investors has pushed the Wells Fargo/Gallup Investor and Retirement Optimism Index to its highest level since September 2000. The index, after rising in every quarter since the start of 2016, leveled off in the second quarter at +124 before rising to its current +138 in the third quarter. (…)
The 98-point hike over the past 18 months is the largest increase in the 20-year history of the index that is not a rebound immediately after a major drop in optimism.
One of the key factors in the robust third-quarter index is investors’ growing confidence in the stock market.
- Sixty-eight percent now say they are optimistic about the stock market’s performance during the next year, matching the record high for the question from December 1999 and January 2000.
- At least 61% have expressed optimism about the stock market in each of the three surveys this year, a percentage matched or exceeded only four other times in the 132 times the question has been asked since April 2000.
- Twenty-five percent say they are “very optimistic,” topping the previous record high of 24% from the first quarter of this year. Only 11% were very optimistic a year ago.
Sixty-one percent of investors now say it is a good time to invest in the stock market, up from 53% two years ago. Among those saying it’s a good time to invest, the main reason is their belief that the market will continue to increase, mentioned by 47%. Eighteen percent say stocks are a better investment than the alternatives, and 17% see stock market volatility as a buying opportunity.
Among the 37% who do not think it is a good time to put money into stocks, 52% say the main reason is worry about a market correction. (…)
The II survey is also very low on bears (next 2 charts courtesy of Ed Yardeni):
INVESTORS INTELLIGENCE
But the AAII survey reveals greater cautiousness:
AAIM
Confusing, isn’t it? But here’s the most significant chart from David Rosenberg:
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Private Equity Bubble? What Private Equity Bubble? Record demand for private equity is prompting industry executives to take unusual action—selling all or part of their firms.
(…) The rise in stake sales comes as private-equity firms are paying higher prices than ever for companies and raising record-breaking funds. Private-equity firms delivered double-digit returns in 12 of the past 14 years and only lost money once in that time, according to Preqin Ltd. data.
This makes them attractive targets for asset managers seeking more profitable alternatives to offering cheap and popular passive investments such as exchange-traded funds.
BlackRock Inc., Neuberger Berman Group, Schroders PLC and Aberdeen Standard Investments are all buying. Private-equity funds charge an annual fee of 1.5% and keep 20% of the profits from asset sales. An ETF typically charges a 0.26% fee. (…)
Prices for U.S. and European leveraged buyouts were at or near record highs above 10 times earnings in the first half of 2017, according to Fitch Ratings. (…)