Travelling day. Actually, they will all be travelling days for a few weeks. Will post whenever possible.
EARNINGS WATCH
The latest tally by Refinitiv/IBES indicates Q3 earnings down 2.3% following Q2’s +3.2%. Q4E: +4.2% (down from +7.2% on July 1).
Markit’s flash PMI suggests caution for the second half:
- Prospects look gloomy, with inflows of new business down to the lowest since 2009 and firms’ expectations of growth over the coming year stuck at one of the most subdued levels since 2012. Inflows of new service sector business almost stalled in September to register the smallest rise since the survey began in 2009.
- Firms have become more risk averse and increasingly eager to cut costs, resulting in the September PMI showing jobs being cut across the surveyed companies for the first time since January 2010. At current levels, the survey employment index is indicative of non-farm payroll growth falling below 100,000. That compares with signals of an average of 200,000 in the first quarter and 150,000 in the second quarter.
- Price pressures have meanwhile also eased, with both input costs and average selling prices for goods and services dropping for a second consecutive month in September (albeit with the latter down only very marginally), painting a picture of the lowest corporate inflationary pressures for a decade.
Yet, estimates for revenue growth are +5.2% in Q3 (ex-Energy) and +6.3% in Q4. PCE inflation could turn negative if this relationship holds:
The weakness of order books alongside the recent drop in pricing power bodes ill for corporate earnings in the third quarter. To estimate the trend in earnings growth we have compiled an indicator based on five components, all derived from IHS Markit’s US PMI surveys, which provide insights into sales growth, pricing power and profitability:
Total order book situation: a blended index of the composite new orders and backlogs of orders questions providing an overall indication of sales growth (weight 1.3)
Output prices: based on the composite PMI average prices charged index, providing an indication of pricing power among goods producers and services providers (weight 0.7)
Backlogs of work: the composite survey index covering work received but not yet completed, helps indicate the extent to which demand is running ahead of capacity and therefore acts as a further guide to both sales and pricing power (weight 0.7).
Productivity: the ration between composite PMI output and employment indicators which provides an insight into labour productivity, itself a key determinant of profitability (weight 0.2)
Suppliers’ delivery times: a key gauge of capacity constraints and pricing power (weight 0.3)
We compare the components against the reported earnings per share in S&P500 companies over the prior 12 months, as measured by Case Shiller, and specifically the current month’s EPS value against the prior six-month trailing average. The average earnings growth momentum signalled by the indicator in the third quarter is the lowest recorded since the first quarter of 2009. However, please note that the indicator uses a scale based on standard deviations so units do not represent indicated changes in actual earnings and is merely designed to provide a simple guide to earnings trends.
So far, corporate preannouncements have been much better than during Q2. 
