Weekly Radar: Q4 earnings, China GDP and German elections

January 10, 2013

The first wave of Q4 US earnings, Chinese Q4 GDP  and European inflation dominate next week, while regional polls in Germany’s Lower Saxony the following Sunday give everyone a early peek at ideas surrounding probably the biggest general election of 2013 later in the year.

With a bullish start to the year already confirmed by the so-called “5 day rule” on Wall St, we now come to the first real test – the Q4 earnings season. There was nothing to rock the boat from Alcoa but we will only start to get a glimpse of the overall picture next week after the big financials like JPM, Citi and Goldman report as well as real sector bellwethers Intel and GE. Yet again the questions centre on how the slow-growth macro world is sapping top lines, how this can continue to be offset by cost cutting to flatter profits and – perhaps most importantly for investors right now – what’s already in the price.

For the worriers, there’s already been plenty of gloom from lousy guidance  and memories of Q3 where less than half the 500 beat revenue forecasts. But the picture is not uniformly negative from a market perspective. For a start, both top and bottom line growth estimates have already been slashed to about a third of what they were three months ago but should still outstrip Q3 if they come in on target. Average S&P500 earnings growth for Q4 is expected to be almost 3 percent compared to near zero in Q3 and revenue growth is expected at about 2 percent after a near one percent drop the previous quarter. What’s more, the market has been well prepared for trouble already — negative-to-positive guidance by S&P 500 companies for Q4 was 3.6 to 1, the second worst since the third quarter of 2001. So, wait and see – but there will have to be some pretty scary headlines for a selloff at this juncture.  It may be just as tricky to build any bullish momentum ahead of renewed infighting in DC over the debt ceiling next month, but the latter issue has been treated to date this year as a frustration rather than a game-changer.

The other major market event of the week is the big Chinese macro data dump on Friday – Q4 GDP and December retail sales, production and house prices. Is there a risk here? Well, as sceptics regularly say, the fact China reports GDP two weeks after the end of the quarter suggests a certain amount of “data by decree” and the numbers tend to fit the official line. But to the extent that the global market bullishness of the past month or so has been largely hooked on a cyclical Chinese upswing (one that some assume saw a trough in growth in Q3) then these numbers wlll be as important as ever for global risk markets. The forecast is that GDP growth accelerated to 7.8% in Q4 from 7.4% the prior quarter and today’s news of a 14.1% surge in Chinese exports in December underpins that.

Here are some key data releases and events of next week:

EZ Nov production Mon

UK Dec inflation/house prices Tues

US Dec retail sales/PPI Tues

Central/Eastern Europe finance conference in Vienna, Tues

EZ Dec inflation Weds

US Q4 earnings Weds: Goldman, JPM, BNYMellon

US Dec inflation/industrial output Weds

Brazil rate decisions Weds

US Q4 earnings Thurs: Intel, Citi, Blackrock, Amex, BoA,  

US Dec housing starts/permits, Jan Philly Fed Thurs

China Q4 GDO, Dec Industrial/retail/house prices Fri

UK Dec retails sales Fri

US Q4 earnings Fri: GE, State St

Germany’s Lower Saxony holds regional elections Sun

 

 

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