Global Investing

Three snapshots for Thursday

The European Central Bank kept interest rates on hold on Thursday.  President Mario Draghi urged euro zone governments to agree a growth strategy to go hand in hand with fiscal discipline, but as thousands of Spaniards protested in the streets he gave no sign the bank would do more to address people’s fears about the economy

The divergence between Euro zone countries is starting to impact analyst estimates for earnings. As this chart shows earnings forecasts for Spain and Portugal are seeing more downgrades than Germany or France.

The inflation rate in Turkey rose to 11.1% in April, putting pressure on the central bank to raise interest rates:

 

Three snapshots for Thursday

Weaker than expected economic data has pushed Citigroup’s G10 surprise indicator into negative territory. The indicator has tracked closely with the relative performance of equities vs bonds:

Italian business confidence fell unexpectedly to its lowest level in two and a half years on Thursday. Business confidence has historically given a good lead on GDP growth suggesting further weakness to come.

An update on currency moves against the dollar this year. Hungary tops the list, the EU opened the way to talks with Hungary on financial aid on Wednesday, ending a five-month dispute over the independence of its central bank. The UK pound and the euro remain positive for the year despite the UK falling back into recession and the continued euro zone crisis.

Research Radar: “State lite”?

The FOMC’s relatively anodyne conclusions left world markets with little new to chew on Thursday, with some poor European banking results for Q1 probably get more attention.  Broadly, world stocks were a touch higher while the dollar and US Treasury yields were slightly lower. European bank stocks fell 2% and dragged down European indices. Euro sovereign yields were slightly higher, with markets eyeing Friday’s Italian bond auction. Volatility gauges were a touch lower and crude oil prices nudged up.

Following is a selection of some of the day’s interesting research snippets:

- Deutsche Bank’s emerging markets strategists John Paul Smith and Mehmet Beceren said they retain their negative bias toward global emerging market equities both in absolute and relative terms, highlighting Argentina’s expropriation of YPF from Repsol as another negative. “We anticipate that so-called state capitalism will continue to be a negative driver, as it has been since mid-2010, since the poor economic backdrop makes the corporate sector a tempting target for governments wishing to boost their popularity or find additional resources to add to the relatively low levels of social protection across most emerging economies.” They added that they remain overweight “state lite” emerging markets such as Taiwan, Mexico and Turkey and underweight Russia, China, Brazil and South Korea.

Three snapshots for Friday

Although the focus has been on Spanish debt auctions this week as this chart shows Italy has much further to go in meeting this year’s funding needs.

German business sentiment rose unexpectedly for the fifth month in a row in March, moving in the opposite direction to the composite PMI:

Greg Harrison points out 82% of S&P 500 companies have beaten their Q1 earnings estimates so far. It  is early days but it it continues that would be the highest for at least five years. Is this a sign that the strength in corporate earnings in continuing? The chart below suggests as least part may be due to falling expectations coming into earnings season.

Three snapshots for Friday

JPMorgan profit beats expectations:

In China the annual rate of GDP growth in the first quarter slowed to 8.1 percent from 8.9 percent in the previous three months, the National Bureau of Statistics said on Friday, below the 8.3 percent consensus forecast of economists polled by Reuters.

Italian industrial output was weaker than expected in February, falling 0.7 percent after a revised 2.6 percent fall the month before, data showed on Friday. On a work-day adjusted year-on-year basis, output in February fell 6.8 percent, compared to a revised 4.6 percent decline in January.

Three snapshots for Tuesday

Italy and Spain are back in focus as bond yields and spreads start rising again.

The latest Sentix euro zone investor sentiment index also seemed to confirm the feeling that crisis worries are back falling to -14.7 in April.

U.S. small business confidence dropped in March for the first time in six months:

Three snapshots for Monday

Is China heading for a hard or soft landing? One chart to keep an eye on is the relative performance of materials equities, the long run of outperformance since 2000 looks like it might be rolling over.

Germany’s Ifo business sentiment index rose unexpectedly in March, moving in the opposite direction to the the PMI released last week:

Italian consumer morale also rose to 96.8, economists were expecting a slight decline to 93.7.

Three snapshots for Monday

China’s trade balance plunged $31.5 billion into the red in February as imports swamped exports.  It followed reports on Friday that inflation cooled in February while retail sales and industrial output fell below forecast, all pointing to a gradual cooling.

Investors ploughed more money into hedge funds over the past month as performance has picked up after last year’s losses.

Final Q4 Italian GDP growth came in at -0.7%q/q. This chart showing GDP vs the Markit purchasing managers’ index shows the current recession may continue into this year.

from MacroScope:

Yet more lagging from Italy and Greece

At this stage in the euro zone crisis, we probably don't need to be reminded how uncompetitive the peripheral economies are. (Arguably, of course, they would not be economically peripheral if they were more competitive, but that is for tautologists to debate).  The United Nations, in the form of UNCTAD, has just pinpointed another weakness, however -- huge underperformance  in foreign directed investing, or FDI.

The numbers it has just released only go as far as 2010, so the real crisis cauldron has yet to come.  But they show that Greece and Italy have been punching way below their weight.

Greece has attracted a relatively small amount of foreign direct investment compared to other countries in the European Union (EU). In 2010, Greece’s share in the EU’s GDP was 1.9 per cent. In the same year, however, the inward FDI stock of Greece amounted to €26.2 billion ($35.0 billion), or less than 0.5 percent of the combined FDI stock of EU countries. Similarly, Greece’s share in the total outward FDI stock of EU countries was 0.4 per cent.

Euro periphery: Lehman-type shock still on cards

The passing of Greek austerity measures is fuelling a rally in peripheral debt today with Italian, Spanish and Portuguese yields falling across the curve.

However, one should not forget that peripheral economies are still under considerable risk of becoming the next Greece — rising debt and weak economic growth pushing the country to seek a bailout — as a result of tighter financial conditions.

Take this warning from JP Morgan:

Financial conditions have deteriorated far more in peripheral Europe than in the core. The drag from this on peripheral GDP is akin to that seen following the Lehman crisis.