MacroScope

Bank of England sticks to its view and analysts, some defiantly, stick to theirs

Bank of England governor Mark Carney gestures during the bank's quarterly inflation report news conference at the Bank of England in LondonMark Carney has delivered what is probably the clearest message on the trajectory of interest rates from the Bank of England for a very long time.

There was no more  talk of “forward guidance”, but the guidance was pretty clear: no change to the view, on track for a first rate hike in a very gradual series, starting around a year from now. Nothing to see here.

There were a few grey areas, notably whether wage inflation will pick up significantly (it hasn’t yet) and if the elusive appearance of meaningful British productivity growth ever takes place (which will prevent the labour market from generating too much inflation).

And the jobless rate forecast was moved down a bit.

But so long as wage growth remains as tame as it was reported earlier in the day, there’s no inflation problem to see here.

So the message seems to be that if there ever were a time to drop speculation of an imminent rate rise, i.e., in the next six months, now would be the time.

Corporate sustainability: Unilever CEO Polman on ending the “three month rat-race”

Paul Polman, Chief Executive Officer, Unilever, of Britain, attends a session at the World Economic Forum (WEF) in Davos, January 26, 2012.Credit: REUTERS

This article first appeared in Reuters’ new sustainability website.

Around the time of the 2008 global financial meltdown, consumer products giant Unilever decided to swap the push for short-term results — what CEO Paul Polman calls “the three-month rat-races” — for a long-range business plan tied to environmental and social sustainability.

“We don’t do three-month reporting any more,” Polman said in a telephone interview before Unilever’s latest earnings report on Thursday. “We’re not going into the three-month rat-races. We’re not working for our shareholders. We’re working for the consumer, we are focused and the shareholder gets rewarded.”

He reckons this strategy is working, with the company’s share price doubling over the four years since the Sustainable Living Plan was first envisioned.

from Global Investing:

January in the rearview mirror

As January 2012 drifts into the rearview mirror as a bumper month for world markets, one way to capture the year so far is in pictures - thanks to Scott Barber and our graphics team.

The driving force behind the market surge was clearly the latest liquidity/monetary stimuli from the world's central banks.

The ECB's near half trillion euros of 3-year loans  has stabilised Europe's ailing banks by flooding them with cheap cash for much lower quality collateral. In the process, it's also opened up critical funding windows for the banks and allowed some reinvestment of the ECB loans into cash-strapped euro zone goverments. That in turn has seen most euro government borrowing rates fall. It's also allowed other corporates to come to the capital markets and JP Morgan estimates that euro zone corporate bond sales in January totalled 46 billion euros, the same last year and split equally between financials and non-financials..

from Jeremy Gaunt:

Wishful thinking on earnings?

The U.S. earnings season is over bar a handful of firms. It has been robust to say the least: Thomson Reuters Proprietary Research calculates that S&P 500 companies overall had second-quarter earnings growth of 38.4 percent. That was 11 percentage points higher than people had been expecting heading into the season.

There may be more surprises ahead -- although which sort, remains in question. The research suggests that analysts still expect solid growth in the coming quarters and that the decline in U.S. economic strength over the summer has not changed their minds much.

Third-quarter earnings growth is estimated at 24.9 percent, down slightly from July estimates but higher than earlier in the year. Fourth-quarter estimates are at 31.8 percent.

from Jeremy Gaunt:

Micro versus macro

There is little doubt that the latest U.S. earnings season has been a good one for long-equity  investors. Thomson Reuters Proprietary Research calculates that with 67 percent of S&P 500 companies having reported, EPS growth -- both actual and that still forecast for those who have not filed yet -- has come in at 36 percent.

Furthermore, a large majority of the reports have surprised on the upside, as they like to say on Wall Street.  Some 75 percent of  reports have been better than expected.  Not surprisingly, the S&P index gained around 6.9 percent in July and is up another 1.7 percent in the first two trading days of August.

But given what looks like at least a faltering U.S. economy with little consumer confidence, some analysts  have begun asking what there is to get excited about. Philipp Baertschi, chief strategist at wealth manager Bank Sarasin, for example, calls it a case of micro bulls versus macro bears and warns that it won't last.

The long, long slog back to full U.S. employment

In case you weren’t depressed enough about the state of the U.S. labor market and the 7.2 million jobs lost since the start of the recession, check out this factoid from JPMorgan economist Michael Feroli:

“We would need payroll gains of 200,000 per month every month for three straight years just to get back to late 2007 levels of employment, and even that calculation ignores the labor force growth over the intervening years.”

Take your pick of bad September job news: the average workweek declined; average hourly earnings increased a paltry 0.1 percent; the broadest measure of unemployment and underemployment rose to 17 percent; and the average duration of unemployment hit an all-time high of 26.2 weeks.

from Global Investing:

The Big Five: themes for the week ahead

Five things to think about this week:

APPETITE TO CHASE? 
- Equity bulls have managed to retain the upper hand so far and the MSCI world index is up almost 50 percent from its March lows. However, earnings may need to show signs of rebounding for the rally's momentum to be sustained. Even those looking for further equity gains think the rise in stock prices will lag that in earnings once the earnings recovery gets underway, as was the case in past cycles. The symmetry/asymmetry of market reaction to data this week -- as much from China as from the major developed economies -- will show how much appetite there is to keep chasing the rally higher. 

TAKING CONSUMERS' PULSE 
- A better picture of the health of the consumer will emerge this week as U.S. retailers' earnings coincides with the release of U.S. July retail sales data and the UK BRC retail survey comes out on the other side of the Atlantic. With joblessness still rising, the reports will show how willing households are to spend and whether deep discounts, which eat into retailers' profit margins, are the only thing that will tempt them to shop -- both key issues for the macroeconomic and corporate outlook. 

CENTRAL BANK WATCH 
- After last week's Bank of England surprise, all eyes turn to what sort of signals the U.S. Federal Reserve and Bank of Japan will send on the outlook for their respective economies and QE programmes. After the BOE's expansion of its QE programme the short sterling strip repriced how soon UK rates would rise. But the broader trend recently in the U.S., euro zone and the UK has been to discount rate rises in 2010 -- and possibly as soon as this year in Australia. Benchmark interbank euro rates have risen for the first time in two months, and central bankers everywhere, including China, face the delicate balancing act of managing monetary tightening expectations in the months ahead. 

from Global Investing:

The Big Five: themes for the week ahead

Five things to think about this week:

HOLDING UP -- FOR NOW 
- A good run in equities has so far been helped rather than hindered by U.S. company results. Some are questioning how long the upward momentum can be sustained given cost-cutting rather than improved revenue streams flattered profit margins. The European earnings season, which cranks up a gear this week, and the release of U.S. Q2 GDP data could be potential triggers for a pullback, but the sensitivity to bad news may depend on how much money is chasing the latest push higher. 
    

EARNINGS 
- European earnings flooding out in the coming weeks may paint a less rosy picture of the banking sector than seen on the other side of the Atlantic. While investment and trading activities should be supportive, bad loan provisions will be particularly closely scrutinised, as will the central and eastern Europe exposure of the likes of Erste. The supply/demand outlook for key commodities plans will also be in the limelight given the battery of oil and chemical firms reporting in Europe and the U.S. 

CORRELATIONS 
- There are signs of some breakdown in the lockstep moves that financial markets had become accustomed to seeing in FX/stocks or stocks/bonds. Calyon research shows correlation between the bank's proprietary risk aversion barometer and exchange rates has been less robust in the past month. While this correlation nevertheless remains stronger than that between FX and interest rate differentials, the markets' thoughts are turning to new linkages that might prove better trading guides. 

from Global Investing:

The Big Five: themes for the week ahead

Five things to think about this week: 

RESULTS RUSH 
- The early wave of Q2 earnings last week prevented any major risk shakeout but there are plenty more results this week, including from banking, technology (Apple, Microsoft), and other sectors (Lockheed Martin, Coke, McDonalds). Investors with bullish inclinations will be looking for the VIX to stay subdued after it fell last week to lows last seen in September 2008, especially if more pent up cash is to be released from money market funds. Bears will be thinking that what might be the S&P's best weekly performance since mid-March could be setting the market up to be more sensitive to bad news.

BANKS - IS THE BEST PAST? 
-  It is hard to see how bank results this week can top the boost which Goldman and JPM gave stocks last week. More of a mixed bag is likely with the U.S. slate including Bank of New York Mellon, Morgan Stanley, Wells Fargo, Capital One, and American Express while Credit Suisse will be the first major European bank to report. Defaults and delinquencies will be in focus for banks more exposed to the retail sector -- both for what it means for their outlook and for what it bodes for household solvency and spending. 

DRILLING DOWN 
-  The breakdown of company results this week (ABB, Texas Instruments, Caterpillar, DuPont, Boeing, 3M) will show the extent to which the inventory rebuilding story, which has helped lift world equities almost 40 percent from their March lows, can offer more sustainable support to stocks in the weeks and months ahead. Earnings this week will be closely scanned to see how inventories are stacking up verus orders. How deeply firms are cutting into costs to defend profit margins, as well as their business investment plans, will be key for unemployment and other macroeconomic data.

Earnings and V-shape recovery

It may be some weeks since investors have written off the prospect of a V-shaped economic recovery, but equity analysts still expect corporate earnings to go through a very sharp V-shaped rebound.

According to Thomson Reuters data, earnings are expected to shrink 34.5 percent in Q2 and 21.4 percent in Q3, before growing a whopping 180.2 percent in Q4.

That would bring the full-year 2008 earnings contraction rate to just 11.2 percent.