Market Review: The Spotlights on US Earnings Figures
April 11, 2008
US
The US earnings season was kicked off this week. There was a lot of nervousness surrounding the earnings season given the weakness in the US economy. Alcoa was first off the ranks and disappointed. First quarter profit fell 54%. Earnings per share came in at 37c compared to 75c for the same time last year.
Yahoo also stayed in the headlines with Microsoft giving the company a 3 week deadline to respond to its takeover offer or otherwise face a potential hostile bid. Yahoo looked close to teaming up with Warner’s AOL to combine internet operations and to help fend off the Microsoft bid.
With the weak US currency, many were expecting the Trade Deficit to fall but instead it rose by 5.7% in February to 62.32 billion dollars. A rise in imports was behind the widening despite a soft US economy.
Asia Pacific
Rising input costs saw a fall in Japan’s Machine Orders with a 12.7% fall recorded for February. The reading was expected and didn’t impact hugely on markets.
Japan’s wholesale prices were also pushed higher by energy and food costs. They climbed 3.9% in March which was the highest pace in 1981.
In Australia, the gaming sector was negatively impacted by a decision by the Victorian state to end the duopoly of Tabcorp and Tatts group on pokie machines in the state. That saw both shares being rerated downwards and losing more than 20% in value.
Australian job numbers leaned on the negative side. Unemployment inched higher from 4% up to 4.1%
Coal miners and steel makers were in the spotlight this week. News that major coal miners had secured a more than 200% hike in coking coal prices saw steel makers come under pressure but boosted mining stocks.
China’s yuan broke through seven to the US dollar for the first time since its revaluation in July 2005. The rise in the currency reflecting China''s increasing use of the currency in the fight against inflation. China’s inflation is at the highest in 12 years.
UK
Bank of England cut interest rates by 0.25% to 5%. Economic growth concerns topped the agenda with the housing slump the worst in 16 years and stoking fears that England may be headed to recession. The European Central Bank kept rates on hold at 4% with inflation and growth still in focus. However, growth has not slowed down enough to consider cutting interest rates.
Reports that China was getting ready to take a stake in BHP Billiton supported the stock.
End Note
The International Monetary Fund cut forecasts for world growth down to 3.8% compared to 4.9% last year. It also sees a 25% chance that growth will fall to 3% as the credit crisis continues to impact on global growth. With US earnings in the spotlight in the coming week, there is risk that we will see more negative downgrades weighing on the market. On the upside, many are saying that all the bad news has already been absorbed into stock prices.
Happy Investing!
Julia Lee
Head of Fundamental Analysis
HUBB Financial Group
Trading Tutors Team
The US earnings season was kicked off this week. There was a lot of nervousness surrounding the earnings season given the weakness in the US economy.
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