Mixed data from US…
On the surface the data from the US economy looks brilliant: the labor market is the strongest since early ’08, housing market is recovering and the activity indicators are at levels not seen since April’11. While the data are not bad and certainly way stronger than some on the market had feared back in the early Autumn, the question is what they are telling us now when the S&P500 is some 5% off ’11 highs and the DJIA30 is missing less than 3% from that point!
The labor market data is solid but the drop in claims (from 402 to 352k) must reveal some sort of the distortion that took place at the beginning of the year. The 4-weeks average (at 379k, down by 3,5k) is probably a better indicator. The labor market data are usually lagged to the economic cycle (and the markets) so their impact should be limited. The bulls, however, might have an argument that this time an improvement on the labor market will not be answered by a monetary tightening.
The housing figure was a tad weaker than expected (659k vs. 680k) but it sufficed for the 6-months average to inch up to the highest since Feb’09. Regional indicators in January inched up as well… but in case of the Philly Fed it was only because a number for December was revised down from 10,3 to 6,8 pts. Should we take this into account, those numbers are nearly flat m/m. Meanwhile these figures were first to signal a deterioration in the spring and an improvement in the autumn. Taking into account that major indices nearly returned to ’11 highs there seems to be no room for further advances. We would expect the Fed’s meeting next week to put a halt to this rally…unless something explodes in Europe in the meantime.
…weak Chinese PMI…
The Chinese PMI inched up in January by 0,1 pts. to 48,8 pts. but again only because the number for December was revised down. Consequently the PMI is below 50 mark in the 6th out of last 7 months and heralds an inevitable slowdown in China. There is a popular view right now on the market that this is not a reason to worry because the PBoC will relax monetary policy to cushion any slowdown. However, with a property market still far from normalized and oil prices high the central bank faces an ugly choice: either allow the economy to slow substantially now or risk a hard landing later.
…and disappointing techs
Bank of America and Morgan Stanley presented fairly decent results yesterday but those were countered with weaker numbers from tech companies. Google disappointed on the full front with the adjusted EPS (9,50 USD) missing a consensus by nearly 10%. Microsoft and IBM had slightly higher earnings (than expected) but slightly lower revenues and Intel managed to beat both figures but only marginally. In general, 7 out 30 DJIA companies that have reported thus far match the consensus on average. Even that would be a kind of disappointment given a typical positive surprise after the first week in previous quarters. However, if one takes into account that Google and Citi are not included on that list a conclusion is: a clear disappointment.
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Przemysław Kwiecień PhD, Chief Economist |
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