Fundamentals rattle the markets

Fundamental questions around strength of the US earnings remain; after having seen a 30% gain on the S&P in 2013, the current earning season is masking what really is a disappointing start.

So far just over 12% of the S&P 500 has reported to the market. Overnight all companies that reported beat expectations on the EPS line, however on the whole only 67% of stocks have beaten estimates on this line; historically that figure is more likely to be around 70% to 75%. EPS growth has been strong up 16.6%, however again this was expected and had been built into most analysts’ forecasts, which may be seen as a disappointment.

On the revenue line, 67% of companies that have reported so far have beaten estimates, which is again below the historical average of 72% to 76%; revenue growth of 4.3% is low considering the strength in the index.

With IBM due out after the bell in the US, and it being the second largest weighting on the DOW, it’s the S&P futures that will need to be taken as the lead of the market today. If IBM misses expectations it will drag on the futures, despite the fact it is not the benchmark company is once was.

Since the close of the ASX yesterday at 4:10pm AEDT, the S&P futures have moved from +0.4% to +0.2% which is the reasoning behind the negative leads for the market this morning, currently off 0.2%.

This coupled with questions about the health of the iron ore price and BHP reporting production numbers to the market before the bell, sentiment is currently seeing the market treading water.

I believe the BHP numbers will be a good read; all commentary and news from the company over the past three months have been positive and it would not surprise me to see a beat on the output and production lines.     

Ahead of the Australian open 

The market today will be fixed on the Australian Bureau of Statistics and the release of Australia’s CPI data.

After last week’s shock employment data, and with just over a week to the first RBA meeting of the year, if the CPI data comes in-line or below expectations, the probability of a rate move will increase and it will put further pressure on the ever-weakening AUD.

Estimates vary from 2.1% to 2.6% for a mean call of 2.4%; I think anything less than 2.3% (at the lower-end of the comfort range for the RBA) will be a reason to see further rate cut (stimulus) talk from the Board. I don’t believe that will act any time soon, but jawboning is almost a standard setting from Glenn Stevens now.

Currently we are calling the market down 10 points at the 10am bell (AEDT) to 5321, in-line with the 0.2% contraction on the S%P futures.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.