A Week to Forget?

Well, it certainly hasn’t been the most interesting of weeks, light on economics, light on earnings and markets still hungover from the worse payrolls data last week. Volumes have been less than heavy too, clocking in today at c50% of their 20 day average. Of course, the longer this drags on, the lower that actual average number is. But this week may be memorable for something, it’s the first time in a long time that we’ve seen some real follow through to the risk off trade. Equities have sold off and hover near the lows of the week. The Yen rallied hard, as did govvies, the dollar has bounced (ok it sold off yesterday but is rallying back today. ) and oil has taken a pretty serious dirtnap back into the 50s. Lucky for PVM they cut that position when they did!

Crucially, the market is reassessing the weight it attaches to the “good news.” The ISM bounce was sold and the better jobless number was eclipsed by the worse continuing claims. Admittedly with earnings kicking off in earnest next, it wouldn’t be the most prudent play in the world to be betting big one way or the other this week and investors seem to be erring on the side of caution into the start of the season. So what will earnings hold in store for the market? Remembering last quarter that while 2 out of 3 companies beat, these beats were largely due to cost cutting and in fact, 2 out of 3 missed on the revenue lines, the market may be sceptical if the same trick is repeated. Well, cost cutting is unsustainable so if revenues don’t pick up soon…there will have to be questions asked. Given the glut of stock issuance of late, and the heady amounts of insider selling, 22:1, I’m not overly optimistic. Well, not on the quality side of things anyway. There’s probably more room to cut costs and expectations are low too so positioning could well have a big impact on the market reaction, especially in light volumes. Perhaps Q3 is where the lack of top line will really come home to roost, if conditions continue in the same vein.

The BOE provided no surprise on the rate side yesterday although it caught GBP and bonds off guard it decided not to extend its QE program. The lighter UK PPI numbers this am however have reversed the moves somewhat as inflationistas re-evaluate.

There was a lot of press, if not a lot of detail given to the huge bounce in Chinese auto sales yesterday, up 48%. And the import number released this am not as bad as anticipated. Exports were worse though and the actual trade balance(surplus) quite a lot worse at $8.25bn vs $15.53bn so it will be interesting to see which the market actually focuses on given the former (stockpiling or real demand?) has been part of the China bull case although latter of course is what actually feeds into the GDP equation.

Outside of that, it’s another quiet day in a week to forget…or remember. Whichever way, we’ll have to wait and see how it pans out.