The market has plenty to chew on today, ranging from an orderly and controlled economic slowdown in China to a potential credit rating downgrade for France. The French news adds to Europe's woes and comes a day after German leaders tried to dial back expectations for a comprehensive plan out of the weekend EU summit.
If all of this wasn't enough, the market has to size up a slew of earnings reports and the September wholesale inflation (PPI) reading. On the earnings front, I must say that the picture emerging this morning is less than stellar.
The September PPI report this morning was tad hotter than expected on the headline basis, though the 'core' measure that strips out food and energy costs was broadly inline with expectations. Inflation readings, like today's PPI and Wednesday's CPI, have been elevated lately and account for part of the disagreement within the Fed policy makers on how to respond to the economic weakness. But the current pricing pressures are considered to be of a transitory nature at this stage. Given the broad pullback in commodity prices over the last few months, inflationary pressures are expected to ease going forward.
Compared to the U.S. economy, China has a very serious inflation problem and they have been working hard lately to bring it down. Today's GDP report appears to show that they are making progress.
The Chinese economy expanded at a 9.1% pace in the third quarter, a shade lower than expected and below the 9.5% growth rate of the second quarter. This growth pace, the lowest in two years, is consistent with the 'soft landing' scenario and improves the odds that the policy makers' efforts to bring down inflationary pressures through fiscal and monetary measures is bearing fruit. Separately, other data showed renewed momentum in September, with Industrial Production reaccelerating from the prior month's pace. This makes it difficult to handicap whether Chinese policy makers will stay on hold or start easing in the coming months, as some have been expecting.
Among the major earnings reports this morning, we have Bank of America (BAC) handily coming ahead of earnings and revenue expectations. The bank's credit-loss provisions were below the year-earlier level, but increased from the prior quarter's level, while net charge-offs were below both the prior and year-earlier quarters. Goldman Sachs (GS) appears to have lost its golden touch, as the Wall Street titan swung to a quarterly loss and missed expectations. In other earnings reports, Coke (KO) came ahead of earnings and revenue expectations, though its EPS beat was by only a penny.
The IBM (IBM) report after the close on Monday was less than reassuring on the global IT spending front. The tech giant beat earnings expectations and raised guidance, but it missed revenue expectations. Importantly, the company's weak service contract signings and sequential decline in backlog raised doubts about IT spending in an environment of weak global economic growth. Apple (AAPL) and Intel (INTC), two other titans of techdom, report results after the close today.
With recessionary fears no longer a major concern for the market, earnings and the European situation are the two key issues at present. This morning's earnings reports are mixed at best and the European situation remains uncertain, particularly following Monday's 'clarification' from Germany about the plan expected to come out of the weekend EU summit meeting. Given this, I would expect stocks to remain in a wait-and-see mode today.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment