The glorious 12th, let the season begin

Alcoa's results were encouraging, and if they do offer an insight on the upcoming reporting season, the early portents are good. The company reported its strongest operating results since 2008, and better earnings than market estimates; the shares duly rose in afterhours trading. In their outlook for 2015 Alcoa remains optimistic, seeing demand particular from the aerospace sector as well as construction and autos.

As we look forward to the start of the Q4 2014 earnings season, analysts started 2014 anticipating US earnings growth of approximately 12 %, it looks like turning out earnings will grow about 8% year on year. It is often the case analysts start the year looking optimistically at the earnings potential for the year ahead, and 2015 appears to be no exception, currently analysts have pencilled in year on year earnings growth of 13%.

Unlike the past few years, and its early to tell if this is a blip or the start of a trend, but the eurostoxx 600 is up small on the year against the S&P 500 down 1.5%. Company earnings recovery in Europe remains significantly behind that of the US, mainly on the back of the weak European economy. There remain many structural issues within Europe associated with the existence of the euro, but should the European economy start to benefit from some of the similar measures taken that have helped boost the US economy, alongside lower oil prices, the potential for earnings recovery in Europe is material. If some of that potential becomes a reality, the outperformance of the US equity market over the European one may start to unwind itself, but it’s a big if.  

On Tuesday the office for national statistics reported that year on year inflation for the UK fell to 0.5% in December. The threat of deflation not inflation seems to be the order of the day, Mark Carney was quoted as saying this news could lead to rates lower for longer, 30 year gilt yields are now 2.29%. We live in period of great uncertainty but the facts remain that financing has never been lower, oil price falls have given a boost to the consumer, inflation is negligible (for now), and central bankers now appear to becoming complacent. If that is not a cocktail for consumer led economic upturn the doomsayers will be proved right as there is not much more one can think of to go in the favour of kick starting a true recovery, and possibly reignite the inflation that bankers appear to wish for. 

Posted on January 13, 2015 .