Another decent earnings week particularly for US companies as the likes of Microsoft and Caterpillar comfortably beat expectations. Caterpillar shares have had a difficult time recently over fears at the lack of capital expense from the large resource companies caused by the weakness in commodity prices. Caterpillar remained cautious for the outlook for the year ahead however they did raise their earnings guidance modestly for 2015. The European earnings season remains in early days, only 13% of companies have reported so far. According to Merrill Lynch just over half the companies have beaten expectations, encouragingly over 60% have beaten on the revenue line.
Despite the strength in US equity indexes, net money flows continue to leave US equities, over $60bn from the start of 2015. This decoupling of flows from prices, as Merrill Lynch point out in their weekly review, may mean that equity prices will start to struggle to rise further unless this trend reverses. Investment grade bonds continue to see net inflows (70th straight week).
The trials and tribulations of Greece continue to make headlines, the Telegraph reported over the weekend that European leaders might be preparing for Greece to default on its debt obligations. They do go on to suggest that this event may not in itself mean Greece will leave the euro. Greece, as we have pointed out before, has defaulted on its debt back in 2012. This compromise would once again seem to ensure the status of the euro as a currency union.
The release last week of the minutes from the last interest rate meeting gave sterling a modest boost against the USD, but this may be as much to do with a general weakening of the US dollar, rather a reflection of an improving sentiment to the pound ahead of the election. The bookmakers suggest its been a slightly better week for the Tories as we enter the final 2 weeks of canvassing, Betfair currently predict 280 seats conservatives against 264 for Labour.
Looking to the week ahead, aside form the continuation of companies reporting, there will be a usual download of macro data. US consumer confidence on Tuesday and q1 GDP along with home sales will probably catch most economists’ radar screens. Also on Wednesday we get the latest Federal Reserve rate decision, there remains no expectation for a change in interest rates at this point. As for the UK the CBI Business Optimism index and Industrial Trends Orders may well make some headlines, and on Tuesday we get the first reading for Q1 GDP. As for Europe, aside form the ongoing saga of Greece, on Wednesday we get the release of April’s Economic and Industrial sentiment readings. On Thursday the latest inflation and unemployment rates for the euro area.
This will be the last trading week of April, this is the time tradition has it that investor’s look to sell in May and go away for the summer returning to the markets on St Leger day.