The US market was in stark contrast to last week’s bullish earnings reports. The market declined this week, dragged down by downbeat earnings forecasts.
In the technology area, Apple announced that profit was up 36% in the 2nd quarter but that wasn’t enough to stem selling after hours on Wednesday. The stock was sold down on the expectation of a subdued 3rd quarter result.
Bank of America’s profit dropped 77% to $1.2B. There were $6B of provision expenses due to rising costs in the home equity, small business and home builder portfolios.
Ambac came in with a 1st quarter loss of $1.66B which saw its stock drop 43% on Wednesday.
In Japan, the trade surplus surprised the market with a number of 1.12 trillion yen which is down from 1.6 trillion a year earlier. Exports slowed down with demand from the US at the slowest pace in more than 4 years. Exports grew at 2.3% in March which is down from February’s growth of 8.7%. Imports rose 11.1% mainly due to the impact of higher crude oil prices.
Inflation numbers in Australia were higher than expected. The consumer price index for the 1st quarter rose 1.2% to see core inflation at 4.2%. This is outside of the 2-3% band that the Reserve Bank of Australia aims for. Despite the rise, the market believes that interest rates will remain unchanged in May due to signs of a slowing domestic economy.
Bank of Scotland fell the most in a month this week. The bank said on Tuesday that it would look at raising 12 billion pounds to rebuild its balance sheet.
More signs of weakness in the Eurozone economy are beginning to reveal themselves. Even though service sector PMI improved in the month of April, manufacturing sector PMI deteriorated.
While stock markets have shown weakness this week, it’s been another record week for commodity prices. Oil prices reached fresh new highs near $120 US barrel. We’ve also seen soft commodities like rice increasing phenomenally. Rice is the world's 2nd biggest food grain crop. Rice prices surged 2.3% to a new high in Asian trade. Prices were supported by the news that Thailand may join other countries in curbing the export of rice. Even Walmart’s Sam’s Club which is the number 2 warehouse operator in the US said that it was limiting sales of rice due to recent supply and demand trends. This should benefit Australian farmers and agricultural companies.
This week, all eyes will be on the US FOMC meeting on interest rates. The Fed fund futures are pricing in an 82% chance of a 25 basis point cut in the US. Also important is the ISM manufacturing index which will be watched as a gauge of the US economy.
Head of Fundamental Analysis
HUBB Financial Group