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Global Market Wrap-Up - April 14, 2014

Monday, April 14, 2014
Mark Hanna

5 Themes for the Week

1) The Long Awaited Correction? - U.S. markets have been in a significant advance since late 2012. The first quarter of 2013 marked a stall phase, and thus far early in the second quarter there has been a significant amount of selling; i.e. the NASDAQ enters the week 8% off its highs and a lot of market sectors that people have been focused on such as internet, biotech, and momentum stocks have been hit much harder. Even with that pullback the NASDAQ is trading at 35 times total per-share earnings of companies in the index. It is very normal for stocks to come in and correct on a regular basis; what is abnormal is the held belief that the market should just go up without relent because the Federal Reserve wants it to.  

2) Mario Draghi Unhappy with the Euro - It is amazing how little free markets are allowed to work anymore. And when they try to, central bankers try to bend them immediately back to their will. With the euro up 6% over the past year versus the dollar, policy makers at the European Central Bank have taken note. Draghi said that the euro's strength has been an important factor in causing eurozone inflation to drop to 0.5% on year, which has prompted fears of deflation. And...wait for it... any more appreciation would require more monetary stimulus. “The strengthening of the exchange rate would require, to make our monetary policy stance to remain equally accommodative, it would require further monetary policy accommodation,” Draghi told reporters in Washington Sunday. “The strengthening of the exchange rate requires further monetary stimulus. That’s an important dimension for our price stability.”

3) Another Earnings Report Season Begins - Last week began the first few key reports, such as JPMorgan's miss - the heart of earnings season begins this week. Once again we have another quarter where expectations are very low - this time around the reasoning is the harsh winter... which while affecting some domestic consumer spaces should not affect many global companies. Profit growth for Standard & Poor's 500 companies now is projected at just 0.9% in the first quarter from a year ago, down from a Jan. 1 forecast for 6.5% growth, Thomson Reuters data showed. That would be the first decline since 2012's third quarter. Here are some key earning dates:

  • Monday: Citigroup
  • Tuesday: Intel, Johnson & Johnson, Yahoo, CSX
  • Wednesday: Bank of America, Google, IBM, American Express
  • Thursday: General Electric, Goldman Sachs, Honeywell, DuPontm PepsiCo, Philip Morris International
  • Friday: Markets are closed for Good Friday

4) Some Tough Data out of Asia Last Week - There were some rough data points in Asia last week as these export heavy economies have been taking some hits of late. In Japan, core machinery orders fell 8.8% in February from January. A 2.6% decline was expected. While often volatile, the data on core machinery orders generally indicate how confident companies are about the economy about six months into the future. Japan's economy is widely expected to slow this year, following an April 1 increase in the sales tax designed to plug the country's huge fiscal deficits.

Meanwhile in China, exports declined 6.6% from a year earlier while imports fell 11.3 percent, in part on falling commodity prices. Keep in mind, China’s exports fell 18.1% in February from a year earlier, the biggest drop since the global financial crisis. "Internal and external demand remain weak," said Ma Xiaoping, a Beijing-based economist at HSBC. "The recovery of China's major trade partners—the U.S., Europe, Japan—wasn't as good as expected."

5) U.S. Credit Card Debt Declining - Credit card debt movement is a two way street - if it increase some will claim it is due to a show of more confidence; recall in the mid 2000s credit card debt exploded upward. On the other hand in a weaker economy, it can be seen as people using cards in lieu of cash on hand. When it decreases, it might mean the consumer is becoming more cautious OR has better ability to pay off her debts. Either way you view it, it is something to note since it is pretty rare outside of a recession in the U.S.

Total outstanding consumer credit across the economy—including student and car loans but excluding real-estate loans like mortgages—rose at a seasonally adjusted annual rate of 6.4% in February to more than $3.129 trillion, the Federal Reserve said last week. But outstanding revolving credit, which includes credit-card debt, fell $2.42 billion from January, representing an annualized decline of 3.4%. Revolving credit also decreased in January.