20.01.12 Friday Afternoon

The depressing nature surrounding ‘Blue Monday’ was bucked this week as stocks climbed off the back of improved Eurozone consensus and quarterly reports out from America. Following the S&P’s decision to cut many Eurozone countries ratings the emphasis was on the multiple debt auctions which on the whole produced promising results. The EFSF, Netherlands, Belgium, Germany, Spain, France and even Greece held successful auctions with yields hovering around or decreasing from previous levels. Spain report that they have now completed 20% of their targeted insurance policy for 2012.

The Dax rose 5% off the back of this solid auction result and an economic sentiment figure which was at the highest level since last July, far exceeding expectation. The Dax closed at 6410 Thursday, its highest level since last August’s sell off. Other European countries were recipients of mixed news. Russia’s long term rating was revised by Fitch from positive to stable, Bulgaria was praised by Merkel for their budget discipline and Fitch’s Parker said Greece was ‘insolvent and will default’. Figures from the UK showed inflation at its lowest level since last April but there was an increase in those claiming benefits with unemployment at a 17 year high, 16-24 year old unemployment levels are at their highest levels since records began.

Away from Europe the upcoming week sees China observe the Lunar New Year holiday with markets closed all week. Chinese quarterly growth came is just above forecast at 8.9%, its lowest level since late 2009 with copper and gold prices picking up off the back of this data. The World Bank has warned both China and India to expect further global slowdown with the bank of Japan also downgrading its assessment of regional economies. The IMF sees world growth at 3.3% in 2012 with the Eurozone shrinking by 0.5%. Oil was once again a sticky topic with the EU presidency calling for a full embargo on Iranian oil imports starting from the 1st July. The Saudi Oil Minister called for Crude Oil price to stay at $100 a barrel but a fall in stockpiles saw the price climb above to $102 on Thursday.

Across the pond it was a busy week for equities in America with many reporting. Figures showed a positive outlook with unemployment claims down to 352K and long term purchases greatly exceeding expectation. The Philly Fed manufacturing figure came in lower than expected but still shows improving conditions.

Equity reports were the talk of the street and Silicon Valley with all the big American Banks and Tech companies reporting. Citigroup reported missed targets and an 11% fall in profits, Wells Fargo on the contrary posted a 20% increase in 4th quarter profits. Goldman Sachs reported a 58% fall in profits, beating analysts’ expectations. Northern Trust stated that they aim to cut 700 jobs as record low interest rates are hobbling profit levels. Morgan Stanley saw revenue fall 26% but beat expectations. AMEX saw 4th quarter earnings rise 12% as cardholder spending continued to rise. However, the most promising results were those on Bank of America who brought in a profit of $1.99bln, 15 cents per share, compared to a prior 4th quarter loss of 16 cents per share. Thursday saw the Tech giants come in all with gains but with differing success opinion. Google reported a rise of 6% in earnings but missed targets. Microsoft conveyed an increase in Q2 revenue, $20.1bln, but a slight decrease in net income. IBM stated modest gains in both revenue and profit with the former up 2%.

In non-reporting news, Yahoo’s cofounder Jerry Yang resigned and Eastman Kodak filed for $950mn bankruptcy protection with their inability to keep up with global innovation cited as the reason for their decline. The share action was not just confined to the US. Carnival saw shares open up 20% lower Monday morning following the Concordia disaster. The catastrophe is expected to cost the company around $90m in earnings this year. The retail sector saw more ends of year reports with ASOS and ABF coming in inline, Greene King and Burberry reported better like-for-like sales figures.

Figures out next week see Euro Manufacturing and Flash services, GB Public Net Borrowing as well as Retail sales from Canada out on Tuesday. Wednesday is data packed with German Business Climate, GB prelim GDP, American Pending Home Sales and Crude Oil Inventories. Thursday sees the weekly American unemployment claims and New Home Sales. Friday sees US advanced quarterly GDP.

Companies reporting next week include Renishaw, WH Smith, Misys and Anglo American. A heavy week of statements coming out of America with smaller consumer banks, Caterpiller, Eastman Kodak and AT&T to name a few reporting.

See our Economic Diary here.