The net outcome has been equity market positive with Q1 operating earnings growth averaging 19.5% – a stellar number compared with pre-season forecasts of just 11.8%.
The result – of course – upgrades for 2011 and 2012 with new forecasts of $115 for S&P 500 earnings – putting the US market on an attractive prospective 11.4x.
Bond markets were little changed whilst the auction of $35bn of 2-year treasuries on a 0.55% yield basis met strong demand – suggesting an acceptance of low for longer US central interest rates.
In currency markets – the euro saw a degree of stability – but as the Greek situation drags on we see further cause for the single currency to fall on a trade weighted basis – and not just against the safe havens like the Swiss franc – against which the euro trades at a new record low having depreciated by almost 20% over the past 12 months.
Whilst a negative for UK companies with substantial euro denominated earnings – this is a gift for German exporters. In part reflecting euro “worries” the gold price rallied to a 3-week “high” to trade at $1523/oz at this morning’s open.
Oil forecasts
More broadly, commodity prices hardened with oil up around 2% as several major brokers called the average oil price higher at $120 and $130/bbl respectively on a 12 months view; copper has opened ~1% firmer this morning. If correct this would be a double edged sword – a clear positive to the oil sector (analyst forecasts are based on a price of under $100/bbl) but negative for consumers’ disposable incomes.
Today the main focus was initially on a potential revision to UK Q1 GDP data; we had hoped for a small upwards revision to an annual rate of ~1.9% compared with an initial 1.8% guess, but data was unchanged. In the US, the focus will be on durable goods orders – ahead of the expected upward revision in US Q1 GDP numbers to growth of ~2.2% at the end of the week.
The London open is again weak – with an initial 40 points mark-down – taking the FTSE100 down to a level last seen in late March – though still 220 points above the early March “low”. For perspective at today’s level the UK market sells on an estimated 2011 headline PE of 11.2x – and the core market on ~13.9x – yielding an estimated 3.5%.
