Global Markets Overview – 1/22/14

Fundamentals rattle the markets

Fundamental questions around strength of the US earnings remain; after having seen a 30% gain on the S&P in 2013, the current earning season is masking what really is a disappointing start.

So far just over 12% of the S&P 500 has reported to the market. Overnight all companies that reported beat expectations on the EPS line, however on the whole only 67% of stocks have beaten estimates on this line; historically that figure is more likely to be around 70% to 75%. EPS growth has been strong up 16.6%, however again this was expected and had been built into most analysts' forecasts, which may be seen as a disappointment.

On the revenue line, 67% of companies that have reported so far have beaten estimates, which is again below the historical average of 72% to 76%; revenue growth of 4.3% is low considering the strength in the index.

With IBM due out after the bell in the US, and it being the second largest weighting on the DOW, it's the S&P futures that will need to be taken as the lead of the market today. If IBM misses expectations it will drag on the futures, despite the fact it is not the benchmark company is once was.

Since the close of the ASX yesterday at 4:10pm AEDT, the S&P futures have moved from +0.4% to +0.2% which is the reasoning behind the negative leads for the market this morning, currently off 0.2%.

This coupled with questions about the health of the iron ore price and BHP reporting production numbers to the market before the bell, sentiment is currently seeing the market treading water.

I believe the BHP numbers will be a good read; all commentary and news from the company over the past three months have been positive and it would not surprise me to see a beat on the output and production lines.

Ahead of the Australian open

The market today will be fixed on the Australian Bureau of Statistics and the release of Australia's CPI data.

After last week's shock employment data, and with just over a week to the first RBA meeting of the year, if the CPI data comes in-line or below expectations, the probability of a rate move will increase and it will put further pressure on the ever-weakening AUD.

Estimates vary from 2.1% to 2.6% for a mean call of 2.4%; I think anything less than 2.3% (at the lower-end of the comfort range for the RBA) will be a reason to see further rate cut (stimulus) talk from the Board. I don't believe that will act any time soon, but jawboning is almost a standard setting from Glenn Stevens now.

Currently we are calling the market down 10 points at the 10am bell (AEDT) to 5321, in-line with the 0.2% contraction on the S%P futures.

However, the key to trade today will come from BHP and its production numbers. Currently BHP is trading at 12.7 times earnings, which is bang in-line with its historical PE, which cannot be said about other parts of the market. Its diversification is another reason for interest, as most will concentrate on the iron ore figure which is understandable as its last profit number made up 47.1% of earnings. However, beats around petroleum and copper cannot be ignored and may actually be the driver for the overall results.

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