Monday 15th October 2012
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The central bank-induced highs of September have given way to concern about the depressed outlook for corporate earnings and the global economy.
After the International Monetary Fund kicked off the week with a downgrade of its forecast for worldwide economic growth, US companies including Alcoa reminded investors that the headwinds facing Europe and China make corporate smooth sailing increasingly challenging.
Indeed, Thomson Reuters data showed 11 negative outlooks for fourth-quarter results so far from Standard & Poor's 500 companies, while none are positive.
Investors are anxiously awaiting results of Bank of America, Citigroup, Goldman Sachs and Morgan Stanley released in coming days after those of JPMorgan Chase and Wells Fargo failed to inspire on Friday.
"We need to see big banks doing well, and JPMorgan or Wells didn't give us the boost we were hoping for," Wayne Kaufman, chief market analyst at John Thomas Financial in New York, told Reuters. "Citigroup is the one we're looking for. If profits come in worse than expected there, that would make me more bearish about the economy in general."
Among the slew of other US companies reporting this week are McDonald's, Microsoft, IBM, Intel and Johnson & Johnson.
In the past five days, the Standard & Poor's 500 Index shed 2.2 percent, while the Dow Jones Industrial Average dropped 2.1 percent.
There were some unexpected bright spots as reports showed that US jobless claims dropped to the lowest since 2008, while confidence among American consumers rose in October to the highest level in five years.
Also, data showed that China's exports increased at the fastest pace in three months in September, fuelling hope the world's second-largest economy might be holding up better than expected after all.
US data due in the coming days include retail sales, the consumer price index, industrial production, housing starts, and existing home sales.
By and large, the appeal of the relative safe-haven of US Treasuries remained strong in the past week, bolstering demand for the US$66 billion of notes auctioned. The yield on 30-year bonds dropped 14 basis points last week, while the yield on 10-year debt yield declined nine basis points.
"The IMF brought everybody back to the global economic situation," Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee, told Bloomberg. "We went through roughly six weeks where everything looked more attractive than Treasuries."
On Thursday, the US is scheduled to auction US$7 billion in 30-year Treasury Inflation Protected Securities.
In Europe, investors will eye a meeting of EU finance ministers.
Euro zone officials are considering new ways to lower Greece's debts because delays to reforms by Athens and continued recession have put the target of a debt to GDP ratio of 120 percent in 2020 out of reach, Reuters reported.
Europe's Stoxx 600 Index declined 1.7 percent last week. The euro also suffered, weakening 0.7 percent against the greenback in the past five days, and losing 0.9 percent against the yen.
The region's debt crisis remains a key concern for investors.
BlackRock Chief Executive Laurence Fink said he was still bullish on US equities but warned that the stock market could lose 5 to 10 percent in a correction in the final months of the year amid uncertainty over the euro zone's current key problem-child, Spain.
"The next three to four months we are going to probably have greater uncertainty and the market may test itself one more time," Fink told Reuters in an interview on Saturday.
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