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US earnings season starts amid glimmers of hope on trade, Brexit

Monday 14th October 2019

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The US company reporting season about to get underway will provide the latest readings on how the world's largest economy is performing amid all the geopolitical headwinds.

It's not likely to paint the brightest picture – analysts are predicting a third successive quarter of earnings decline for the companies within the S&P 500 Index.

This is as the increasingly gloomy clouds, such as the US-China trade war and Britain's Brexit paroxysms, suddenly displayed patches of clear blue sky over the weekend.

The US share market had already closed on Friday before details of an interim China-US trade deal came out, a deal President Donald Trump described as “greatest and biggest deal ever,” but whose details fall somewhat short of that.

Even so, the rising hopes for an agreement meant the S&P 500 Index gained more than 1 percent on Friday, taking its weekly gain to 0.62 percent, so it will likely rise further this week.

And after talks with Irish Republic Taoiseach Leo Varadkar, British Prime Minister Boris Johnson signalled he was willing to make a U-turn on his plans for the Irish border and European Union officials said he had conceded there can't be a customs border between the republic and the six northern counties that remain part of the United Kingdom.

The Irish border is a key sticking point in Britain negotiating an orderly deal to depart the EU rather than crashing out without a deal, risking economic chaos.

The China-US trade agreement doesn't contain too much to get excited about, says Mark Lister, the head of wealth research at Craigs Investment Partners.

“To be honest, there's not really much substance to it. All that's happened is China's going to buy a bunch of soya beans, and that will be a way for Trump to placate the farming sector in the US, and the tariff increases that were due to happen on Oct. 15 have been postponed, possibly permanently,” Lister says. The tariffs on about US$250 billion of Chinese imports had been set to rise from 25 percent to 30 percent.

“That is good news and it is a de-escalation. But there's been no rollback of tariffs. It's more of a symbolic agreement that signals a return to a more comprehensive negotiation,” he says.

“I would be hesitant to declare the trade war over and that normal service will resume.”

As for Brexit, “it still looks really difficult to predict how it will all play out.”

Against that backdrop, a number of household names and other heavyweights will be reporting their September-quarter results this week.

They include Citigroup, JP Morgan and Goldman Sachs in the financial sector as well as Johnson & Johnson, Netflix and Coca Cola.

Six out of 11 sectors are expected to report earnings declines but Lister says if you exclude energy, technology and materials, the rest of the sectors are faring okay.

The energy sector “looks really ugly” with analysts predicting a 35.2 percent decline in earnings, the technology sector's earnings are expected to have fallen 10.2 percent and the materials sector's earnings, which includes companies such as DowDupont, Ecolab and International Paper, should be down about 9.3 percent.

On the domestic front, the September-quarter consumers price index due on Wednesday will be the economic highlight and the market is expecting a soft result.

There will also be the results of the latest Global Dairy Trade auction early on Wednesday and the market will be watching whether prices will rise again after positive results from the previous two auctions.

House price data for September is also expected sometime this week. The August figures showed a slight rekindling of house price inflation with prices 2.9 percent higher than a year ago but sales volumes were down 6.1 percent, the lowest level in seven months.

There will be plenty happening on the corporate front with Ebos, Genesis Energy, Meridian Energy, Sky Network Television and SkyCity Entertainment Group all holding annual shareholders' meetings while Kathmandu will be holding a special meeting on Friday to vote on its $368 million purchase of the Rip Curl surfing brand.

Restaurant Brands New Zealand will report its first-half results on Wednesday.


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