Ashburton: Spain to remain in the headlines despite focus shift on corporate statements
Corporate profit and outlook statements will get into the focus over the coming weeks, as for large US companies aggregated Q3 profits are expected to decline on both a year-on-year and quarter-on-quarter basis, according to Tristan Hanson, head of asset allocation at Ashburton.
“More important than the historic numbers will be revisions to company guidance about the future. Already in recent weeks, there have been some high profile negative pre-announcements from the likes of Fedex, Daimler AG and Norfolk Southern (rail freight), all in economically sensitive sectors,” he warned.
In the coming weeks and months, 2013 forecasts will also come under scrutiny.
“In our view, expectations of further gains in profit margins look optimistic unless there is going to be a significant cyclical pick-up in global growth next year. While we do expect some pick-up in global GDP growth, our bias is to think there will be downward revisions to 2013 consensus earnings forecasts from current levels,” Ashburton said.
This is a change in direction compared to recent months, when forecasts of global economic growth and corporate profits have continued to be revised downwards despite the rally in equity markets.
”Shifts in central bank policy have been an important catalyst for the recent strength in markets. In our view, the change in ECB rhetoric is especially important in reducing tail-risks. The relative valuation case for equities over fixed income assets has also lent support,” Hanson said.
Finally, Ashburton said, Spain will remain in the headlines following reports that the country is working behind the scenes with the EU towards an ECB-sponsored rescue package, with expectations over the 2013 budget published today and bank stress test results and structural reforms presented on Friday.