Wake-up Call

Alcoa beats expectations, stock market: “so what”

It’s nonfarm day, so let’s get ready to rumble…? Well not quite, in fact we expect an entirely average report.

Analysis by : Christian Tegllund Blaabjerg Market Strategist Alcoa beats expectations, stock market: “so what” It’s nonfarm day, so let’s get ready to rumble…? Well not quite, in fact we expect an entirely average report. Calendar GMT Event Saxo Bank Consensus Previous 07:30 SW Industrial Production MoM (AUG) 1.0% 2.9% 08:30 UK PPI Output MoM (SEP) 0.0% 0.1% 0.0% 10:00 CA Net Change in Employment (SEP) 11.0K 10.0K 35.8K 11:00 CA Unemployment Rate (SEP) 8.1% 8.1% 8.1% 12:15 CA Housing Starts (SEP) 179.0K 183.3K 12:30 US Change in Nonfarm Payrolls (SEP) -25K -5K -54K 11:45 US Change in Private Payrolls (SEP) 65K 75K 67K 12:30 US Unemployment Rate (SEP) 9.7% 9.7% 9.7% 12:30 US Average Hourly Earnings MoM (SEP) 0.2% 0.2% 0.3% 12:30 US Average Weekly Hours (SEP) 34.2 34.2 34.2 20:10 US Wholesale Inventories MoM (AUG) 0.5% 1.3% What's going on? We clearly broke the 1150-threshold and closed well above the 1150-level yesterday. Seems from the latest price action that investors just want risk (equities). Disappointment in the QE-launch or in the upcoming earnings season could lead to a sharp market correction. European equity markets are expected to open 0.5% higher after a solid comeback in yesterday’s US session. Alcoa reported better than expected earnings ($0.09 vs. $0.05 exp.) though the earnings report was quite a non-event in the stock market. Likely due to quite weak sales growth and a QoQ decline in earnings per share. It’s nonfarm day, so let’s get ready to rumble…? Well not quite, in fact we expect an entirely average report. The positives are expected to be private sector job growth of 65,000 and an increase in hourly wages while the negative. will be that job creation is not even strong enough to follow the population growth. For the QE-bulls, this will likely be a welcome report since it will not be strong enough for the FOMC to consider a postponement of QE2, which we expect will arrive in a months’ time. Market at a glance US and Canadian employment reports are the ones to watch today. While the former economy is expected to show an overall decline in payrolls – mostly due to the 2010 Census – the latter’s labour market is expected to show improvement again today. Last month’s 35,800 increase in payrolls in Canada translates into a 2.1% MoM increase. For the US to be able to show off in a similar fashion, the net change in payrolls would have to be in the neighbourhood of 275,000. We expect the US employment report will be quite average. If the slight increase in the unemployment rate to 9.7% materialise, it will likely get most of the attention unless payrolls deviate significantly from consensus (Saxo: -25K). German trade numbers for August were released a few minutes ago and they show a MoM decrease in exports of 0.4% (exp.: -0.3%) while imports rose 0.9% (exp.: 0.4%). Exports were also revised slightly down for July, so the figures generally are not too great from a 3Q GDP perspective. Net exports and inventory adjustments were the main drivers behind the second quarter’s outlandish 9.1% QoQ growth (annualised), and while recent numbers were a tad on the negative we still expect a solid growth in 3Q in Germany, but nobody should expect anything remotely close to the 9.1%, of course. Equities Alcoa kicked off the earnings season after markets had closed yesterday, but somewhat uncharacteristically the company actually managed to beat expectations. Alcoa reported operating earnings per share of $0.09 against expectations for $0.05, but futures did not really care about the news. While EPS did beat expectations, earnings are down compared to the second quarter ($0.09 vs. $0.13) as expenses rose. Aluminum prices are up roughly 15% in the third quarter so you would expect Alcoa to grow revenues, and Alcoa did, but only by 1.9% sequentially. The company raised its outlook for global consumption in 2010 by a single percentage point to 12% on stronger demand from emerging economies.