Monday, October 1, 2012
The market may start the first trading session of the final quarter
of the year on a positive note today. But sustaining the favorable
open would depend on how the manufacturing ISM survey for September
pans out. This key gauge of the nation's manufacturing sector has
been in contractionary territory in recent months, raising doubts
about the health of the thus far robust industrial sector. But the
manufacturing softness shouldn't come as a surprise to anyone given
the almost synchronized worldwide slowdown, reconfirmed by the
September PMI surveys for China, the Euro-zone, and other regions
of the world.
China's official manufacturing PMI reading for September came in at
49.8, above August's 49.2 level, but below the expected 50.2
reading. The competing private-sector measure of the same put
together by the
HSBC Bank
(
HBC
) also showed a modest improvement from the August level, but still
showed an under-50 reading. We saw a similar trend play out in the
Euro-zone region this morning, where the September PMI
reading edged up a bit from the prior month's level but
stayed in contractionary territory for the 14th month in a row.
The U.S. economy is admittedly less trade dependent than some of
the more export-centric economies like China and Germany. But
export growth was a standout factor in this economic recovery and
that prop may no longer be available going forward given the
emerging decelerating trend in global trade volumes. The World
Trade Organization is projecting that global goods trading volumes
will grow at roughly half the rate of the preceding year's 5% pace,
which itself was down from 14% growth in 2010. The recent soft
freight outlook from
FedEx
(
FDX
) was confirmation of this key emerging trend.
We will get more clarity on this soft international backdrop in the
coming days as the third quarter reporting season gets underway.
Expectations are for earnings to decline in the third quarter, but
ramp up strongly in the fourth quarter and beyond. My sense is that
these fourth quarter growth expectations will get a reality check
as management teams provide more visibility about business outlook.
The market made strong gains in recent months in the run up to the
Fed's latest easing program. But can it sustain those gains in the
face of a deteriorating earnings picture, particularly with QE3 now
in the rearview mirror?
Sheraz Mian
Director of Reseaach
FEDEX CORP (FDX): Free Stock Analysis Report
HSBC HOLDINGS (HBC): Free Stock Analysis Report
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