Tag Archives: Investment banking

Look Out For US Factory Orders, Pending Home Sales

Earnings season is just about to open, so there is not much fuel in the US numbers released today. However they are important and could stir the market short term, according to Saxo Bank’s Wake Up Call.

“The new orders to inventories differential continues to deteriorate and has now turned negative for the first time in 19 months.”

Christian Tegllund

“We expect European markets to open roughly flat this morning on the back of Friday’s US session closing higher, while the futures over night have been trading lower,” Saxo strategist Christian Tegllund writes.

According to Saxo Bank, the numbers that will move markets today are coming from the US; pending home sales and factory orders.

“We expect in line with consensus a small decline in factory orders and pending home sales to fall on a month-on-month basis. We do not expect much market action on the back of this as such (it should be priced in). What should be noted is how the market will react to the news that bottom up analysts is now finally starting to revise their earnings forecasts for 2011 down. We have been saying that this process should be going on for a while now and finally it starts to take off.”

“However short term it will not have much effect as the earnings season is just around the corner, but if the first 2 weeks of earnings comes out disappointingly weak then this will have an accelerating negative effect on equity markets and you should expect an outright sell-off,” the strategist warns.

The earnings season is kicked off at 7th of October with – as usual – the Alcoa report.

Devil In The Detail

Saxo recommends to look for pending home sales today to give a clue about sales of existing homes.

The pending home sales is a solid indicator of existing home sales, since they record the same thing, but at different stages of the sales process.

Factory orders from the US will also be released today, and they are expected to show a decrease of 0.4% in August due to the 1.3% decline in durable goods orders.

Christian Tegllund

“Nondurable goods orders are, however, expected to increase MoM, which is why we and consensus are only looking for a small decline in orders,” Christian Tegllund says.

The ISM manufacturing index fell to 54.4 in line with expectations, which implies that the manufacturing sector in the US is still growing though at a slower pace.

“However, the devil is in the details and we will classify it as a report. First, the new orders index is down sharply to only 51.1 from 53.1 (it was at 65.7 just four months ago), which does not bode well for production in the coming months. Second, the new orders to inventories differential continues to deteriorate and has now turned negative (-5) for the first time in 19 months indicating that the inventory rebound is all but over and will soon start to become a drag on the economy.”

With the ISM manufacturing report putting in a average-to-weak performance, it was left to the income and spending report to save the report.

And save the day, it did – at first glance.

“Not only did consumption increase 0.4% MoM as expected, but income rose much more than we expected by 0.5% (exp.: 0.1%). This pushed the savings rate a tad higher to 5.8% from 5.7%,” the Saxo strategist points out.

Adding: “However, most of the new-found income came courtesy of Uncle Sam, which contributed 0.3%-points of the 0.5% increase through transfer payments. So the higher savings rate was due to the deficit-spending US government!”

“If we strip out inflation, income and spending increased 0.2% each in August. In other words, without transfer payments the change in income would have been negative on an inflation-adjusted basis.”

“So, with both the ISM manufacturing and the personal income and spending reports being rather poor, it was left to the weekly ECRI leading indicator to provide the good news of the day. The index rose to 122.5 from 122.1 a week ago and the year-on-year decline is now “only” 7.8%  -the YoY drop was more than 10% just three weeks ago,” Tegllund concludes.

Reality Is Resurfacing

“Earnings expectations for 2011 are now finally being downgraded by bottom up analysts and we have expected this for a while. But for now, contrary to the usual development when these are posted, this will have virtually no effect as we are close to the opening of the earnings season. We expect a strong-to-moderate earnings season and this could short term bring equities higher, before the necessary adjustment to macro economic reality is resurfacing,” Saxo Bank writes to its clients.

“With quarters of slow economic growth it is outright based on hope rather than facts that you can have +15% earnings growth as sales will obviously remain weak and margins are already in the higher end. Expect markets to range trade until the first earnings report hits the street and be cautious on deciding the direction of the equity market until the first week of earnings reports has passed,” the investment bank recommends.

“Then you should have enough data to make an informed decision,” strategist Christian Tegllund says.


GMT Event Saxo Bank Consensus Previous
09:00 EC PPI MoM (AUG) 0.2% 0.2%
07:55 EC PPI YoY (AUG) 3.6% 4.0%
14:00 US Pending Home Sales MoM (AUG) 5.2%
14:00 US Factory Orders MoM (AUG) -0.3% 0.1%
14:00 US Pending Home Sales MoM (AUG) 5.2%
14:00 US Factory Orders MoM (AUG) -0.3% 0.1%

The Most Important

“The most important macro news this week is Friday’s payrolls numbers from the US. The August numbers represented a turning point in a series of bad US news, with employment falling less than expected. Now we expect three months in a row with decline to be replaced by a rise of 50 000 persons in September. Consensus is unchanged employment, but the spread in the estimates is wide,” Norwegian DnB NOR Markets write in their Morning Report.

“Thursday there are interest rate meetings in the UK and the ECB, where we expect neither interest rate changes nor announcements of new measures. There have been speculations of a new round of quantitative measures also in the UK, after MPC-member Posen recommending this in the minutes from the previous meeting, as well as in a speech last week. However, the minutes also did show members using a more hawkish tone than before,” economist Kjersti Haugland at DnB NOR Markets says.

DnB NOR Markets have Monday published the following buy recommendation of shares, listed at the Oslo Stock Exchange:

• Algeta
• Statoil
• BW Offshore
• BWG Homes
• Fred. Olsen Energy
• Norsk Hydro
• Questerre

Here’ the full analysis (Norwegian only)

Here’s a copy of the Morning Report – in English.

Good Luck !

Related by the Swapper:


1 Comment

Filed under Technology