- U.S. up, Europe surging in wake of French vote. U.S. equities are tracking global markets higher this morning following yesterday’s first round of the French presidential elections in which Emmanuel Macron and Marine Le Pen finished in the top spots, triggering a run-off vote set for May 7. Friday’s session concluded with the major indexes posting modest losses ahead of the vote, as the S&P 500 (-0.3%) was led lower by the telecom (-1.6%) and financials (-0.9%) sectors, with only utilities (+0.5%) and industrials (+0.1%) finishing positive. Overseas, Asian indexes reacted positively to the French election as the Nikkei (+1.4%) and Hang Seng (+0.4%) gapped higher; the notable exception was the Shanghai Composite (-1.4%), which fell amidst a government crackdown on leverage. European indexes are spiking as the STOXX 600 (+1.8%) benefits from investors betting on the pro-E.U. candidate Macron; Frances’s CAC is up more than 4% to its highest level in nine years. Finally, the yield on the 10-year Treasury has jumped to 2.30%, WTI crude oil (-0.5%) is just below $50/barrel, and COMEX gold ($1271/oz.) has dropped 1.4%.
- Solid start to Q1 earnings season. With 95 S&P 500 companies having reported, Thomson-tracked S&P 500 earnings for first quarter 2017 point to an 11.2% year-over-year increase, compared with consensus estimates of +10.2% as of quarter end on April 1, 2017. The early upside has been driven largely by financials, which are tracking to a 19.0% year-over-year increase, more than 4% above quarter-end estimates. Industrials have also surprised to the upside thus far. Conversely, since earnings season began, first quarter earnings estimates have been cut for the consumer discretionary, energy, and telecom sectors, though it is probably too early to call any of these sectors “earnings season losers.” This week (4/24/17-4/28/17) is the busiest week of earnings season with 194 S&P 500 companies slated to report. All of the widely-held sectors are well represented on the earnings calendar, led by industrials.
- Leading indicators rise for seventh consecutive month. The Conference Board’s Leading Economic Index (LEI) pushed 0.4% higher in March, ahead of expectations but decelerating from a downwardly revised 0.5% increase in February. Eight of 10 indicators increased in March, led by contributions from the yield curve and strong new manufacturing orders survey data. The LEI has climbed 3.5% year over year, a rate that has historically been associated with low odds of a recession occurring within the next year.
- The latest Beige Book suggests a steady economy with modest wage pressure. The Federal Reserve (Fed) released its April Beige Book last week ahead of the May 2-3, 2017 Federal Open Market Committee (FOMC) meeting. Our Beige Book Barometer (strong words minus weak words) rose to +77 in April, its highest level since +84 in January 2016, indicating continued steady economic growth in early 2017 with some signs of potential acceleration. Words related to wage pressure have held steady over the last six months at levels above the 2015-2016 average, indicating the appearance of modest but still manageable wage pressure.
- Important period for European markets. This week, we examine the importance of European market earnings, particularly in important sectors like energy and banking. Expectations remain high for earnings growth throughout 2017, which has kept us cautious on investing in European markets. Political risks also remain, but seem to be abating as we get past the first round of French Presidential elections.
- Germany: Ifo (Apr)
- New Home Sales (Mar)
- BOJ Outlook Report & Monetary Policy Statement
- BOJ Interest Rate Decision
- Durable Goods Orders (Mar)
- Eurozone: Consumer Confidence (Apr)
- ECB Interest Rate Decision
- Japan: CPI (Mar)
- GDP (Q1)
- UK: GDP (Q1)
- Eurozone: CPI (Apr)
- EU Leaders Summit
- China: Mfg. & Non-Mfg. PMI (Apr)
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