Apr 28, 2011

Bernanke Says.......Nothing!

April 28, 2011

Equity markets are opening flat today after the first quarter GDP report was weaker than expected at 1.8% (consensus was 2.0%). Final sales increased by 0.8%, the weakest since Q3 2009, suggesting inventory build accounted for over half of GDP growth. Final sales in Q4 2010 were 6.7%. Personal consumption remained healthy at 2.7%, goods consumption increased by 4.8%, and services increased 1.7%. Construction continues to be weak as nonresidential construction fell 22% and residential investment declined by 4.1%. Government spending was down for the second consecutive quarter, falling by 5%. Federal spending declined by 8%, driven by a 12% decreased in defense spending.

Part of the weakness in spending can be attributed to the very late Easter holiday, which pushes Easter and spring break sales into the 2nd quarter. The last time Easter was April 24 or later was 1875, and this year is the latest since 1943. Easter is not a fixed date, and falls on the first Sunday after the Paschal Full Moon, which is the first full moon after the northern hemisphere’s vernal equinox. The date of Easter typically varies between March 22 and April 25.

Earnings continue to come in with a positive bias as roughly half of the companies in the S&P 500 have now reported first quarter results. Earnings have risen an average of 18.4%, with the average surprise at 8.4%. Positive surprises are running 4:1 vs. negative surprises (201 vs. 54), with financials showing the largest percentage surprise while energy stocks have missed earnings on average. Sales growth has come in at 7.0%, about in line with consensus, with positive surprises outnumbering negative surprises by 2:1. Utilities have beaten sales by the largest percentage, 4.6%, with energy again missing by the widest margin.

Chairman Bernanke held the first ever press conference after a rate decision by a Federal Reserve Chairman. The press conference was benign as the Chairman answered the mostly softball questions with canned responses echoing previous speeches and statements. He continued to defend QE2 and other stimulative measures, insisting that they had very little to do with the decline in the dollar and nothing to do with rising commodity prices. Silver and gold both spiked after the Chairman’s comments. The dollar is down 3% over the past week and 21% over the past decade.

The Fed kept its stance and rates unchanged in its meeting which ended yesterday. They did say they expect that US inflation will increase more than expected this year, and that GDP will fall short of expectations. They raised their price forecast from 1.3-1.7% to 2.1-2.8% while lowering its GDP forecast to 3.1-3.3% from 3.4-3.9%.

The Bank of Japan announced that the country has entered a technical recession. They estimated that GDP declined to 2.8% for the year ended March 31, which would suggest negative growth the last two quarters.

APAC markets were strong last night after Chairman Bernanke reiterated his plan to maintain the size of the Fed’s balance sheet once QE2 is completed. The Nikkei rose 0.9%, ASX 0.6%, Kospi 0.8%, and NZX 0.4%. Only the Shanghai fell among major indices, declining by 1.3% on concerns the Chinese central bank will tighten monetary supply.

Have a great day


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