Month: October 2012

Is the worst over for China’s corporate earnings?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China’s corporate reporting season for the third quarter kicks off on Monday amid profit warnings and earnings downgrades, but analysts think the worst may be over for Chinese firms, with the last quarter of the year expected to bring back some cheer.

“I think it (earnings) should stabilize. There should be relatively fewer downgrades unless there’s a big deterioration in exports in the fourth quarter or a hit in local consumption,” said Alan Lam, China equity strategist with Bank Julius Baer in Hong Kong.

While hopes are being pinned on the last three months of the year for a revival in corporate earnings, the third quarter has already been declared a wash-out by many analysts.

In September, Goldman Sachs’ China equity strategist Helen Zhu cut her profit estimates for 2012. According to her profits at companies that make up the MSCI China Index will increase by 1.8 percent for the full year instead of the previously forecast 6 percent, affected largely by third-quarter numbers.

Chinese companies such as truck maker Jinan Truck, shampoo maker BaWang and steel products manufacturer China Oriental have issued profit warnings over the last month, saying they would either report lower profits or outright losses for the third quarter.

But analysts don’t expect more downside from here, with the economy seen to have bottomed out in the third quarter. Corporate profits should track the rebound in gross domestic product growth, they said.

China’s economy is expected to grow at 7.4 percent in the third quarter, according to a Reuters poll, its slowest pace of growth this year before picking up to expand at 7.6 percent in the last three months.

This pick-up in growth momentum should help Chinese corporates, said Aaron Boesky, CEO of China focused Marco Polo Fund Management. “I believe that Chinese companies will have seen the bottom in the third quarter,” Boeskey said. “We will see a slight improvement in the fourth quarter, which may improve yet again in the first and accelerate in the second quarter of 2013.”

Goldman Sachs expects corporate earnings growth to pick up 8.6 percent next year.

Vulnerable Sectors

Despite a brighter outlook for earnings from the fourth quarter onwards, Julius Baer’s Lam cautions that small to medium sized enterprises (SMEs), especially in the materials and industrials sector, remain vulnerable.

“There may be more earnings downgrades for SMEs. Demand needs to pick up. That’s the key to recovery,” he said.

According to Hugh Young, managing director of Aberdeen Asset Management, export-oriented companies also face a tough future. He expects earnings to be “very patchy” at best for the rest of the year.

“We are not seeing any sign of a pickup in business,” Young said. “It’s tough especially for people who trade with the West.”

Banks may also be a weak spot because of their exposure to corporates, according to Nicholas Ferres, Eastspring Investments’ head of global asset allocation.

“The deterioration in the corporate sector and the policy errors (such as state-directed lending) over the past few years may show up in non-performing loans in the future,” he said. “Earnings have been slowing quite sharply in China for some time.”

Non-performing loans rose by 18.2 billion yuan (USD 2.86 billion) in the three months ended June 30 to 456.4 billion yuan, the China Banking Regulatory Commission said last month. Bad loans surged at all types of banking institutions, including the largest state-owned lenders, rural banks and foreign banks.

–By CNBC’s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

‘Full rebound’ in housing a year away: Larry Fink

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the inventory of unsold US homes drops to a more manageable level, the US housing industry is inching closer to a compete rebound, BlackRock CEO Larry Fink told Maria Bartiromo in an interview on CNBC’s “Closing Bell.”

“The fundamentals for the US economy are quite strong,” Fink said. “We’re about a year away from a full rebound in American housing.”

He cited rising housing prices in some states as evidence of the ongoing rebound in housing as the industry becomes a “better economic engine.”

Europe, however, is a seven-year fix, Fink said. He thinks the European Central Bank has come up with a “great plan” for solving the region’s debt crisis but but politicians need to agree.

In the US, the impending “fiscal cliff,” when automatic tax increases and spending cuts kick in on January 1, also concerns Fink.

“The fiscal cliff is probably the biggest problem facing us,” he said. “We are already seeing a slowdown in the US economy. I know many CEOs who are sitting with large sums of cash.”

If the government comes up with comprehensive plan to handle it, Fink predicted that investors would “see a huge rally.”

But if the problem drags on until February or March, the economy will plunge into recession in the first quarter.

“Despite my bullishness out a year, we could have some real volatility,” Fink said.

This volatility would be “a great buying opportunity for everybody out there.”

“I don’t think we’re going to be seeing a relaxation in volatility,” he said. “Volatility is going to be with us, and it’s going to create fear.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Marc Faber: Stocks will fall; Jim Rogers: China to rise

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stock market ultra-bear Marc Faber said investors should brace for a major market drop ahead that will present a buying opportunity. Investor Jim Rogers said there already is opportunity from a falling market – in China.

Faber, the author of the widely followed Doom Boom and Gloom report told CNBC.com’s FuturesNow program that he has been preparing for a full correction for the market, which has been on a strong but volatile upswing since early June.

“I have a lot of cash at the moment, because on this rally since April I have been lightening up on positions,” he said during a live interview.

Faber appeared on CNBC in early June and advised investors then to buy stocks because equities, particularly dividend-yielding companies, would provide better returns than low-yielding bonds.

The call turned out to be true as the Standard and Poor’s 500 has surged about 14 percent since then.

Now, he said, investors should prepare for a downturn.

“Unfortunately I have a lot of dollars,” he said. “I just want to have a lot of cash because I think that within the next six to nine months we can buy just about anything 20 percent lower than it is now.”

Faber added that he thinks “a lot of stocks have peaked out,” specifically mentioning Apple, which has edged lower 0.6 percent over the past month.

Rogers, the chairman of Rogers Holdings, shares Faber’s bearishness on US stocks but believes the stumble in China has presented a buying opportunity.

“China’s going to be the next great country in the world,” he said. “I was violently and vehemently telling people not to buy China when it was going up in 2007. I only buy China when it collapses.”

Rogers said he is long commodities and currencies but is generally short the stock market.

“I’m bearish, too,” he said. “I happen to agree with Marc about most things.”

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Jobs report may mean more to presidential race than markets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Traders say Friday’s jobs report may have more impact on the presidential race than the markets, though investors will still be watching closely.

Economists expect employers added 113,000 jobs in September, while the unemployment rate edged up to 8.2 percent from August’s 8.1 percent, according to a Reuters survey. Friday’s report will be the second-to-last before the November election.

“Because of this jobs report’s juxtaposition to election, there will be significant political ramifications, perhaps more so than for the market,” said Art Hogan, managing director at Lazard Capital Markets. “Politically, anything that pushes the cause of the Romney camp forward could have a positive effect on the market.”

In Wednesday night’s debate, Republican challenger Mitt Romney sharply criticized President Barack Obama over the tepid pace of of job creation. Although layoffs have declined, employers have been hesitant to hire because of uncertainty over who will be the next president as well as the impending “fiscal cliff” at year-end.

“How we avoid the ‘fiscal cliff’ is impossible to know without incorporating the concept of who’s the next president,” said Hogan.

Meanwhile, some strategists say investors will be “more forgiving” if the jobs number disappoints on Friday because of the Fed’s stimulus program.

“It’s tough not to be bullish right now because of QE3, so the potential of higher highs for stocks is a realistic possibility,” said Todd Schoenberger, managing principal of The BlackBay Group. “So don’t expect a lot out of this number.”

Pressured by ongoing economic weakness and sluggish employment market, the Federal Reserve launched another aggressive stimulus for the economy in September, promising to continue its support until the jobs market improves substantially. As such, equities have climbed despite some lackluster economic data in recent weeks.

“It’s a win-win both ways,” said Quincy Krosby, market strategist at Prudential Financial. “Even if the number surprises to the upside, the Fed is going to need to see incremental strength before they pull out.”

Other widely-followed employment reports have been mixed throughout the week. The private sector created 162,000 jobs in September, slightly better than expected, according to the latest ADP numbers, while weekly jobless claims edged up to a seasonally adjusted 367,000, according to the Labor Department.

However, Krosby warned that investors need to be prepared for a drop in equities if the jobs number comes in “significantly lower than expected.”

“You’re going to have market participants question the rate of growth and whether the Fed’s action was enough.”

-By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The glory days of currency trading are over: HSBC

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Once upon a time, the foreign exchange (FX) markets enjoyed a clear framework for trading and were seen as a reflection of the health of global economies. But as central bank programs of quantitative easing have been introduced, currency market trades are not so clear cut, according to analysts at HSBC.

The latest report from HSBC’s global research department heralds “a new era for FX” as currency carry trading, a popular strategy of currency trading that exploits global interest rate differentials, struggles in an era of central bank intervention and low interest rates.

“In the glory days of carry, the FX market had the luxury of a clear framework for understanding and trading currencies,” the report, led by David Bloom Global Head of FX Strategy at HSBC, begins.

“Life for FX market was simple. Get your interest rate calls correct, and you could both understand and trade the FX markets….In the low inflation environment, higher short rates meant a stronger currency and vice-versa…FX was beautiful.”

“It was clear, liquid and transparent,” the report surmises.

Fast forward through five years of global economic crisis and central banks ranging from the Federal Reserve to the Bank of Japan have introduced near-zero interest rates and quantitative easing (explain this) in an attempt to stimulate economic growth creating “a problem for markets,” the report says.

Indeed, central bank intervention has made the currency trading world a risk on – risk-off place, according to HSBC’s report. Investors are now flocking to emerging market currencies and safe havens alike, which makes currency trading much more volatile and harder for investors to interpret.

“Today carry’s hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of quantitative easing,” the report states.

“We now live in a world dominated by risk-on/risk-off, and prospects for unconventional monetary easing have become the key element of [that] dynamic.”

HSBC notes that not all easing has had negative effects for currencies. Indeed, in the euro zone it has been positive as “non-conventional easing” European Central Bank easing has lowered “the possibility of euro default and disintegration” and has attracted investors.

In sum though, central bank policies have created an uncertain environment for currency traders as it becomes harder to identify economic trends. As global economic data points to an uncertain future in the euro zone and events such as the U.S. fiscal cliff approach, the world of FX becomes opaque, HSBC states.

“This lack of clarity is creating a puzzling outlook for many currencies…The world of FX has become one of perception rather than concrete links,” HSBC says.

In the US, for instance, easing has been dollar negative as “the resultant ‘risk on’ mood takes us to higher yielding more risky currencies.” This was indeed exemplified by the dollar falling to a four-month low after the Fed announced “QE3” in September that led to emerging market governments such as Brazil fearing a new era of “currency wars”.

HSBC’s view on currency market volatility is reflected by other FX strategists too.

Sebastien Galy, Senior Currency Strategist at Societe Generale told CNBC on Wednesday that the robust Australian dollar was an example of how investors flocking to a safe-haven asset had inflated a currency that should “be massively lower”.

“It should be massively lower…in a normal environment. But everyone is looking for yields which leads to over-shoot,” Galy said, “that overshoot has been happening for years.”

Indeed, HSBC concludes, as the carry trade dies a bit of the currency market could go with it.

“The demise of carry has brought “onion skin” layers of uncertainty into the FX market, tears and all.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rate hikes by one G8 central bank are causing concern

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Russian Central Bank was never going to have an easy time establishing credibility with financial markets, not after a bout of hyperinflation and a subsequent debt default in the late 1990s.

But has the central bank taken its reputational rehabilitation too seriously? Russia’s relative economic stability since those dark days has won the central bank kudos from international investors. Domestic bankers, however, say the central bank needs to ease up on its fight against inflation.

“The central bank, unfortunately, has raised interest rates, which will have an effect on the price of lending,” Andrey Kostin, President of VTB Bank, told CNBC on Tuesday. VTB expects gross domestic product growth to decelerate to an annual rate of 3.5 percent next year, from just under five percent through much of 2012.

The central bank lifted its key policy rate by 25 basis points in September, and the bank’s First Deputy Chairman Alexei Ulyukayev has hinted of further tightening. The current interest rate “corridor” may be “too wide” he told a Russian television interviewer on Tuesday. The next monetary policy decision is due on Friday.

Such vigilance bucks the international trend toward lower rates, with most of the developed world growing sluggishly, or not at all. “Raising policy rates in a slowing, if still robust economy is very hard to justify,” said analysts at Moscow-based investment bank Renaissance Capital in a note issued Monday. “The [central bank] may jeopardise its policy credibility if it continues down the road of hiking rates.”

The recent uptick in inflation, to a 6.3 percent annual rate in September, above the government’s medium-term target of six percent, is largely due to a bad grain harvest earlier this year, according to Renaissance.

Still, that overly tight monetary policy is unlikely to harm buoyant share prices. Both major Russian stock indices jumped by more than five percent last month. Russia is the only BRIC (Brazil, Russia, India, China) to record positive equity returns during both rounds of US quantitative easing, Renaissance noted, which bodes well for the performance of Russian shares during the current round.

The successful flotation of Sberbank shares on the London Stock Exchange is also “positive for sentiment and a catalyst for the broader market,” added the investment bank.

However, Kostin viewed competitor Sberbank’s western debut more cautiously, noting that the offering was less over-subscribed than the London float of VTB Bank back in 2007. That could prevent VTB from pushing ahead with its planned second round of London fund raising this year.

“Eventually we will need some more capital to maintain growth,” Riccardo Orcel, deputy chief executive of VTB told CNBC on Tuesday. “But we’re mindful of not coming back with a second offering too soon. Probably next year, but it depends on market conditions.”

Kostin also lamented the central bank’s hasty adoption of capital adequacy standards required by the Bank for International Settlements. The central bank has announced that banks must calculate capital in adherence with Basel III rules from Friday, a decision Kostin viewed with “distaste.”

Russian banks, particularly those engaged in speculative transactions, will need to set aside greater capital to comply with the new regulation. “It should be a gradual approach,” said Kostin.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

What investors can do until stocks rally again

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The summer stock market rally has lost steam, with equities treading water since their mid-September highs. But some market pros expect the rally to resume after this recent pause.

“This has been a relatively low volume rally,” Richard Weil, CEO of fund manager Janus Capital, said in a CNBC interview. “I think it still has legs. I think multiples are reasonable and there`s room to go.”

But investor fears may need to be allayed before stocks move higher. Worried about a potential meltdown in Europe, the US fiscal situation, Mideast tensions and a potential hard landing for the Chinese economy, Weil said investors are sitting on the sidelines.

And those investing in stocks have tended to favor larger, well-known names, Weil said, which have outperformed the broader SandP 500 (INDEX: .spx) so far this year.

Indeed, Disney, Home Depot, Anheuser-Busch Inbev, Bank of America, Amazon.com and – of course – Apple are among the big caps that are up more than 40 percent this year. That makes the SandP 500`s nearly 16 percent gain look paltry.

Dividend payers have also performed well as investors flock to yield and safety amid the global uncertainty.

Some strategists are advising investors to stick with the dividend and growth themes. Citigroup`s Tobias Levkovich is advising clients to stay with large caps, stocks with chunky yields and to prefer growth over value.

KKR`s Henry McVey also echoed that call on CNBC, saying investors should seek yield, growth and inflation protection. “As we have bumpy economic growth globally, public investors are going to migrate to those names,” he said.

Money should also start coming back into the markets as those fund managers that are lagging their benchmarks start putting the cash sitting on the sidelines back to work, Fulcrum Securities` Rob Morgan told CNBC on Tuesday.

He also said that third-quarter earnings could be the trough. While markets are expecting a dismal reporting season, which gets underway with Alcoa next week, Morgan said “looking out a little bit longer term, earnings estimates are starting to rise a little bit.”

Getting the government to put its fiscal house in order could also provide the bulls with more support. Whether the US addresses the “fiscal cliff” – when automatic spending cuts and tax increases go into effect at the start of the year – is likely to hinge on the election. The first of three presidential debates kicks off Wednesday night.

Art Hogan, of Lazard Capital Markets, said that a Romney victory would be great for stocks in the last two months of the year as he may handle the fiscal cliff more quickly than if Obama wins reelection. “The two levels of stock appreciation will be the assumption that you get better growth in the economy and the fiscal cliff gets fixed quicker,” he said in an interview Wednesday.

In addition to digesting the spin from debates, the central banks will be back in focus on Thursday. Both the Bank of England and European Central Bank hold meetings and the Federal Reserve will release the minutes from the September meeting when they announced a new round of monetary stimulus. The ECB and BoE meetings are likely to be uneventful.

“The market is expecting nothing from the ECB tomorrow,” Willie Williams, director of institutional derivative sales at Societe Generale, told CNBC. “At the last meeting, they gave us a lot of what we needed” when they committed themselves to keeping the euro zone together.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China moving to quality not quantity: Jim O’Neill

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The “new China” is poised to become a knowledge economy, where growth stems from the innovation and ingenuity of its workers, rather than the brawn that powered the country’s export-led manufacturing transformation, according to Jim O’Neill, chairman at Goldman Sachs Asset Management.

“We’re in the early stages of China moving to a ‘quality’ China against a ‘quantity’ China, and the winners and losers will probably be very different,” O’Neill told CNBC’s “Worldwide Exchange” Tuesday.

“By quality I mean one in which leadership is happier with seven to eight percent, not 10 percent, and one in which private consumption becomes a bigger share of GDP. Also, one in which income differentials decline. A China that is focused on energy efficiency and alternative energies and moving towards more creativity and innovation,” he added. O’Neill believes China will grow by just over seven percent per year for the decade that began in 2011.

The growth economies – Brazil, Russia, India, China, Indonesia, South Korea, Mexico, and Turkey – will contribute around USD 15 trillion in real terms to global growth this decade, more than twice that of the US and Europe combined, said O’Neill. China will account for half that sum.

O’Neill acknowledged that the Chinese economy is widely seen as the marginal driver of the global economy, and should have a salutary effect on worldwide growth. He believes global GDP growth will accelerate to over four percent this decade.

But not every country will share the fruits of China’s growth. Australia, so long the principal supplier of raw materials to Asian manufacturers, will suffer as China moves up the development ladder, he said. O’Neill expressed “sympathy” with a colleague who has advised clients to go long on the Mexican peso and short the Aussie dollar.

Australia’s central bank addressed slowing local conditions earlier Tuesday, reducing its key benchmark rate by 25 basis points to 3.25 percent.

Similarly, sector groups long supported by Chinese interest may become less attractive. “Some of the big global winners of the past decade won’t be the same, such as the big global commodities companies and the big luxury winners … they won’t be quite so prominent. But it’s a good time to be a stock picker,” O’Neill added.

The latest data on the Chinese economy showed it continues to remain in contraction as it struggles against the prevailing global macro-economic headwinds and cooling export demand.

Analysts told CNBC that it was unlikely that there would be any further monetary stimulus from the Chinese authorities until after the Communist party conference on Nov. 8 which, this year, will include the once-in-a-decade event of a leadership change.

-By CNBC.com’s Shai Ahmed

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why a spike in US bond yields may be coming

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Amid signs that risk aversion is abating, it may not take much more for US Treasury yields – which have been low for so long now – to spike higher, some analysts say.

According to Thierry Apoteker, CEO of research group TAC Financial, the buildup of a bond bubble could trigger a sharp sell-off in US Treasurys that could push 10-year yields up between 80 and more than 100 basis points next year.

Benchmark 10-year US bond yields are currently trading around 1.62 percent, not too far from the record lows hit just two months ago of close to 1.40 percent. Weak economic growth, easy monetary policy and the euro zone debt crisis have boosted demand for safe-haven US bonds, leading to some talk of an asset bubble in the world’s largest bond market.

“We are getting into bubble territory,” Apoteker told CNBC Asia’s “Squawk Box” on Tuesday, as he flagged the risk factors that potentially await investors. “The US 10-year bond yield could move to 2.5 and 3 percent next year, which would be a big risk for bondholders.”

Apoteker says worries about the euro zone debt crisis and sluggish economic growth in emerging market economies have kept safe-haven Treasury yields artificially low and the danger, as the outlook for global growth improves and fears about Europe’s bond crisis ease, is a sharp unwinding of money flows into US bond markets that could spark a sharp rise in yields.

He says there are some signs of that happening already, with US bond yields creeping higher over summer after steps by Europe’s policy makers to end the debt crisis boosted risk appetite.

“Our models suggest that 10-year US Treasury yields should be trading at 2.5 percent now, but they are not there because Treasurys have been bought as the ultimate liquid safe asset,” he said. “So if there are any improvements in the perception that risk is subsiding, that could lead investors to offload those Treasury assets and if that happens quickly it would be dangerous for the bond market because it would lead to a weaker dollar.”

Don’t Forget the Economy

Other analysts say signs of a pick-up in the US economy will also push up Treasury yields.

“We still remain of the view that the macro economic situation will be okay, we will see growth it will not be stellar. Nevertheless the economic situation will be positive,” Francois Savary, chief investment officer at Reyl Bank told “Squawk Box,” adding that a rise in in 10-year yields to 2.5 percent was feasible over the next 18 months.

The US manufacturing sector grew in September after three months of contraction, the Institute for Supply Management said on Monday.

“Just growth that’s not uneven would put pressure on bond yields,” said Russell Jones, global head of fixed income strategy at Westpac Bank in Sydney.

Indeed, Treasury prices slipped on Monday after the strong manufacturing report.

“Markets start to romance about expectations for growth and inflation and that is why we start talking about yields going up to 2.5 percent, this is a level that tends to stick out,” said Timothy Riddell, head of global markets research at ANZ bank in Singapore

But Riddell adds there are important reasons why a sharp rise in yields is unlikely.

“A spike in bond yields is something we have to consider. But the rhetoric from the Fed is that rates are going to be low for a period of time, so I think yields will struggle to get above 2 percent,” he said.

The Federal Reserve has said it will leave interest rates near zero until mid-2015 to allow time for a recovery to take hold. The central bank chief Ben Bernanke in a speech on Monday said that inflation had fluctuated close to the its target of 2 percent and that inflation expectations have remained stable.

“We need to see a different environment – one where a period of growth is not followed by a period of weakness to see a sustained rise in yields,” said Westpac’s Jones.

-By CNBC’s Dhara Ranasinghe

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Earnings season may decide market’s next direction

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stocks have been moving sideways since the Federal Reserve announced QE3 in mid-September, and investors are now awaiting the next big market catalyst: third-quarter earnings.

“The market`s swinging around and there`s no conviction-people are nervous about a lot of things,” said Yu-Dee Chang, chief trader at ACE Investment Strategists. “For the time being, I expect more weakness.” (Read More: ‘Zombie Economy’ May Give Markets a Scare in October)

Despite concerns that the market may have hit a temporary high, some investors continue to hope that positive earnings surprises will outweigh negative ones when earnings season kicks off next Tuesday with Dow component Alcoa.

“The market runup was purely on expectations for QE3-and once the statement was issued, there`s been no new positive catalyst coming in,” said Natalie Trunow, CIO of Calvert Investments. “The only reason it`s stayed up is because the market is expecting the earnings season to come out better than expected…That`s hard to anticipate, but I don`t think we`re going to see a great deal of positive surprises.”

The SandP logged a healthy six-percent gain in the third quarter, mainly due to anticipation of more stimulus from central banks around the world. But stocks have been treading water since the Fed announcement, with the Dow and SandP 500 down less than 1 percent each.

Despite the gloomy outlook, most investors are holding off moving to the sidelines.

“[Investors] don`t want to miss the rally if the earnings season is positive,” said Trunow. “Stocks might stay up or go higher if we see an overall positive surprise, but I see more risk on the downside at this point over the next quarter or two. But once we`re done with the election and get clarity on the `fiscal cliff,` I think we can go up from there.”

Earnings expectations for the third quarter have been contracting. Currently, SandP Capital IQ analysts expect earnings for the SandP 500 to fall 1.7 percent, which would be the lowest expected growth rate since the third quarter of 2009. Meanwhile, Citigroup has a negative 2.4 percent estimate. (Read More:Is Q3 the Bottom for Slowing Earnings?)

“Half of the sectors are expecting negative growth from a year ago and 9 out of 10 sectors have experienced a decline in estimates for this upcoming reporting quarter,” according to Citigroup`s latest research note.

In recent weeks, several major companies including Caterpillar, FedEx and Noforlk Southern have issued warnings, underscoring worries over the slowing global economy. Strategas Research Partners noted that for every five earnings corporate pre-announcements for the third quarter, roughly four have been negative, marking the highest ratio in nearly 11 years.

–By CNBC`s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Questions? Comments? Email us at marketinsider@cnbc.com

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow