1. US earnings season – revenues beats iffy, earnings beats ok %. Still feels like a stockpicking driven market to me... Both charts via @bespokeinvest
2. Mr Draghi goes dovish - well that was an interesting ECB press conference. A few notes that I made at the time:
Mario Draghi talked very explicitly about the 3rd December meeting as a point to re-examine policy. But it was more than a data dependent look, he described it as a ‘not a wait-and-see but a work and assess’ and on the committee a ‘very rich discussion…open to a whole new measure of monetary policy instruments…committees working on the pros and cons of various instruments’. There was even an unsubtle hint that interest rates could no longer be considered to be at the lower band.
There was some discussion about the inflation rate and a potential pick-up next year. Mr Draghi noted the important role/relationship between expectations (currently suppressed) and the oil price
So what stops more policy loosening in December? Credit markets gets stronger, oil price goes higher, hopes of Xmas sale levels beguiling…but it does feel that looser ECB policy is coming but cynics are already noting the real aim of such dovish talk: to try and push down the euro again. Of course Mr Draghi noted that the exchange rate is not a policy target but he did note that the (stronger) exchange rate could have a suppressing impact on inflation
No surprises then that the euro has gone sub 1.12 against the US$ and the DAX has popped up 1.5%
I would caution about extrapolating all of this too aggressively. Let’s not forget that 50%+ of economists/strategists polled believed in Dec stimulus action already. Draghi was more dovish at the margin but I really doubt the euro is going to dump aggressively further. You just need to have a quick look at the US earnings season to see all the issues with the resulting stronger US$.
Looser policy / more stimulus is justified…because of weak below trend growth. But QE is no panacea (to be fair Mr Draghi consistently calls for structural reform too). And without the latter the euro area struggles on with volatility (see Japan for the playbook here).
So net net much excitement today but I doubt the euro gets anywhere near 1.10 and actually ends the year again much nearer 1.15. As for indices the DAX is playing a bit of catch up after the VW debacle (note how little changed the FTSE is today). I am still very excited about individual stocks but I doubt if (say) a long DAX position here makes you anything by 31 December.
3. Lots of numbers - in Europe I formally wrote up Pernod Ricard noting:
Overall sensible progress but no need to chase the shares aggressively here. Back in the lower Euro90s a clear 'buy' but today's move despite a good tone to the associated commentary indicates that the market is pricing prospects about correctly. A solid 'hold' up until the c. Euro110 when prospectively the valuation is going to be in the EV/ebit x16s which despite good brands and underlying pricing correctly would be regarded as too full.
4. Elsewhere I observed:
Dow Chemical -
Liking the $DOW conf call comments about the company being a 'cash flow machine', return cash to s'holders. Shares rightly up 5%+
3M - $MMM clipping top off sales hopes but underlying pricing very solid.
Assisted by easy comps but not often currently you see 'significant growth' only in Western Europe $DAI
5. Well this is an interesting chart on falling correlations...and very consistent with a stock picking centric world...