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07 June 2010
Global Quantitative Research
Global earnings momentum slumps
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Global equity markets continue to struggle with the MSCI World Index suffering a further1.9% decline last week, leaving it down 9.3% so far this year. Emerging Markets fared only alittle better, with a drop of 0.4%. China, however, fell almost 4% (CS 300) during the week andis now down over 20% this year.
Disappointing US jobs data on Friday saw the S&P 500 drop by 3.4% in one day, thesecond worst trading day in the past 12 month period. In fact, during the last year there havebeen only five occasions when the S&P has fallen by 3% or more, with three of these daysoccurring within the past month. The S&P 500 ended the week down 2.3% and the Dowfinished below 10,000 again.
Japan saw minor in a week that saw its Prime Minister stepped down. The Nikkei 225finished the week up 1.4%
although the market was closed by the time the US jobs news hitthe screens.
In Europe, the MSCI Eurozone index was off 1.7%, pushing the index into double-digit lossterritory for 2010. Greece and Spain continued fall, with losses of 6.2% and 5.3%,respectively. However, Austria saw the worst of the selling with a 6.7% decline. Austria
sfinancial sector is heavily exposed to Hungary and so was not helped when an official saidthat talk of a default was
not an exaggeration
During the last month there has been a clear demarcation between relative sector winnersand losers. Whilst still in negative territory, defensive sectors such as Telecoms, Beverages,Tobacco and Food Producers, have lost
4-6%. The losers include Oil Equipment,Services & Distribution (-14.8%), Industrial Metals & Mining (-12.1%), Construction & BuildingMaterials (-11.8%) and Financial Services (-11.6%).
Global earnings momentum is now falling away sharply, with the ratio of upgrades to totalestimate changes now at 55%, down from 64% four weeks ago. This decline in analystoptimism is, in our view, probably the most dramatic in the US, though the percentage ofupgrades coming through is still relatively high in this region (though we suspect this will notlast for long). Pacific ex-Japan is now down at the 42% level, which, historically, has beenconsistent with negative profits growth.