Weak June US jobs data puts pressure on stock markets

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The FTSE 100 closed Friday at 5,663, up 1.6% on the week. The Dow Jones Industrial Average finished Friday at 12,772, down 0.8% for the week. The S&P 500 closed at 1,355, lower by 0.6% lower for the week. The Nasdaq Composite Index closed at 2,937, up 0.1%. Oil (WTI) dropped $3.1 to $84 and Gold finished down $26 at $1,563 an ounce.

The all important US Non-farm payroll data was released yesterday and came in below expectations yet again. The data showed the US economy created 80,000 jobs in June, below the 100,00 figure hoped for and helping to drive the Dow Industrials down 124 points, taking other global stock markets with it.

With the US earnings season kicking off a week after next, the global economic outlook looks somewhat choppy and you have a feeling that the Central Banks are running out of bullets. Yet more Quantiative Easing (QE) from the Bank of England this week taking the total to £375 billion and still, little sign that the UK economy is coming to life. The European Central Bank (ECB) cut rates to 0.75% to try and rejuvenate a stagnant Eurozone region still mired in the debt crisis with signs that Spanish and Italian sovereign debt yields are heading back to the danger zone.

Looking back at the last set of earnings conference calls for some key global companies, the outlook doesn’t look too rosy either from a corporate persepective. The following are some quotes from Caterpillar (mining and construction equipment) and Procter & Gamble, Unilever (consumer and personal goods)

April 25th 2012, Caterpillar Q1 earnings call

“What are our expectations for sales in China for the full year of 2012?’And the answer is, we have taken our forecast down, and we expect the full year will be modestly negative versus 2011, with the decline coming mostly in the first half of the year. Now, that doesn’t mean that we’re banking on a major increase in the second half. It’s mostly because excavator sales were already declining in the second half of 2011. While we do expect the construction industry to improve moving forward, there’s too much inventory in the channel and it does need to be sold down in 2012.

Look beyond 2012, we continue to expect economic growth in the US and improvement in construction fundamentals. At some point, real residential and commercial construction activity will need to improve from today’s depressed levels. And some day, probably after the upcoming elections, we’ll get a longer term highway infrastructure bill passed. In short, we’re doing pretty well in the US now, and with better construction fundamentals ahead, we expect to do better.

We don’t think that Europe will be this depressed forever. While they certainly need to make structural reform, they can’t cut their way out of the trouble that they’re in; they have to grow. When that happens it should be good for us.

Brazil has already begun to ease, to drive growth. They have major infrastructure development ahead of them. Looking forward, that will be good for our business.

In China, have they had slower growth over the past few quarters? Yes, they have. Will they see solid growth going forward? We think so. We believe in the long-term growth prospects there. Do they have infrastructures needs? You bet they do. Will we be coming off of a relatively low base for sales in 2012 in our industry in China? Yes, we will.”

April 26th 2012, Unilever Q1 earnings call

“Once in a while over the last 3, 6months, there has been some positive signs overall when it comes to the economy. But let me tell you, recovery is mixed and slow. The overall market grew not more than 2% and in value with negative volume. So this continues to be a difficult market, and that’s also our assumption going forward. We just gave you the soundbite. 13% of the population, 45 million Americans getting food stamps. I think that really brings home the overall macro context. While we are pleased with the overall performance of North America, if I look at the numbers, it’s all been through price and has been somewhat but slight negative volume. But let me just give you some context to that. In the overall market where — in terms of volume, that’s a decline at a lesser rate than the overall market.” 

April 27th earnings call, Procter and Gamble

“Market growth has been decelerating on a volume basis. Developed markets were down slightly in our categories in the third quarter, reflecting weak economic conditions. North America volume growth in our categories slowed from 1% over the past 12 months to about 0.5% over the past 6 months to essentially flat for the past 3 months. Western Europe remained down about 0.5 point versus prior year on a volume basis. Developed region market value was up about 2 points on a constant currency value basis due to pricing.

Markets in developing regions are faring much better. Developing regions underlying market volume was up 4% for the quarter, and constant currency sales were up about 10%. We’ve seen a modest sequential deceleration in market volume in Asia and Latin America over the past 12 months as more price increases have reached the market. However, the value contribution from pricing has more than offset slower volume growth.”

Contrarian Investor UK

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