Calm Before the Q3 Earnings Season Storm

MONDAY MARKET UPDATE: The UK markets declined ahead of the US Q3 earning season as investors consider risks in Europe and Asia

Alanna Petroff 8 October, 2012 | 5:30PM
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The UK market was off to a weak start on Monday, following a strong rally last week that saw the FTSE 100 index jump by 2.25% and the FTSE 250 index climb by nearly 3%.

The FTSE 100 declined by 29 points, or 0.5%, to close on Monday at 5,842. The FTSE 250 index also fell back by 87 points, or 0.7%, to close the trading day at 11,975.

Other major markets across Europe were also facing downward pressure.

“The surprise [drop] in the rate of unemployment in the US [on Friday] all seems but a distant memory as the usual macro-economic concerns surrounding the global economy come to the fore once again,” said Simon Denham, CEO of Capital Spreads.

Worries over Asia’s slowing economic growth continue to persist after the World Bank cut its growth forecast for China and East Asia.

“This bearish view of a crucial market place for resources demand has dampened sentiment in Europe somewhat, yet still I get the sense many are simply waiting for the People’s Bank of China to make their move on the stimulus front to curb the slowdown,” said Joshua Raymond, chief market strategist at City Index.

Reporting season also begins in earnest this week in the US, which could be another reason for Monday’s market downturn.

“It’s natural for investors to scale down their portfolios ahead of an earnings season and so there is perhaps nothing to read too much into today’s market falls,” said Raymond.

“The third quarter US earnings season is … being watched closely by investors this week as they start to focus back towards valuations,” said Raymond. “With the S&P 500 trading just … short of its four-and-a-half year high, investors are now starting to gauge whether the soon-to-be announced earnings justify existing stock valuations.”

Alcoa (AA) will kick off the US Q3 reporting season on Tuesday. Then the excitement moves to banking: JP Morgan (JPM) is the next major company to report its quarterly figures.

On the politics-business front, Germany’s chancellor is preparing for a visit to Greece.

“It is five years since Angela Merkel last visited Greece, but tomorrow's trip is being firmly described as a state visit like any other, and not an inspection by the Troika,” said Alastair McCaig, a market analyst at IG. “Persuading the local Greek population to believe that will be easier said than done, with a general perception that Germany [is] forcing the Greek government to implement its austerity measures.” 

Media reports say that roughly 6,000 police officers will be deployed in the Greek capital during Merkel's visit.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
JPMorgan Chase & Co244.76 USD1.65Rating

About Author

Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.

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