OPEC+ production stepped up, but quotas not met

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USA, fund flows - household wealth hit new record highs at the end of 2021. Exceptionally solid household and business balance sheets will help mitigate the effects of the slowdown induced by the inflation shock.

Data on financial flows collected by the Federal Reserve (Financial Accounts) outlined ongoing, strong household wealth growth in 2021, and in 4Q in particular. At the end of 2021, net wealth had exceeded pre-Covid levels by as much as 33 trillion dollars, marking new record-high levels also in relation to disposable income.
The decline of stock indices in 1Q will curb financial wealth, but the correction will be limited, and from extremely high starting levels. The US economy is tackling the inflation shock with exceptionally solid household and business balance sheets. The savings accumulated by households (increased wealth and available cash on deposit accounts) will help mitigate the effects of the slowdown of the recovery resulting from the Ukrainian crisis and from the initial fed funds rate hike.

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Russia’s invasion of Ukraine: What are the potential effects on the Eurozone economy?

The repercussions on the Eurozone of the Russian invasion of Ukraine, and of the increasingly strict sanctions
being put in place by the West against Russia, will be felt through three channels: trade, with gas supplies at the
fore, the financial channel, and sentiment.

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US corporate earnings were up by 27% y/y in 4Q 2021. Upside surprises back to normal: above the historical average, but the smallest observed since the onset of the pandemic.

The 4Q 2021 earnings repoporting is clos completion in the US, and mid-way through in Europe. Earnings were higher by 27% and 44% respectively in the USA and in Europe.
Upside surprises were still above the historical average but fell well short of the exceptional rates observed over the five quarters that followed the pandemic-induced crash (1Q 2020), to which analysts responded with strong upside earnings revisions. In the US, the normalisation of the size of upside surprises was followed by the typical (albeit limited) downside revision of forecasts for the following quarter.

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The recovery of earnings continues, but its pace is normalising after the acceleration seen in the first half of 2021.

The 4Q 2021 corporate earnings reporting season opened in the United States in mid-January (and will be followed by the European round of results at the end of the month). The recovery of earnings continues, but its pace is normalising after the acceleration seen in the first half of 2021. In the United States earnings growth is forecast at around 21% y/y (from 37% the previous quarter), although the quarterly change should prove slightly negative. Revenues are expected to continue showing solid growth, by 12% y/y (from 17% the previous quarter). In the Eurozone, earnings growth is forecast at +12% y/y.

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RECOVERY MONITOR: Covid infections in the Eurozone rise back up, prompting governments to introduce new restrictions. What is the potential impact on growth?

High frequency indicators tell us that growth in the Eurozone will slow down in 4Q but should not stall. This is because other than in Austria, the restrictive measures are blander than those previously imposed and are mostly addressed to the unvaccinated. Furthermore, faced with the discovery of a new, more transmissible strain of Coronavirus, the so-called “Omicron variant”, the European countries have decided to impose restrictions on travel from and to the regions of Southern Africa where the new variant was isolated and has now become dominant over the others.

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RECOVERY MONITOR: recovery on track, but at a slower pace.

The Delta variant is not blocking the recovery, that is still on track in the major countries, although at a slower pace than over the spring. The Eurozone, where Covid infections have been fewer, is proving more resilient. In the next few months, supply-side bottlenecks could result in a sharper slowdown than expected, but do not seem serious enough to block the recovery for as long as monetary and fiscal policies remain sufficiently accommodative.

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USA, Flow of Funds Account – Households’ wealth at record-high levels. Solid balance sheets for businesses as well

Households’ wealth at record-high levels, driven by the stock market and by property prices. Solid balance sheets for businesses as well: earnings on the rise and financial leverage down to below pre-Covid levels.
Data on financial flows provided by the Federal Reserve’s Financial Accounts outline, in 2Q 2021, a sharp increase in the wealth of households, to new record-breaking levels, whereas debt in relation to disposable income (also thanks to fiscal stimulus) is below pre-Covid levels. 

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Earnings growth and upside surprises at record-breaking levels in 2Q 2021 as well

The 2Q reporting season is close to its completion in the US and in the Eurozone.
Again, results were exceptionally strong: earnings growth, upside surprises, and company margins all grew at record-breaking rates. Excellent corporate results have prompted analysts to further revise up their forecasts for future earnings growth both in the US and in Europe.

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Recovery monitor 2Q: expectations for a synchronized recovery in the major economies

Recent data confirm expectations for a recovery in the Eurozone in 2Q and an acceleration of growth in the US, as opposed to an ongoing slowdown in China. The resurgence of Covid infections tied to the spreading of the Delta variant should be kept under watch. The risk is a slowing of the recovery in the next few months, although (thanks to
the protection offered by vaccines) a derailing does not seem likely for the time being.

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Q2 business profits reporting season in the U.S. and Europe

Mid-July, in the U.S. and Europe, the company profit reporting season for Q2 will start. Analysts revised again in an upward trend the esteems of profit growth, basing their assumptions on the record data in the yearly profit growth (above 60% for the S&P500) and revenues (almost at 20% for the S&P500). Esteems on quarterly growth remain modest instead.

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Q1: Corporate results are among the best recorded in the past 10 years

The 1Q 2021 reporting season is coming to an end in the US and in the Eurozone. Corporate results are among the best recorded in the past 10 years, thanks not only to strong year-on-year earnings growth (+45% and +50% respectively per S&P500 and EuroStoxx), driven by a statistical comparison effect, but also to a number of earnings surprises at their highest for the fourth consecutive quarter. In addition, the outlook for the remainder of the year, as outlined by businesses, is for a further improvement.

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Recovery monitor - Q1 2021

The reporting season confirms the US’ recovery path, along with China’s growing GDP: good news from the Eurozone, which is also beginning its recovery journey, even if later than others. High-frequency indicators back up the alleged recovery by these economies. Discover our experts’ analysis in this scenario!

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It’s beginning in the US the earnings reporting from Q1

This week in the US (and Europe towards the end of April) will begin the business earnings reporting season for the 1st quarter. After many positive surprises from the last three seasons, the progress of vaccination campaigns and fiscal policy stimuluses, analysts have increased their expectations on earnings growth (to a yearly 24%) and profits (to 6%) not only for the 1st quarter, but for all of 2021.

The future numbers up for publication in the next days will tell us if analysts kept on maintaining an overly cautious profile, despite the increasing expectations. This is still probable, considering the economic recovery has always been seen as increasing after data-led improvements, especially the ones from the end of the quarter.

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Recovery monitor

Nowcasting models are showing a constant performance distancing between the US and China (expanding) and the Eurozone (contracting, due to slowness in vaccinations). But this distance should be closed during the spring.

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USA, Flow of funds

Family patrimonies reached new record levels thanks to stocks, real estate value and fiscal stimulus. New highs for stock evaluation indices as well.

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China: after Covid’s air pocket the goal is a “quality” growth of at least 6%

Yesterday the press conference held by Chinese PM Li Kequiang ended with the closing of the National People’s Congress (NPC), which is along with the Chinese People's Political Consultative Conference (CPPCC) part of the “two sessions” (lianghu in Mandarin), the two main institutional assembles designed to receive the CCP’s directives and create China’s future economic and political direction.

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