\n\tBy Greg Peel<\/p>\n
\n\tRevenues have been the feature of this US quarterly earnings season, with three out of four S&P 500 companies reporting to date posting earnings surprises based on higher than expected sales. On Friday night Dow component Caterpillar exemplified the trend. Cat is facing higher input costs but increased sales are outweighing that burden. The US domestic construction industry is soft, but Cat is selling plenty of bulldozers et al offshore with the support of the weaker US dollar.<\/p>\n
\n\tCat shares were up 2.5% on Friday, with fellow Dow components Chevron and Merck chiming in with 0.5% increases.<\/p>\n
\n\tThe story is the opposite in Australia. The US stock markets are on the rise backed by solid earnings and a central bank prepared to remain accommodative for some time yet, while on Friday the local market tanked after a couple of sessions of teetering weakness. Offshore holders of Australian stocks have been heading for the exits with the Aussie nearing US$1.10. One only has to weigh up the odds. <\/p>\n
\n\tThe local market had been returning towards pre-GFC levels, just as the US markets have now exceeded those, but in the same time the currency has soared. In USD terms, US investors are way ahead. From here, either the strong Aussie will start to noticeably impact on corporate earnings, or the currency will undergo at least some correction. Either way, a US investor would lose. On the other hand, it is unlikely the ASX 200 can push through 5000 were the Aussie to keep rising, and rising inflation is threatening to force the currency higher. So the clear choice is to take profits, which is exactly what was happening last week.<\/p>\n
\n\tBy contrast, the Dow rose 47 points or 0.4% while the S&P gained 0.2% to 1363.<\/p>\n
\n\tOn the US economic data front, the Chicago purchasing managers' index (PMI) dropped to 67.6 in April compared to 70.6 in March compared to expectations of 68.0. While this is both a drop and a miss, a reading of 67.6 in this 50-neutral index still indicates strong expansion.<\/p>\n
\n\tThe fortnightly Michigan Uni consumer sentiment index nevertheless rose to 69.8, up from 69.6 a fortnight ago and 67.5 a month ago. Economists had hoped for 70.0 but the trend is in the right direction. One must remember, however, that true “confidence” is not reached until the nineties in this gauge.<\/p>\n
\n\tUS personal income rose 0.5% in March having risen 0.4% in February. Consumers might be more confident, and incomes might be rising, but personal spending growth fell to 0.6% in March from 0.9% in February. The Personal Expenditure Price Index derived from this data, which is an alternative measure of inflation, rose 0.4% as it did in February. Just to drive home Ben Bernanke's inflation indifference, core prices (ex food & energy) rose only 0.1% in March compared to 0.2% in February.<\/p>\n
\n\tIt is that lack of inflation concern, and the Fed's specific intention to maintain the size of its balance sheet (QE2.5) and maintain the extended period of low interest rates which has the US dollar drifting ever lower. On Friday the index fell to 73.03. And the policy has sparked new life into gold, which rose US$29.70 on Friday night to US$1565.70\/oz . Lofty silver this time actually slipped 1% to US$47.94\/oz. If that means the switch is now on, look out gold.<\/p>\n
\n\tBase metals markets were closed in London on Friday for the wedding but oil pushed higher, adding US87c in both Brent, to US$125.89\/bbl, and West Texas, to US$113.93\/bbl. The Aussie reached US$1.097.<\/p>\n
\n\tThe SPI Overnight rose 32 points or 0.7%.<\/p>\n
\n\tIt's another big week of US earnings reports before things start to thin out a little next week, albeit reports from the heavy hitters will now become a little more spread out. It's an important week for economic data nevertheless, beginning tonight with the manufacturing PMI. The first business day of the month is always manufacturing PMI day across the globe.<\/p>\n
\n\tTonight also sees US construction spending, then on Tuesday it's factory orders and vehicle sales. On Wednesday it's the services PMI and the ADP private sector unemployment report, and on Thursday chain store sales and productivity. The big day is Friday, when the official April jobs report is released.<\/p>\n
\n\tAustralia will have its manufacturing PMI today, along with the first quarter house price index and the TD Securities monthly inflation gauge. The gauge will be jumped on by the media ahead of Tuesday's RBA meeting, but it remains unlikely there will be any rate rise just yet, particularly given the strength of the currency. Australia's services PMI comes out on Wednesday then on Thursday it's building approvals and retail sales. <\/p>\n
\n\tChinese markets are closed today, so that means the Chinese manufacturing PMI was released on the weekend. The official index slowed to 52.9 from 53.4 in March, continuing a trend over the past few months to a low level of expansion. The HSBC survey showed a stable result. This may alleviate some concern over the next Chinese rate rise, albeit inflation is a different matter.<\/p>\n
\n\tOn the subject of inflation, the Bank of England is not expected to make its first post-GFC rate rise on Thursday night but the European Central Bank may well hike. It's not certain, given the ECB raised last month and played down talk of consecutive increases, but then inflation has not abated.<\/p>\n
\n\tOn the local stock front, bank earnings will be the highlight of the week. ANZ ((ANZ)) reports its half-year on Tuesday, Westpac ((WBC)) on Wednesday and National ((NAB)) on Thursday. Orica ((ORI)) will also report its half-year today while News Corp ((NWS)) posts a quarterly on Thursday.<\/p>\n
\n\tMay is also a big month for AGMs and they begin to hot up this week.<\/p>\n
\n\tRudi is on Sky Business on Lunch Money this Thursday at noon while I'll be appearing on Business View on Friday at 2pm.<\/p>\n