The US flag flies over shipping cranes and containers in Long Beach, California on March 4, 2019.
Mark Ralston | AFP | Getty Images
This upcoming earnings season is shaping up to be a weak one.
Because of uncertainty around trade wars and global growth, a bulk of U.S. companies are lowering the bar for their second-quarter earnings. Of the 114 companies that have issued earnings guidance for the period, 77% have issued negative forecasts, according to data from FactSet.
Thanks in part to those warnings, earnings are estimated by analysts to have declined by 2.9% year over year in the second quarter. At the start of the period, analysts expected earnings to be basically flat. If that estimate for a decline holds up, it would mark the first time the S&P 500 has reported two straight quarters of year-over-year decline in earnings in three years, according to FactSet.
“That says it all about the trajectory now of earnings,” Peter Boockvar, chief investment officer of Bleakley Advisory Group, told CNBC Thursday. Boockvar said the two “key tells this week” have been disappointing second-quarter results from MSC Industrial Direct and Fastenal, both of which cited a slowing business environment.
“These companies lie at the heart of the industrial and construction world,” Boockvar said.
Minnesota-based Fastenal was among the first companies to give investors a glimpse into the corporate cost of tariffs. The largest fastener distributor in North America said in its second-quarter earnings report this week that the trade war has damaged its business and outlined the difficulty of countering the losses.
“While we successfully raised prices as one element of our strategy to offset tariffs placed to date on products sourced from China, those increases were not sufficient to also counter general inflation in the marketplace,” Fastenal said in a press release.
Tech and materials weak
Sectors like materials and information technology are projected to report the biggest year-over-year declines. The materials sector has recorded the biggest drop in expected earnings growth, nosediving from a 3.2% drop in the beginning of this quarter to a 16.2% drop this week, according to FactSet.
There has been little progress publicly on a trade deal since the United States and China reached a truce at the G-20 summit in Japan. Last week, China’s Ministry of Commerce said that the U.S. has to lift all tariffs placed on Chinese goods if there is to be a trade deal.
“With about two months past the recent tariff round, we expect to hear more details on the impact from companies this earnings season,” Bank of America equity and quant strategist, Savita Subramanian, said in a note to clients this week.
Still, Wall Street is shrugging off the earnings picture thanks to new hope of a July rate cut. The Dow Jones Industrial Average notched a record high on Thursday, breaking above 27,000 for the first time in its history. The S&P 500 climbed above the 3,000 level for the first time Wednesday after Federal Reserve Chairman Jerome Powell said business investments across the U.S. have slowed “notably” as uncertainties weigh on the economic outlook. As a result, expectations of an upcoming rate cut grew. Market expectations for a rate cut in July are at 100%, according to the CME Group’s FedWatch tool.
There are some bright spots though. Five sectors are projected to notch earnings growth, including utilities and healthcare sectors. When it comes to revenue, just three of the eleven sectors are projected to report a decline.
Next week should paint a fuller picture with Citi kicking off second-quarter earnings Monday. Names like Goldman Sachs, and JP Morgan will also report, as well as Microsoft, UniteHealth, IBM, Philip Morris, United Airlines, and Netflix.
Europe is at odds over who will replace Christine Lagarde at the IMF
International Monetary Fund (IMF) managing director Christine Lagarde speaks during a press conference in Tokyo on October 4, 2018.
Kazuhiro Nogi | AFP | Getty Images
European officials are still scratching their heads over Christine Lagarde’s successor at the International Monetary Fund (IMF), according to several people with knowledge of the discussions, with no standout candidate for the role.
Lagarde is due to start her new job as president of the European Central Bank (ECB) in November, leaving the IMF’s chair empty. In Europe, EU member states agree that the next IMF managing director needs to be from the continent — but they’re struggling to rally behind one particular name.
“The truth is that there is no readily available tried and tested European all-rounder,” a European minister, who did not want to be named due to the sensitive nature of the talks, told CNBC.
There is no official shortlist of candidates, but many governments of EU nations have put forward a name to take the top job. Some of the non-official candidates are:
- Jeroen Dijsselbloem, former Dutch finance minister and president of the Eurogroup (which brings together the 19-euro zone finance ministers).
- Mario Centeno, the Portuguese finance minister and currently Eurogroup chief.
- Nadia Calvino, the Spanish finance minister.
- Olli Rehn, central bank governor of Finland and former European commissioner for the euro.
- Mark Carney, the current governor of the Bank of England — a Canadian citizen who also has Irish and English passports.
- Kristalina Georgieva, from Bulgaria, who is currently serving as chief executive of the World Bank.
- Mario Draghi, the outgoing ECB president.
According to two other European officials, who also preferred to remain anonymous, none of the candidates have the right profile at this stage. Some names also don’t have enough experience or they are not liked by certain governments due to their political affiliation, their past comments or their background, the officials told CNBC. Since the IMF’s formation back in 1945, the managing director has always been from Europe.
There is also an age restriction to deal with. The IMF’s rules state that managing directors must be under 65 years of age when appointed and cannot serve beyond their 70th birthday. As such, the chances of certain candidates, such as Kristalina Georgieva, become much smaller.
“If (the) age limit is adapted to today’s realities, there is Georgieva and Draghi,” the European minister told CNBC.
France, who’s chairing the discussions across the different EU capitals, is reportedly looking at ways to change the laws. However, it is unclear whether that idea would be approved inside the IMF.
A source within the French government told CNBC that Paris “does not have a preferred candidate and will play its coordination role impartially.” Meanwhile, a separate EU official confirmed to CNBC that the aim is to have an agreement by the end of the month.
EU has 35 billion euro list ready if US hits EU cars: EU trade chief
European Commissioner Cecilia Malmstrom holds a news conference in Brussels, Belgium March 7, 2018.
Eric Vidal | Reuters
The European Union would retaliate with extra duties on 35 billion euros ($39.1 billion) worth of U.S. goods if Washington went ahead with tariffs on EU cars, the bloc’s trade chief said on Tuesday.
“We will not accept any managed trade, quotas or voluntary export restraints and, if there were to be tariffs, we would have a rebalancing list,” European Trade Commissioner Cecilia Malmstrom told a committee of the European Parliament.
“It is already basically prepared, worth 35 billion euros. I do hope we do not have to use that one,” she continued.
GE reveals new parts for the ‘world’s largest offshore wind turbine’
GE Renewable Energy, a subsidiary of General Electric based in Paris, revealed “the first manufactured components” for its gigantic Haliade-X 12 megawatt (MW) offshore wind turbine.
On Monday, the firm displayed the first nacelle for the turbine, which will now be shipped from Saint-Nazaire in France to Rotterdam-Maasvlakte in the Netherlands. A nacelle sits directly behind a turbine’s blades and is a shell-like structure that contains crucial pieces of kit. These include the turbine’s gearbox, controller, generator and brake.
GE Renewable Energy said that a prototype of the Haliade-X 12 MW would be installed onshore in the Netherlands in order to “simplify access for testing.” Another nacelle is being assembled with a view to testing it in “actual operational conditions” at a site in the U.K.
John Lavelle, the CEO of GE Renewable Energy Offshore Wind, said the firm was “on track to start commercializing this new product very shortly.”
As technology develops, the size of wind turbines is increasing. In September 2018, MHI Vestas Offshore Wind, a major player in the sector, launched the first commercially available double digit turbine, the V164-10.0 MW. The turbine has 80-meter long blades which weigh 35 tons each, and a tip height of around 187 meters.
The scale of GE Renewable Energy’s Haliade-X 12 MW turbine is also considerable. It will have a capacity of 12 megawatts, a height of 260 meters and a blade length of 107 meters. The turbine will generate 67 gigawatt hours of gross annual energy. The company has repeatedly described it as “the world’s largest offshore wind turbine.”
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