Global Markets: Worries About Earnings, Oil And Inflation

A new earnings season is being kicked off this week. Some analysts fears that expectations are to high, and some are worried that the rising commodities prices will lead to stronger inflation. But most experts agree that the latest bailout package for Greece will calm down the financial markets – at least in the short term.

“A sharp increase in commodity prices could lead to inflation concerns and speculation that interest rates will be raised before rather than later.”

Terra Markets


Wealthy Greeks have taken out money from local banks at a rapid pace at the benefit for secure foreign banks and government securities. The banks had to resort to government rescue packages to ensure liquidity, and the uncertainty about the future has increased. The Greek state has even had difficulty to refinance loans, which in turn has led to speculation about a possible banking collapse, Norwegian Terra Markets writes in their weekly analysis.

But the member of the euro zone has now committed to a loan ceiling of 30 billion euros, and 15 billion IMF Euros, that will ensure the need for the next year. The loan package should put a damper on fear and build up under the market, the analysts adds.

Over-Estimated Earnings?

“The stock market is priced fairly on forward P/E, but low on the 2011 estimates,” Terra Markets points out.

“The U.S. market is priced basically good. Consensus expectations (EPS) for the S&P500 is 16.97 for the first quarter, which is an increase of 6.9% compared with previous quarter and 40.8% up compared to the same period last year. 5% of companies have reported numbers to date, where a majority have reported better than expected top and bottom line.”

“Figures for the fourth quarter of 2009 were strong, but the surprise was largely influenced by the downward adjustment in advance. Ahead of the current results season has been estimated changes marginal, which will make it harder to beat expectations,” the Norwegian analysts underlines.

Over-Optimism in Oslo?

“Forward EPS at the Oslo Stock Exchange and the upward trends is likely to continue to rise underpinned by strong oil prices and better business cycles,” Terra continues.

“We expect further that the forward P/E will remain stable around 11 – 12, and as all other things equal, the share prices then must rise. Consensus expectations for earnings at the OBX reach 36 in 2011, rising to 40 in 2012. We’re assuming a pricing at current levels and that analysts encounter their estimates; the OBX reach 415 in 2011 and 460 in 2012. In comparison it on 353 today.”

“We believe that the estimates may be somewhat optimistic, but we do not discharge the possibilities that Oslo Stock Exchange may equaled its earlier peak levels as early as 2012,” Terra concludes.

Here’s the brokerage firm’s latest analysis and recommendations for Oslo Stock Exchange.

Current estimates for major Norwegian companies.

Short Term Calm Down

“Wealthy  Greeks have taken out money from local banks at a rapid pace at the benefit of secure foreign banks and government securities. The banks have had to resort to government rescue packages to ensure liquidity, and the uncertainty about the future has increased,” Terra points out.

“The Greek state has even had difficulty to refinance loans, which in turn has led to speculation about a possible banking collapse. Member of the euro zone has now committed to a loan ceiling of 30 billion euros,  and 15 billion IMF euros,  that will ensure the need for the next year. The loan package should put a damper on fear and build up under the market.”

Oil fueling Inflation Concern

“High oil prices will most likely put a damper on economic growth. Oil prices approaching three-digit level and is up 165% since the bottom in December 2008,” Terra writes.

“Last week, oil climbed to 84 dollars and is at the highest level since October 2008. More blame on the speculators for the increased price, but we believe the rise is a result of attractive mixture between supply and demand, where demand is driven by global economic growth. The emerging economies are the main driver behind demand growth, with China alone accounts for a third.”

“We do not fear that oil prices will buckle under the bone upswing in the global economy, but rather that the price is a result of that the economy is on the way back to recovery,” Terra Markets suggest.

“A sharp increase in commodity prices could lead to inflation concerns and speculation that interest rates will be raised sooner rather than later. A lot of excess capacity and high unemployment, however, indicates that inflation will remain low and should not be a problem in the short run, with the exception of a few Asian countries,” the analysts says.

Related by the Econotwist:

Greece: Here’s The Deal (Well, sort of…)

Who’s Hiding In The Sherwood Forrest?

Greek Crisis: Confusion And Paranoia

Wall Steet: FED With A Fake Mustache?

Euro Zone: More Fiscal Integration Or Not?

Here Comes Another Greek Bank Meltdown

“Greece Will Default”

Greek Debt Crisis Become Critical (Again)

Lies, Damned Lies And Statistics

Greek Bailout “Backstop” Confidence Trick Already Backfiring

Markets To Test Greece

Moody’s Downgrade Ambac Debt, Deals will be Affected

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0 thoughts on “Global Markets: Worries About Earnings, Oil And Inflation

  1. Pingback: OIL, Gold trading Lower Lending to Dollar Strength

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