Alcoa in Line; Slow Macro Day Awaits

Alcoa kicked off the earnings season as per tradition yesterday after markets had closed. Consensus was spot on as Alcoa reported a USD 0.03 loss per share for 4Q'11, its first quarterly loss since 2009. It is a quiet day today with a couple of small US reports and Canadian Housing Starts as we await the coming days which offer the Federal Reserve's Beige Book (Wed), meetings of the European Central Bank and Bank of England (Thu) and a host of data, including US Retail Sales (Thu) and Trade Balance (Fri).


Alcoa reports in line with consensus: As usual Alcoa served as an appetiser for the upcoming earnings season and the aluminum producer confirmed consensus' projections for (diluted) EPS (before abnormal items) reporting a loss per share of USD 0.03 for 4Q'11 yesterday (after market). It is the first quarterly loss since 4Q'09 and a decline from a gain of 21 cents in 4Q'10. Sales were better, growing by 6 percent year-on-year to USD 5.99 billion as the end of 2011 and yet Alcoa reported a loss as prices for aluminum declined 19 percent last year.

Small US businesses still strugling: Despite progress in jobs at small- and medium-sized companies as evidenced by recent employment reports managers are still reporting that it feels like a recession. Despite a run-up in the NFIB Small Business Optimism Index since the 2011 trough in August (88.1) to 92 in November this is still far below levels normally associated with growth. Indeed, the average level of 91.1 for Oct-Nov suggests year-on-year GDP growth of 0.3 percent, far below the realised 3Q'11 GDP growth rate of 1.5 percent. Consensus predicts a climb to 93.8 in today's December report for the NFIB Small Business Optimism Index.

US Wholesale Inventories to rise again in November: Inventories, which served as a key driver of the rebound in growth in 2009-10, have been less kind in recent quarters subtracting 1.35 percentage points from GDP QoQ growth in 3Q'11. However, the fourth quarter looks to reverse this and see a boost from inventories. Business Inventories rose 0.8 percent in October alone after an increase of 1.4 percent in the third quarter (down from an increase of 2.8 percent in 2Q) and today we get an early indicator of the level of November's Business Inventories when Wholesale Inventories are reported. Consensus looks for an increase of 0.5 percent month-on-month after October's sharp gain of 1.6 percent.

Canadian housing market flat: Permits to build a new house in Canada have been stagnant in 2011 with the 12-month average through November unchanged since Dec'10. Today we get Housing Starts, which have followed a similar path this year and consensus expects more of the same in today's report for December with a forecast of 185,500.