A Close Look At Friday’s Market Events

A Close Look At Friday’s Market Events

$PG, $WHR

This week finished on a busy note and more earnings reports.

Focal points on Friday will include the preliminary October PMI report for China and the earnings releases from Procter & Gamble (NYSE:PG) and Whirlpool (NYSE:WHR).

I.  China Caixin Manufacturing Preliminary PMI reading for October, Thursday, 22 October, 9:45p EDT)

Why it it important

1. Concerns are about the economic slowdown in China. This preliminary report, which offers insight into the level of business activity for China’s manufacturing sector, will either heighten or calm those market concerns.
2. The dividing line between expansion and contraction is 50.0
3. The survey polls purchasing managers working predominately at smaller firms in China. It is seen as being a more useful gauge of manufacturing activity since the government’s official PMI report hinges on responses from purchasing managers at a lot of large, state-owned businesses.
4. While a reading below the prior month’s reading would fuel speculation about further policy stimulus from Chinese authorities, a decline from the prior month would compound the concerns in global equity market about the economic slowdown in China. Those concerns could temper the market sentiment in here with a better than expected report.

A closer look

1. The Caixin PMI report has been under 50.0 (i.e. signaling contraction) for 7 months running.
2. The final Caixin PMI reading for September was 47.2, the lowest level since July 2013

What is in play?

China ETFs

1. iShares China Large-Cap (FXI)
2. ProShares UltraShort FTSE China 50 (FXP)
3. Deutsche X-trackers Harvest CSI 300 (ASHR)

ETFs for regional markets

1. iShares MSCI Japan (EWJ)
2. iShares MSCI Australia (EWA)
3. iShares MSCI Hong Kong (EWH)
4. iShares MSCI South Korea Capped (EWY)
5. iShares MSCI Singapore (EWS)
6. iShares MSCI Taiwan (EWT)
7. iShares MSCI Malaysia (EWM)
8. iShares MSCI Emerging Markets (EEM)

Index ETFs

1. SPDR S&P 500 ETF (SPY)
2. PowerShares QQQ Trust (QQQ)
3. iShares Russell 2000 (IWM)

Currencies

1. USD/CNY
2. USD/JPY
3. EUR/USD

S&P futures

Commodities

Treasuries

II. Procter & Gamble F-Q-1 Earnings Report before the market opens

Why it is important

1. Procter & Gamble is a widely-held stock by retail and institutional investors alike
2. The company sports a stable of global consumer brands with leading market share positions. The information the company offers on pricing and volume trends provides important market perspective on consumers’ spending behavior.
3. Branded products are sold at higher price points than generic products. In looking at PG’s results, we can gain some sense if the substitution effect, consumers opting for lower-priced generic products over higher-priced branded products, might be gaining in popularity.
4. With nearly 65% of its revenue generated outside the US, Procter & Gamble is a good a proxy about how currency exchange rates influence the results of multinational companies
5. Company CEO A.G. Lafley made a number of restructuring moves as part of an effort to revitalize growth at PG. Each passing earnings report from PG will be a report card on his work, and has potential to change the trend in PG’s stock, which is down 17.4% YTD.
6. On Tuesday, 28 July 2015, that David Taylor, Group President of PG’s Global Beauty, Grooming and Health Care unit, will succeed Mr. Lafley as CEO, effective 1 November 2015. Mr. Lafley will become Executive Chairman.

PG’s market guidance at time of its F-Q-4 earnings report in July

1. Expects organic sales to be in-line to up low-single digits Vs FY 2015. Foreign exchange is expected to be a 4-5 percentage point headwind on all-in sales growth, which is expected to be down low to mid-single digits Vs FY 2015.
2. Expects core EPS to be below to up mid-single digits Vs FY 2015 restated core EPS of 3.77.
3. Strong operating profit growth is expected to be offset by a 6-7 percentage point core EPS growth headwind from lower non-operating income and a higher core effective tax rate.
4. Foreign exchange is estimated to have a 3-4%  negative impact on core EPS growth, with the vast majority of this impact affecting 1-H of FY 2016

What is in play?

PG (NYSE)

Other leading consumer staples companies

1. Colgate-Palmolive (CL)
2. Avon Products (AVP)
3. Estee Lauder (EL)
4. Kimberly-Clark (KMB)
5. Clorox (CLX)
6. Church & Dwight (CHD)
7. Johnson & Johnson (JNJ)

SPDR Dow Jones Industrial Average ETF (DIA)

Related ETFs

1. Consumer Staples Select Sector SPDR (XLP); PG is largest holding at 11.53% of assets
2. Vanguard Consumer Staples ETF (VDC)
3. PG is largest holding at 9.72% of assets
4. iShares Global Consumer Staples (KXI)
5. PG is second largest holding at 6.15% of assets

III. Whirlpool Q-3 Earnings Report before the market opens

Why it is important

1. Whirlpool is the number one major appliance manufacturer in the world
2. The company derives about 55% of its sales outside the US, selling its home appliances in more than 170 countries. Accordingly, its sales results will provide market insight on consumer demand around the world.
3. The company typically offers market guidance on industry unit shipments for each of the geographic regions in which it operates
4. Its stock is in a Bear Market correction having fallen 30% from its high in early February, with concerns about USD’s strength, economic difficulties, and reduced EPS expectations weighing on sentiment.
5. Investors are looking for results and guidance that will turn the tide of negative sentiment on the stock and help fuel an improved view of economic conditions

Whirlpool’s guidance following its Q-2 results in July

1. Expects full-year ongoing business EPS of 12.00 to 13.00
2. Expects to generate F-Y 2015 free cash flow of approximately $700-M
3. F-Y 2015 industry unit shipments for North America to increase by approximately 4%
4. F-Y 2015 industry unit shipments for Europe, Middle East & Africa to be flat to up 2%
5. F-Y 2015 industry unit shipments for Latin America to decrease by approximately 15%
6. F-Y 2015 industry unit shipments for Asia to be flat

What’s in play?

1. WHR (NYSE)
2. General Electric (GE) Note: GE is in the process of trying to sell its appliance business to Electrolux.
3. Sears Holdings (SHLD)

Foreign competitors

1. Electrolux
2. Bosch Siemens
3. Samsung
4. Panasonic
5. Haier
6. LG

Retailers

1. Best Buy (BBY)
2. hhgregg (HGG)
3. Home Depot (HD)
4. Lowe’s (LOW)

Stay tuned…

HeffX-LTN

Paul Ebeling

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