Lately the markets are moving more to the beat of the big central banks’ drums than to the trend in corporate earnings. That’s the only way to explain how the Ibex is saving face, given that third quarter results presented so far (by 20 out of the 35 companies in the index) are 16% lower than expected, according to Bloomberg.
Sales are improving, but margins are not. Forecasts for earnings growth ranged between 25% and 30%, but we need to content ourselves with a meager 11%. Well below predictions, particularly in the financial sector. Mapfre is the latest example: profits fell 12% in the first nine months of 2015.
In the hope that Telefonica might provide some good news next Friday, the Ibex is holding its own, supported by monetary policy. Draghi has it very clear: “Deflation can be just as harmful for economic prosperity as high inflation.”With this message, the Italian banker wanted to dispel some doubts which had arisen in the market because of what he said last weekend. Now, practically all bets are back on that the ECB will make a move in December.
The euro has once again depreciated against the dollar, but this is not only due to the fact it seems fairly certain Draghi will approve new stimulus measures. It is also because the “green back” is appreciating ahead of a likely imminent rate hike in the U.S. Yellen was quite clear last week: there is a possibility rates will be increased in December if the data favours it.