Overseas Headlines – January 16, 2017


Profit growth pickup could justify Wall Street rally
U.S. companies are set to report their strongest profit growth in two years, which could go a long way toward justifying Wall Street’s record-breaking rally, say stock investors who anticipate many companies will top expectations. Fresh from a year-long decline in quarterly profits, companies in the benchmark S&P 500 .SPX are expected to report their bottom lines grew by 6.2 percent in the fourth quarter, the latest Thomson Reuters data shows, the strongest growth since a 7.0 percent increase in the same quarter of 2014. By most measures, the last quarter was a solid one for the wider U.S. economy. One key measure of health of the manufacturing sector, the Institute for Supply Management’s (ISM) monthly purchasing managers’ index, recently hit its highest level in two years, and the global economic outlook has improved as well. At the same time, the number of fourth-quarter corporate outlooks above analysts’ expectations is at the most they have been in years.


Draghi Seen Staying Strong on QE as Faster Inflation No Bar
The European Central Bank will wait until late this year before considering reining in its bond-buying plan, and won’t halt the program until well into 2018 at the earliest, economists say. Even as euro-area inflation gathers pace, three-quarters of respondents in a Bloomberg survey said the ECB’s next major change to its stimulus will be announced no sooner than September. With underlying price pressures subdued, two-thirds of analysts said that decision will be to slow monthly purchases but extend them beyond December. None foresees any new measures when the Governing Council meets in Frankfurt on Thursday. President Mario Draghi is likely to come under increasing political pressure in stronger economies such as Germany if he continues to add stimulus while prices climb and savers remain burdened with near-zero deposit rates.


China to target around 6.5 percent growth in 2017
China will lower its 2017 economic growth target to around 6.5 percent from last year’s 6.5-7 percent, policy sources said, reinforcing a policy shift from supporting growth to pushing reforms to contain debt and housing risks. The proposed target was endorsed by top leaders at the closed-door Central Economic Work Conference in mid-December, according to four sources with knowledge of the meeting outcome. The world’s second-largest economy likely grew around 6.7 percent last year – roughly in the middle of the government’s target range – but it faces increasing uncertainties in 2017, the head of China’s state planning agency said on Jan. 10. Policy stimulus measures – evident in record lending from mostly state-owned banks and increased government spending – have fuelled worries among top leaders about high debt levels and an overheating housing market that could threaten financial stability if not addressed, the sources said.

South America:

Worst is over for Brazil’s economy, Finance Minister says
Jan 16 The worst is over for the Brazilian economy, which is likely to start growing in the first quarter of 2017 after two years of recession, Finance Minister Henrique Meirelles said in an interview with newspaper O Estado de S. Paulo published on Monday. Meirelles also said the central bank’s decision to cut interest rates last week was "solid", technically justified and will help the economy grow quickly. "We are seeing a recovery in the first quarter of 2017," Meirelles said. Brazil’s economy probably shrank more than 3 percent for a second straight year in 2016, according to government and market forecasts. With inflation slowing, the central bank cut its benchmark interest rate, the Selic, to 13 percent on Wednesday. (Reporting by Silvio Cascione; Editing by Hugh Lawson)