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The Earning Circus Is Back In Town

11 October 2016 by lberuti

We already had a trickle of results in the past few weeks, but the reporting season begun in earnest today. Over the next few weeks, all major companies will be releasing third numbers on both sides of the Atlantic. As is now customary, AA ( Alcoa Inc ) kicked off the proceedings, and they did it in style. The 128-year-old company reported their last earnings before splitting into two entities - the newly branded Arconic which will service aerospace and automotive industries, and the new Alcoa which will focus on their mining and smelting operations in bauxite, alumina and aluminium products – and missed both earnings (32cts/share vs 34cts expected) and revenue (total sales fell to $5.2Bln vs $5.33Bln expected) estimates. More importantly, they lowered Q4 and year-end guidance, adding that next year’s outlook was “very hard” to read. Investors punished the stock and marked it 10% lower, while they sent AA’s 5-year risk premium 17.5bps wider at 250bps, still a long way away from the 650bps it reached at the very beginning of the year though. Meanwhile, the broader credit market was on the back foot. Credit indices suffered as US equities felt the brunt of a strong dollar and the disappointing start to the earning season. In Europe iTraxx Main and iTraxx Crossover closed 1bp and 4.5bps wider at 74.5bps and 335bps respectively, while, in the US, CDXIG was 1bp wider at 75bps and CDXHY 2bps wider at 404bps.