Wall St Week Ahead - 'Cliff' concerns give way to earnings focus

NEW YORK (Reuters) - Investors' "fiscal cliff" worries are likely to give way to more fundamental concerns, like earnings, as fourth-quarter reports get under way next week.
Financial results, which begin after the market closes on Tuesday with aluminum company Alcoa , are expected to be only slightly better than the third-quarter's lackluster results. As a warning sign, analyst current estimates are down sharply from what they were in October.
That could set stocks up for more volatility following a week of sharp gains that put the Standard & Poor's 500 index on Friday at the highest close since December 31, 2007. The index also registered its biggest weekly percentage gain in more than a year.
Based on a Reuters analysis, Europe ranks among the chief concerns cited by companies that warned on fourth-quarter results. Uncertainty about the region and its weak economic outlook were cited by more than half of the 25 largest S&P 500 companies that issued warnings.
In the most recent earnings conference calls, macroeconomic worries were cited by 10 companies while the U.S. "fiscal cliff" was cited by at least nine as reasons for their earnings warnings.
"The number of things that could go wrong isn't so high, but the magnitude of how wrong they could go is what's worrisome," said Kurt Winters, senior portfolio manager for Whitebox Mutual Funds in Minneapolis.
Negative-to-positive guidance by S&P 500 companies for the fourth quarter was 3.6 to 1, the second worst since the third quarter of 2001, according to Thomson Reuters data.
U.S. lawmakers narrowly averted the "fiscal cliff" by coming to a last-minute agreement on a bill to avoid steep tax hikes this weeks -- driving the rally in stocks -- but the battle over further spending cuts is expected to resume in two months.
Investors also have seen a revival of worries about Europe's sovereign debt problems, with Moody's in November downgrading France's credit rating and debt crises looming for Spain and other countries.
"You have a recession in Europe as a base case. Europe is still the biggest trading partner with a lot of U.S. companies, and it's still a big chunk of global capital spending," said Adam Parker, chief U.S. equity strategist at Morgan Stanley in New York.
Among companies citing worries about Europe was eBay , whose chief financial officer, Bob Swan, spoke of "macro pressures from Europe" in the company's October earnings conference call.
REVENUE WORRIES
One of the biggest worries voiced about earnings has been whether companies will be able to continue to boost profit growth despite relatively weak revenue growth.
S&P 500 revenue fell 0.8 percent in the third quarter for the first decline since the third quarter of 2009, Thomson Reuters data showed. Earnings growth for the quarter was a paltry 0.1 percent after briefly dipping into negative territory.
On top of that, just 40 percent of S&P 500 companies beat revenue expectations in the third quarter, while 64.2 percent beat earnings estimates, the Thomson Reuters data showed.
For the fourth quarter, estimates are slightly better but are well off estimates for the quarter from just a few months earlier. S&P 500 earnings are expected to have risen 2.8 percent while revenue is expected to have gone up 1.9 percent.
Back in October, earnings growth for the fourth quarter was forecast up 9.9 percent.
In spite of the cautious outlooks, some analysts still see a good chance for earnings beats this reporting period.
"The thinking is you need top line growth for earnings to continue to expand, and we've seen the market defy that," said Mike Jackson, founder of Denver-based investment firm T3 Equity Labs.
Based on his analysis, energy, industrials and consumer discretionary are the S&P sectors most likely to beat earnings expectations in the upcoming season, while consumer staples, materials and utilities are the least likely to beat, Jackson said.
Sounding a positive note on Friday, drugmaker Eli Lilly and Co said it expects profit in 2013 to increase by more than Wall Street had been forecasting, primarily due to cost controls and improved productivity.

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Wall Street economists see Fed's Treasury buying ending in 2013: Reuters poll

NEW YORK (Reuters) - Most economists at Wall Street's top financial institutions expect the Federal Reserve in 2013 to end the program with which it bought Treasury debt in an effort to stimulate the economy, according to a Reuters poll on Friday.
Economists at nine of 16 primary dealers -- the large financial institutions that do business directly with the Fed -- said they expect the current Fed program of buying $45 billion per month of Treasuries to end in 2013.
Of the nine, eight said the central bank would quit the program in the fourth quarter or the end of the year. One forecast the end of the program in June.
Six of 15 economists at primary dealers said the Treasury purchase program would close in 2014, while one said it would continue through to the first half of 2016.
Minutes from the Fed's December policy meeting, released on Thursday, showed "several" top officials expected to slow or stop the so-called quantitative easing program "well before" the end of the year. That news surprised some on Wall Street and prompted a drop in stocks and bonds, and a rise in the dollar.
"It is hard to be as confident of the purchases continuing at the same pace, because we had originally thought they were going to last through the fourth quarter of 2014, but now it is not as clear that is going to be the case," said Tom Simons, money market economist with Jefferies & Co. in New York.
St. Louis Fed President James Bullard, a voting member of the Fed's monetary policy panel this year, said on Friday the Fed could be in a position to halt its asset purchases this year if the U.S. economy improves.
The Fed this week began buying longer-dated Treasuries in an open-ended stimulus program that replaced its "Operation Twist" stimulus, under which it was selling shorter-dated Treasuries and using the proceeds to buy longer-dated U.S. government debt. Twist expired at the end of December, with analysts noting the central bank had few shorter-dated Treasuries left to sell.
The central bank is already buying about $40 billion per month of mortgage-backed securities in an effort to prop up the economy.
The median of forecasts from 13 primary dealers was for the Fed to buy a total of $540 billion of Treasuries under the current stimulus program. Estimates ranged from $270 billion to $1 trillion.
Nine of 16 primary dealers said the U.S. unemployment rate would fall to 6.5 percent in 2015, while six said it would dip to that level in 2014 and one said it would happen in 2016.
The Fed at the conclusion of its December policy meeting said it expects to hold interest rates at the current level of zero to 0.25 percent at least as long as the unemployment rate remains above 6.5 percent and inflation between one and two years ahead is projected to be no more than 2.5 percent.
Previously, the Fed had said it expects to hold rates near zero at least through mid-2015.
The Reuters poll was conducted on Friday after the government reported the pace of hiring by U.S. employers eased slightly in December, while the unemployment rate held steady from November at 7.8 percent.
"In the context of the Fed's now explicit unemployment rate target, (Friday's payrolls data) at the margin theoretically extends the timing of the first tightening," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.
"That said, at the current six month pace in monthly payroll gains and labor force growth, the unemployment rate would still hit 6.5 percent by June 2014 - much sooner than the Fed's prior mid-2015 launch point," he said.
There are 21 U.S. primary dealers. Not all of the dealers responded to the Reuters poll.

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Fed's policy "thresholds" plan surprised dealers: poll

NEW YORK (Reuters) - Very few Wall Street economists expected the U.S. Federal Reserve to adopt policy thresholds at its last meeting, results from a New York Fed poll of primary dealers showed on Friday, highlighting how surprising was the decision.
The 20 dealers, who have access to the central bank's discount window, were polled before the Fed's December 11-12 policy meeting. At the meeting the Fed ultimately decided to tie low interest rates to specific unemployment and inflation levels, or "thresholds."
Dealers gave only a 10 percent chance that the Fed would adopt such thresholds at the December meeting, and respective 20 percent and 30 percent chances at the following two policy meetings, according to the median poll response.
Under the thresholds plan, the Fed will keep its federal funds rate near zero until the unemployment rate drops to 6.5 percent, from 7.8 percent now - unless the inflation outlook edges up to 2.5 percent.
Asked how much in bonds they expected the Fed to purchase, the dealers polled were generally correct in predicting $45 billion in Treasuries and $40 billion in mortgage-backed securities.
One year out, the dealers said they expected Fed purchases of $35 billion in Treasuries and still $40 billion in MBS, based on the median of poll responses.
That prediction may have recently changed.
Minutes from the December meeting, released on Thursday, showed "several" Fed policymakers expected to slow or stop the so-called quantitative easing program, dubbed QE3, "well before" the end of the year - news that prompted a drop in stocks and bonds, and a rise in the dollar.
The Federal Reserve Bank of New York unveiled the poll results on Friday.

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UK backs Lucentis for new use after Novartis cuts price

LONDON (Reuters) - Britain's healthcare cost watchdog has given its backing to eye drug Lucentis to treat diabetes-related problems after Swiss drugmaker Novartis offered it at a discount to the National Health Service.
The National Institute for Health and Clinical Excellence (NICE), in a reversal of an earlier decision, said on Friday Lucentis should now be available for patients with diabetic macular oedema (DMO).
Lucentis is already approved by NICE to treat wet age-related macular degeneration.
In November 2011, NICE said it could not recommend Lucentis, known generically as ranibizumab, as an effective use of NHS resources for DMO. On Friday, it said a fresh approach from Novartis had prompted a review of that decision.
Novartis has offered a new Patient Access Scheme, which would make Lucentis available at an undisclosed discounted, NICE said, and submitted new analyses showing the drug's superior relative effect in a sub-group of people with DMO.
As a result, NICE was now "pleased to recommend ranibizumab as a treatment option for some people with visual impairment caused by diabetic macular oedema," Carole Longson, NICE's health technology evaluation centre director, said.
NICE said the agreement with Novartis was confidential, and did not say how deep the discount would be or give a reference price for Lucentis. The list price for Lucentis is 742.17 pounds ($1,200) per injection.
The drug is designed to be given monthly and continued until vision is stable over three consecutive assessments.
Novartis said NICE's decision was an important and long-awaited step forward in improving care for people with DMO, adding an estimated 25,000 people with the condition could soon be eligible for Lucentis treatment.
NICE's recommendation is draft guidance and open to appeal before a final recommendation is issued to the NHS in February.

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Co-op hit with FSA fine over PPI complaint handling

LONDON (Reuters) - The FSA said on Friday it had fined The Co-operative Bank 113,300 pounds for failing to handle complaints regarding payment protection insurance (PPI) properly.
The Financial Services Authority said the Co-op incorrectly put on hold complaints over the mis-selling of the loan insurance during an unsuccessful High Court challenge by the British Bankers Association to FSA measures which were designed to ensure PPI complaints were dealt with fairly.
Co-op stopped dealing with the cases despite the FSA making it clear to the industry in a letter dated January 21, 2011, that claims should be progressed normally while the legal action was ongoing, the FSA said on Friday.
The FSA said it was likely Co-op unfairly put on hold a significant proportion of 1,629 complaints between January 21 and May 9 of that year.
"While nobody suffered any financial loss, Co-op's actions meant that a significant number of people had the resolution of their valid complaints delayed for no good reason. We will continue to take action where we find PPI customers have not been treated fairly," the FSA said in a statement.
PPI was meant to protect borrowers who found themselves out of work because of sickness or redundancy but was often sold to customers who would have been ineligible to make a claim.
Britain's biggest banks have already set aside over 12 billion pounds to compensate customers.

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Greece's Samaras to visit Germany next week

BERLIN (AP) — The German government says Chancellor Angela Merkel will meet Greek Prime Minister Antonis Samaras in Berlin next week.
Merkel spokesman Steffen Seibert said Merkel will welcome Samaras to the chancellery on Tuesday.
He said Friday that the informal meeting offers an opportunity for the two leaders to review progress that Greece has made in implementing reform plans. Samaras will be in Berlin to attend a closed-doors economic conference organized by a German newspaper.
Greece has been kept afloat since May 2010 by rescue loans from the other 16 eurozone countries and the International Monetary Fund. In return for the loans, the lenders — Merkel's Germany in particular — insisted on a series of economic reforms, tax raises and spending cuts.

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Sweden honors WWII hero with commemoration day

STOCKHOLM (AP) — Sweden will honor its World War II hero Raoul Wallenberg with an annual commemoration day in recognition of his achievements in saving thousands of Jews from the Nazis in Hungary.
Wallenberg, who would have turned 100 this year, was on a diplomatic mission in Hungary when detained by Soviet authorities in 1945. He is believed to have died in captivity, though the time and circumstances of his death remain a mystery.
Wallenberg is credited for saving at least 20,000 Jews by giving them Swedish travel documents, or moving them to safe houses. He was also instrumental in dissuading German officers from massacring the 70,000 inhabitants of Budapest's ghetto.
Swedish Culture Minister Lena Adelsohn Liljeroth said Friday that the country will earmark Aug. 27 as an official Wallenberg day.

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