Stock take

THE BEAT GOES ON: The US earnings season is well under way and while earnings and revenue beat rates are relatively strong thus far, guidance has been less rosy.

Bespoke Investment Group notes that more companies have lowered guidance than raised guidance, something that hasn’t happened since the miserable first quarter of 2009.

More tellingly, perhaps, is the percentage of companies issuing no guidance at all. Historically, fewer than 50 per cent of companies would not issue guidance. This changed in 2007 as financial uncertainty increased, steadily rising each quarter until peaking at 65 per cent in early 2009. Since then, it’s dropped just as steadily as visibility increased, hovering just above 50 per cent last quarter.

This quarter, however, has seen a marked rise to 65.8 per cent – the highest reading this decade. “For those looking for proof that uncertainty abounds in the business world right now, there you have it,” Bespoke said.

BP UNDERVALUED?: BP shares fell slightly this week after missing earnings expectations. The shares, hammered after last year's Gulf of Mexico disaster, are up 50 per cent since last summer. However, on a sum-of-the-parts valuation, shares remain "ludicrously undervalued", say JO Hambro Capital analysts.

JPMorgan agrees, saying the company trades at a 40 per cent discount to the value of its assets, compared to an industry average of 27 per cent. It argues that BP should unlock this value by splitting itself into two parts (refining and exploration divisions), just as competitors ConocoPhillips and Marathon Oil have recently done.

BP rejected that this week. Shareholder pressure, however, means that this idea is unlikely to disappear any time soon.

DOWN TO THE WIRE:The US is apparently just days away from a partial default on its $14.3 trillion debt, with politicians seemingly unable to come to an agreement on raising the debt ceiling. In reality, they may have more time than the August 2nd deadline suggests.

Barclays Capital, for example, suggests that the US treasury may have enough cash until August 10th. The Bipartisan Policy Center agree that August 10th is possible, while Wells Fargo economist John Silvia this week estimated that the US could “probably” generate enough cash “for the next two or three months”.

Either way, a growing army of analysts believe it’s only a matter of time before the US loses its AAA rating. That wouldn’t cause Armageddon, although it would be costly – JP Morgan predicts a long-term increase in interest rates of 60 to 70 basis points, or $100 billion annually.

Standard and Poor’s last week warned that the debt ceiling was not the “central preoccupation”; the real problem is political manoeuvring.