The World Bank lowered its 2012 GDP forecast for China from 8.2% to 7.7% and cut its 2013 GDP growth forecast by 50 basis points to 8.1%. For the developing East, the World Bank is now projecting growth of 7.2% this year, versus 7.6% before, and 7.6% for 2013 versus 8.0% before.
Earnings season officially starts with Alcoa’s (AA) earnings report on Tuesday. According to Thomson Reuters, third quarter earnings are projected to decline 2.4%. If earnings decline, it would be the first decline in quarterly earnings since the third quarter of 2009. The earnings factor to watch may not be the actual results for the third quarter so much as the guidance for the fourth quarter. Fourth quarter earnings growth is projected to be up 10%. Management may be conservative in their guidance partly because of the uncertainties associated with the fiscal cliff.
Concerns regarding slowing global economic growth and weak earnings and guidance are being offset by open ended monetary expansion commitments by the Federal Reserve. On Tuesday, European Central Bank (ECB) President Mario Draghi will speak at a public hearing at the European Parliament in Brussels. The European sovereign debt crisis is currently dormant and Draghi is likely to offer more soothing words to ensure the beast does not awaken.
On Friday, options market makers reduced their net delta exposure to the S&P 500 marginally. The DJIA reached a 52 week high and is within 5% of its 2007 all-time closing high. In Tessera Technologies (TSRA) there was a buyer of 1,000 Mar 15 Calls. Opening buyers also got long positions in the March 13 and 14 strikes. The trading was 16x normal. In Ziopharm Oncology (ZIOP), there was a buyer of 5,000 Apr 7 Calls. The company is presenting on October 10 at the 11th Annual BIO Investor Forum.