10 Things You Need To Know Before The Opening Bell, May 8, 2014

10 Things Before Opening Bell

May 08, 2014

Good morning! Here's what you need to know.

Chinese Exports Surge. China's exports climbed by 0.9%, beating expectations for a 3.0% decline. The growth rate, however, is most likely much high as experts agree that last year's stats were artificially boosted by false trades largely to Hong Kong. "Export growth data was inflated by around 10pp in April last year based on our estimations," said Bank of America Merrill Lynch's Ting Lu. "So actual export growth could be around 10% in April if we adjust for this distortion, compared to 4-5% of adjusted exported growth in March." Meanwhile, imports increased by 0.8%, which was much stronger than the 2.1% drop expected. China's trade surplus increased to $18.5 billion.

Big Bank Woes. Five years after the global financial crisis, we continue to hear about banks scrambling to restructure and reinvigorate their operations. Earlier today, Barclays confirmed speculation that the it would be cutting its headcount. Management expect to let go of 19,000 employees over the next three years in its plan to boost long-term profitability.

Tesla Tumbles. Tesla shares are down by around 5% in premarket trading. The electric car maker announced Q1 adjusted earnings per share of $0.12, which was better than the $0.07 expected by analysts. The company delivered 6,457 models S during the period, which was also better than most analysts' forecasts. "We still plan to invest $650-850 million for the year in capital expenditures for increased production capacity, growth in our store, service center and Supercharger footprints, Model X and S development and start of Gigafactory construction," said Musk. "With all these initiatives, we expect to be slightly free cash flow negative in 2014, before considering the equity required for leasing."

Greece's Labor Market Nightmare. Greece's unemployment rate fell to 26.7% in February. Unfortunately, we can only say "fell" because January's unemployment rate was revised up to 27.2% from an earlier estimate of 26.7%. The unemployment rate for those 15 to 24 years old is at a horrific 56.8%.

Market Update. Markets around the world are in the green. In Asia, Japan's Nikkei closed up 0.9% and Hong Kong's Hang Seng climbed 0.4%. In Europe, Britain's FTSE, France's CAC 40, and Germany's DAX are all up by around 0.5%. U.S. stock market futures are modestly in the green.

Bank Of England Does Nothing. As expected, the BoE kept its benchmark interest rate unchanged at 0.5% and its asset purchase plan unchanged £375 billion.

European Central Bank May Tweak Its Policy. At 7:45 a.m. ET, the ECB announces its monetary policy decision. Economists expect the bank to keep its benchmark interest rate unchanged at 0.25%. "At today’s meeting, we expect the ECB to end SMP sterilisation, but do not look for action on rates or asset purchases," said Societe Generale economists. SMP sterilisation means that the ECB is offsetting its stimulative asset purchases with sales elsewhere. "In light of the data published since the last ECB meeting (robust business confidence, inflation figures close to expectations, and slightly better news from the ECB bank lending survey), the chances of ECB action on rates or asset purchases have fallen."

Jobless Claims. At 8:30 a.m. ET, the Department of Labor will publish its latest tally of weekly initial unemployment insurance claims. Economists estimate claims fell to 325,000 from 344,000 a week ago. "Initial jobless claims have trended higher in the past couple weeks," noted Nomura economists. "We need to observe claims in coming weeks to determine if this trend continues and if there has been any deterioration in labor market performance."

FedEx's New Price Plan. The WSJ's Laura Stevens reports that FedEx will charge its ground packages by size and dimensions instead of weight.

The Rise Of Alibaba's Jack Ma. The NYTimes' Neil Gough and Alexandra Stevenson have an interesting profile of Jack Ma, the found of Chinese e-commerce behemoth Alibaba. "The first time Jack Ma used the Internet, in 1995, he searched for “beer” and “China” but found no results," they report. "Intrigued, he created a basic web page for a Chinese translation service with a friend. Within hours, he received a handful of emails from around the world requesting information."

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BONUS: Below is Business Insider's exclusive Q&A with Lakshman Achuthan, the co-founder of the Economic Cycle Research Institute. Achuthan defends his controversial call that the U.S. economy went into recession in 2012.

BUSINESS INSIDER: What's everyone getting wrong about the state of the economy right now?

LAKSHMAN ACHUTHAN: By second-half 2013, GDP growth was clearly picking up, but key ECRI leading indexes were weakening, pointing to decelerating growth, well before the weather began to worsen. In other words, the second half rebound was unlikely to persist the way a cyclical recovery typically does. So the weakness in U.S. economic growth goes far beyond the weather, and is likely to resurface after the post-weather bounce.

That's why, in January, with a near-universal consensus that U.S. growth was about to "take off" and reach "escape velocity," we dissented, saying on CNBC that "We just don't see that when we're looking at the data."

A case in point is ECRI's U.S. Leading Construction Index (USLCI), based on which we reported last summer that, with "construction sector growth poised to fall further, there are few drivers of a near-term rebound." Sure enough, year-over-year (yoy) growth in new home sales has plunged deep into negative territory, while yoy investment growth in residential structures has also tumbled, with both at their worst readings in nearly three years.

Because both peaked long before the bad weather, it's evident that their cyclical downturns aren't really about the weather, and were correctly anticipated by the USLCI growth downturn, which has actually worsened since last summer. So the popular belief that housing will help drive an acceleration in U.S. growth this year will turn out to be a pipe dream.

BI: What do you think is the most worrisome sign in the economy?

LA: While the consensus keeps predicting an economy at “escape velocity,” with sustained 3%-plus growth, the reality remains far short of that, with yoy GDP growth hovering around 2% – what one quickly-forgotten Fed paper had called the economy’s “stall speed.” Meanwhile, business investment remains elusive and – as ECRI correctly predicted last summer – construction is decelerating, not accelerating, posing risks to the economy now highlighted by Janet Yellen.

In fact, demographics, along with productivity growth averaging less than 1% for the last three years, have helped keep U.S. trend growth so low that the inevitable growth slowdowns are more likely to end in recession. This is the hallmark of the “yo-yo years,” characterized by more frequent recessions than most expect. There’s no indication that this era will end soon, even if we see occasional 3%-plus GDP growth quarters, given that even Japan in its “lost decades” has seen 3%-plus GDP growth in 30% of the quarters since 1990.

BI: What do you think is the most underreported story in the economy?

LA: The steepening downturn in home price growth has been obvious in recent months, with yoy growth having peaked last spring for median new home prices, and last summer for median existing home prices. We predicted this downturn months in advance, over a year ago, and we expect it to continue.

BI: You've previously argued that the U.S. economy went into recession in 2012. What's the status of that call?

LA: In hindsight, the epicenter of the recession looks to be the half-year spanning Q4 2012 and Q1 2013, which saw just 0.6% annualized GDP growth, mostly from a jump in agricultural inventories. GDP growth for those quarters could easily end up negative after revisions, much of which tend to arrive years after the fact. Nevertheless, just looking at the data in hand, yoy GDP growth during that period fell to lows never seen away from recessions in over half a century. We'll see how the revisions change the picture in retrospect.

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