US growth slows, earnings gloom grows. Weak results from the oil industry will be one of the big factors for sharemarkets to contend with in the next couple of months as the American first-quarter profit-reporting season gets underway. It starts next week, with the first major company, Alcoa, due to report on April 8. US data company FactSet said on Friday night the pace of profit warnings for the first quarter was ahead of both last year and the average for the past five years. Around 84% of companies to provide first-quarter updates have warned earnings will either be lower or below the pace of growth investors had predicted.

First-quarter earnings growth estimates were around 8% in the September quarter of last year. Now they are running at no growth. As of today, 101 companies in the S&P 500 have issued warnings for the March quarter of this year, against 113 for a year ago. The biggest influence has been the rise in the value of the US dollar in the past six months, which is trimming export sales and revenues (more than 40% of revenues for the S&P 500 companies come from offshore), and, inside the US, more and more companies are starting to report increased import competition from Japanese and eurozone exporters. First-quarter economic growth is now estimated to have slowed even more from the sluggish 2.2% (0.54% quarter-on-quarter) annual rate confirmed on Friday night.

One interesting note: the GDP report showed a 4.5% rise in exports in the three months to the end of December, but that was swamped by a 10.4% rise in imports. And the reason for that? The stronger dollar cutting export growth and making imports cheaper. And why is that of interest in Australia? Because US share market movements influence the movement and sentiment on the ASX. — Glenn Dyer

Diet drinks on the nose. The kerfuffle here over the new Coca-Cola Life product and its low (10 teaspoons, ha!) sugar content followed a 2% fall in Coca-Cola sales in Australia in 2014, echoing the slide in US consumption of fizzies last year and over the last decade. In fact, the annual consumption data for the huge US beverages industry was issued late last week and, once again, the sector was flat (though spritzy in places) for a 10th successive year. Carbonated drinks consumption fell 0.9% last year, the 10th successive yearly fall in a row — but it was well short of the 3% plunge in 2013. The big surprise, though, was the sharp fall in the amount of diet sodas drunk last year. For example, Diet Coke, the second biggest brand in the US up to last year, is now No. 3 (having been overtaken by Pepsi). Why the change? Beverage Digest, which compiled the report, says consumer concerns about artificial sweeteners have impacted sales of diet drinks made with them (such as aspartame). — Glenn Dyer

China’s iron ore struggles. The weakness in the iron ore price (another fall overnight) has meant greater pressures on China’s domestic industry. Iron ore imports rose 14% to a record 932.7 million tonnes last year as the price slump boosted appetite for higher-quality ores from Australia and Brazil (much more efficient to use 62%-iron-content ore than 40% from local diggers). Chinese analysts and government statistics suggest the consumption of Chinese domestic iron ore slumped to 205.86 million tonnes last year from 313.8 million tonnes in 2013. That was despite an increase in local production (meaning there are huge stocks of unwanted local ore scattered across China).

China’s Metallurgical Mines Association says only around 3% of the country’s 4037 mines are larger scale, with the rest being small-to-medium high-cost operations that exploit low-grade ore reserves. Around 75% of these mines are reportedly losing money, according to the association, but won’t or can’t close because their local and provincial government owners want them to stay open for employment (“social harmony”) or strategic reasons, because the same governments own the steel mills these mines supply. And more pressure for Fortescue and others in the sector with the global spot price under US$53 for the first time at US$52.69 a tonne, down 0.9% overnight. That means renewed pain ahead for Fortescue, whose shares fell 3.75% yesterday to $1.93. A big rebound on the ASX today from yesterday’s headless-chicken sell-off in local markets should help Fortescue, but more and more analysts are claiming the company could be producing and shipping iron ore at break-even price, or perhaps even a small loss at current prices. — Glenn Dyer

A 104-year record for US oil. Oil prices eased overnight to around US$48 a barrel for US crude — and it’s not hard to see why, judging by the latest report from the US Energy Information Administration (EIA). Thanks to the shale oil surge, US crude output increased by a record 1.2 million barrels a day to 8.7 million barrels a day in 2014. That was a 16.2% rise and the largest volume increase since 1900, the year the agency started recording US oil production data. Most of the increases were from North Dakota, Texas and New Mexico, where the use of hydraulic fracturing of shale-rock deposits has changed the US and global oil markets beyond recognition. While the US still imports oil, it is now a net exporter. That has changed the global market, producing the oil price slide that has destabilised the entire industry, boosting disposable income for consumers around the world, triggered a bout of disinflation/deflation in economies from Japan to Denmark, and even Australia and New Zealand. Looking to this year, the EIA had a glimmer of hope for the industry and those punting on a rebound in oil prices. US production will grow much more slowly this year — by around 8%. With daily production now running around 9.2 million barrels a day, output in December 2015 will be around 200,000 barrels a day above the December 2014 level. That points to a plateauing of output over the next few months, and even a dip towards the end of 2015. — Glenn Dyer

Peter Fray

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