The headwinds facing the global economy, while significant, have yet to impact stock markets as investors have focused on rising profitability and the "risk-on" trade being underpinned by loose monetary policy.
As we enter the business end of the first quarter earnings season, it is though becoming clear that higher input prices are impacting margins at those firms unable to pass on the price rises to customers.
“European earnings are now seeing net downgrades, the three-month average for earnings momentum (number of upgrades vs. downgrades) is negative for the first time in 19 months,” said UBS in a research note.
“Once again this is being driven by downgrades to margins. Revenue momentum, however, continues to be strong,” UBS added.
Strong revenue growth is to be welcomed, given a significant part of the last three years has seen firms boost profitability via focusing on costs and repairing balances sheets, but how do the people running global companies believe this trend will play out over the course of the year?
“We have a very strong pipeline. We have a very strong sense for the full year,” said Jim Hagemann Snabe, the co-CEO of SAP in an interview on Thursday, in which he reiterated that the software group would meet its full year targets.
SAP unveiled a 26 percent jump in software revenue but missed expectations with operating profits.
SAP’s confidence was matched by Ben Noteboom, the CEO of employment agency Randstad in a sign that the jobs market is beginning to pick up.
“We are confident about the prospects for 2011 following strength in the German, French and North American market,” Noteboom told CNBC.
“We have seen growth for five quarters in the US market. We have seen big growth in the blue-collar segment, later in the cycle the professional market should begin to improve,” he told Squawk Box Europe in an interview in which he dismissed fears that the jobs being created are on average only temporary.
“The public sector in the UK and Netherland looks grim,” was the negative from the Randstad boss.
In the banking industry, confidence also appears to be returning. “We are confident of increasing profitability in 2011,” Andreas Treichl, the CEO of Eastern European focused banking giant Erste Group told CNBC, despite being worried about the health of the Bulgarian and Romanian market.
“We are extremely confident with our capital position. We have no intention of raising new capital,” said Treichl in an interview.
Advertising is widely seen as a lead indicator for the global economy and things are looking good for WPP boss Sir Martin Sorrell.
“We are cautiously optimistic on the prospects for 2011 and 2012,” said Sorrell in an interview with CNBC in which he indicated dividends would rise over time.
“In the US the upfront rates look good. We have heard some bullish comments from the US networks like ABC, CBS, NBC and Fox,” he added.