More ASX earnings recovery fantasies

From Macquarie:

Market: The Australian market’s forecast EPSg has been materially downgraded in recent months to stand at -6.8% vs -2.5% in FY15 (see Figure 7). This is largely attributable to Resources with FY16 earnings deteriorating further to –56.3% on the back of declining commodity prices (most notably iron ore and oil) with AUD weakness providing only a partial offset. Notably, Resources now contribute less than 10% to the total earnings basket. At this stage, a further halving of 2016 expectations would equate to around 4-5% of total earnings growth. Not insignificant but substantially less relevant in the bigger picture. Macquarie sits some way above consensus on a rebound in 2017 resource earnings (primarily BHP) which are forecast to nearly double. We expect to see further signs of cost cutting fitting with the trend that was evident in the prior reporting round (S32, ORG, OSH and BSL). Companies likely to announce further capex and cost reduction targets include EVN, FMG, IGO, OSH, PAN, RIO, STO, WPL and WSA.

 Ex Resources: the picture is no better. Bank earnings are weak (if barely contributing positively to overall growth), Domestic Industrials are likely to post another half of near-zero revenue and only marginally positive earnings growth and International Industrials have seen, what is likely, a slightly weaker global backdrop (versus 2H15) with less significant translation gains than in prior reporting seasons when the A$ was starting from much higher levels. At present, EPSg for the Market ex Resources stands at +2.7% in FY16 and 7.8% FY17 (vs. 5.6% delivered in FY15).