Volatility Returns thanks to Earnings, Geopolitics

Economic Data

- (ZA) South Africa Q2 Unemployment Rate: 25.5% v 25.4%e
- (ES) Spain Jun YTD Budget Balance: -€26.2B v -€25.8B prior
- (US) ICSC Chain Store Sales w/e July 25th: w/w +0.2%; y/y: +4.6%
- (US) Redbook Retail Sales w/e July 25th: +3.0% y/y, July MTD: -0.6% m/m; July MTD: 3.6% y/y
- (US) May S&P/ CaseShiller 20 City M/M: -0.31% v +0.30%e; Y/Y: 9.34% v 9.90%e; Home Price Index: 170.64 v 171.25e
- (US) July Consumer Confidence Index: 90.9 v 85.5e

- Trading has been volatile this morning as participants react to a variety of positive and negative earnings reports out of major names, the EU sanctions on Russia, trouble for Portugal's BES and the very good US confidence data. As of writing, the DJIA is flat, the S&P500 is up 0.10% and the Nasdaq is up 0.20%.

- The Conference Board's July consumer confidence reading soared to 90.9, the highest level in the series since October 2007. This is the third monthly rise in a row and the biggest beat in 13 months. Note that last week, the July University of Michigan confidence survey came in at four-month lows, dragged lower by the expectations component (the current conditions component was approximately as strong as today's Conference Board data). The Consumer Board wrote that improvements in confidence, in particular expectations, suggest the recent strengthening in growth is likely to continue into the second half of this year.

- The European Union has formally agreed to another round of sanctions on Russia, including sanctions on the oil sector, dual-use goods, defense and sensitive technology. Meanwhile pro-Russia rebels continue to lose ground in eastern Ukraine, as the Kremlin and Kiev trade accusations that either side is firing artillery into each other's territory. EUR/USD pushed out to nine-month lows around 1.3410, while CNBC discussed yields on a spectrum of European 10-year bonds reaching historic low levels (including a 500-year low on the 10-year Netherlands yield).

- During the European session, Luxembourg put two key shareholders of Banco Espirito Santo into bankruptcy, including Rioforte Investments and Espirito Santo Financial Group (ESFG). There was press speculation that BES could report an H1 loss of €3B, which would require a big capital raise - just last night, the Bank of Portugal reassured that the bank would be able to raise funds. BES cancelled its upcoming investor meeting as a result.

- Windstream announced that it would spin off its telecom network assets into publicly traded REIT. Windstream plans to spin off fiber and copper network assets and other fixed real estate assets, following the receipt of a favorable private letter ruling from the IRS. A spectrum of cable and telecom names are gaining on the news this morning: shares of AT&T gained 4%, VZ and CMCSA added 2% each, LVLT was up 6% and WIN gained 25% on the news.

- Shares of Merck are up 1.5% after the firm beat expectations in its second quarter report. Merck doubled its earnings y/y although revenue fell 1% y/y. Pfizer is up modestly, after earnings were moderated by losses of exclusivity and the termination of certain co-promotion collaborations. Shares of PFE are up 0.5%. Aetna is off more than 3% after a big run-up heading into earnings, even as the company beat expectations and raised its FY view.

- UPS is down 3.5% after missing second quarter targets and offering disappointing third quarter guidance. UPS also trimmed its forecast for the year as it spends to boost capacity ahead of the holiday shopping season. Recall that the company faced criticism last Christmas when a surge in online shopping caught it off guard, leading to huge delays.

Looking Ahead

- 11:30 (US) Treasury to sell 4-Week Bills
- 13:00 (US) Treasury to sell $35B in 5-Year Notes
- 16:30 (US) Weekly API Oil Inventories
- 19:50 (JP) Japan Jun Preliminary Industrial Production M/M: -1.2%e v +0.7% prior; Y/Y: 5.2%e v 1.0% prior