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- New York 18:26
- London 23:26
- Barcelona 00:26
- Tokyo 08:26
- Sydney 10:26
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- Investors pushed the leading US indices out toward weekly highs before the open this morning, led by the Nasdaq on impressive earnings and guidance numbers from Dell and Intel. Things headed straight downwards after the bell, however, despite the slightly better-than-expected final August University of Michigan Confidence reading, with the S&P500 and DJIA briefly dipping into negative territory mid morning. Front-month NYMEX crude is more or less unchanged around $73.
- Dell beat top- and bottom-line expectations in its Q2 earnings report yesterday after the close, and while the company offered no concrete forward-looking numbers, it did say revenue in the second half of 2009 would be higher than first-half results. CEO Michael Dell sees a "powerful" corporate restocking cycle that should last well into 2010, although pricing remains difficult. Intel hiked its revenue guidance for the current quarter by approx 10% before the open today, although it also warned that margins in the quarter would be somewhat lower than estimates provided back in mid July. The company said stronger-than-expected demand for microprocessors and chipsets is driving higher revenue. DELL surged to +9% in the early going, before trading down to +5%. INTC is steady at nearly +5%.
- The last of the big second quarter retail earnings included Tiffany & Co. and J. Crew Group, both of which did notably better than expected. Tiffany beat earnings and revenue targets, and hiked its earnings range for the year on very modest sales growth in certain quarters. On the conference call, executives said the declines in y/y comps have bottomed out. J. Crew crushed bottom-line estimates, earning multiple analyst upgrades overnight. TIF is around +9%. JCG surged to +9% before the open, but has traded down to +6% in early trading. In other equity news, the fallout from Boeing's latest 787 Dreamliner delays got started this morning, as All Nippon, which would have been the launch carrier for the model, said it would seek some aspect of compensation from Boeing due to delays.
- In currency trading, earnings guidance from Intel sharpened risk appetite, which aided the USD price action. Note that equity market correlation continues to drive inverse price action among the USD-related pairs. On the macro front, the greenback is maintaining a broad trading range but probing its extreme deviation points. EUR/USD was probing the 1.4400 area as metals maintained a strong bid, while USD/CHF continued to probe the key daily pivot point of 1.0570. JPY failed to respond as usual to the risk appetite theme and firmed against the major pairs ahead of the Japanese election this weekend. USD/JPY is around 93.50.
- US equity indices pushed out to weekly lows in the first half hour of trading this morning, before retracing some of their losses. The second reading of the US Q2 GDP data echoed the initial reading back at the end of July, coming in slightly better than expected but still in negative territory. Initial claims were a hair greater than expected, but continuing claims showed some slight improvement. Fed hawk Lacker discussed the exit strategy in a speech this morning, noting that the Fed may not need to raise rates until the economic growth is "vigorous." In the aftermath of his comments, the yield on the 10y Note rose almost 8 basis points to test the psychological 3.50% level, but was unable to sustain any move above that mark and swiftly retreated. The stronger USD and JPY helped push both energy and metal commodities into negative territory for the session with NYMEX Oct crude futures move below $70/barrel, off by $1.50.
- The FDIC has reminded investors that the financial sector is a long way from normality with two widely anticipated moves over the last 24 hours or so. Yesterday afternoon, the board of the FDIC voted to lower capital ratio standards for the private equity firm's investments in failed institutions to 10% from the 15% prior recommendation. Then this morning the FDIC released its Q2 quarterly report on the banking sector, increasing the number of 'troubled' institutions on the list by about 25%, to 416 in Q2 from 305 in Q1. The FDIC fund for insuring deposits is now just above $10B, its lowest level since the S&L crisis in the early 1990s. Top tier US financial names are mostly in negative territory, although Citi is up 2% after the NY Post reported that John Paulson had acquired a 2% stake in the group and called its shares "undervalued."
- Toll Brothers offered mixed results in its Q3 report, losing far more than expected in the quarter after various tax allowances and non-cash charges were included in earnings. Minus charges, the company would have turned a modest $3.7M profit. The company saw another uptick in new contracts, although the growth was less than last quarter's big jump. For the first time in three years, the number of homes in the backlog grew compared to the prior quarter, reversing a twelve-quarter trend. Shares of TOL fell 3% or so in early trading, before bouncing back somewhat; other homebuilders fell even further in the wake of gains from two consecutive days of positive housing data, with DHI and PHM down 6% before rebounding.
- In other news, Boeing rolled out a new delivery schedule for its troubled new 787 Dreamliner jet. The company now expects first flight by end of 2009 and first deliveries by Q4 2010. Boeing also said it would log an estimated Q3 non-cash charge of $2.21/share for continued delays in the program. Canadian banks Toronto Dominion and Royal Bank of Canada both beat earnings and revenue expectations in quarterly reports this morning, once again confirming the relative health of the Canadian financial sector. TD is up 3% but off its best levels, while RY is sustaining a 6% gain.
- The greenback has shrugged off a mixed session to firm up against its European counterparts in currency trading this morning. Although the revised US Q2 GDP data beat expectations, some risk aversion has made its appearance given the initial claims data remains a thorn in the side of the recovery. Initial claims saw only a moderate net improvement; the August average is 570K, higher than the 558K July average. Fed Governor Lacker's interest rate comments also provided some support for the greenback, after he said the Fed might have waited too long to raise rates in the 2003-04 period. Lacker insisted the FOMC would take these issues into consideration when looking at future rate moves. However the timing of any rate hikes were subject to GDP growth achieving "sufficient magnitude." EUR/USD is holding to its 24-hour trading range, with continued chatter of sovereign bids on the approach of 1.4200. AUD and CAD are off their best levels thanks to the weakness in commodities.
- Equity trading has been unsettled this morning as the leading US indices bounce in and out of negative territory. The July New Homes Sales figure rose nearly 10% on a sequential basis, for their biggest m/m gain since early 2005. Some analysts cited a surge of first-time homebuyers cutting deals as the Federal tax credits for such first-time buyers are scheduled to expire in November. In another sign of housing normalization, the supply of new homes fell to 7.5 months from 8.5 months in June. The homebuilder ETF XHB is up 3% on the news. Front-month crude is testing the $71 handle after both API and DoE data showed fresh builds in inventories, against expectations for another round of declines.
- In earnings, Dollar Tree Stores reported Q2 results that were well ahead of estimates and hiked its guidance for the full year. Executives said back-to-school sales are doing well so far, while discretionary spending continues to grow. Williams Sonoma reported a modest profit (expectations were for a loss) and significantly improved its guidance for the coming two quarters and the full year. Footwear retailer DSW managed to outperform earnings estimates. Shares of DLTR are up 7%, DSW is up 9% and WSM has risen nearly 15%.
- The dollar maintained a firmer tone during the New York session, taking its cue from comments out of the Chinese Cabinet that it would curb excessive investment in industrial sectors experiencing overcapacity, helping to erode momentum in most commodities. The comments compounded earlier rhetoric from IFO members and the ECB's Gonzalez-Paramo on economic sustainability. EUR/USD headed below the 1.4250 level, where chatter indicated an Asian sovereign account had been bidding for euros for month-end commercial purposes. French President Sarkozy commented that he would discuss energy prices at G-20 meeting in September and warned the euro alone should not suffer in FX adjustments. The USD retraced its session gains as equities strengthened following the US new homes data.
- Momentum from the latter end of last week's steady upward moves in equities is continuing this morning in the absence of major corporate news or economic data. Positive rhetoric from global economists at the annual Jackson Hole retreat over the weekend is also supporting equities. Perma-bear Noriel Roubini warned of the strong possibility of a double-dip recession in an FT op-ed piece, maintaining his prior position that the global economy will bottom out in the second half of 2009; while the Fed's Bullard in comments over the weekend cast doubt on the potential for a double dip recession. PIMCO's McCulley added to his recent comments about the "new normal" in the US, noting that in the longer term unemployment may settle around the 6% level due to positions that may not be transferable after the recovery settles in. Front-month NYMEX crude is trading in a narrow band around the $74 handle.
- In equity news, financials continue to move higher in early trading, led by Citigroup, which popped above the $5 mark for the first time since January mid morning. The WSJ's "Heard on the Street" column is overall positive on the firm, citing its stronger tangible common equity level coming out of the recent preferred-for-common stock exchange. Shares of Citi are up nearly 5% on the day, while other leading financials are up in the low single digits. Note that Freddie and Fannie are up 45% and 20% respectively, extending the big gains in the name seen from last week. In other news, Warner Chilcott confirmed that it would acquire PG's pharmaceutical unit for $3.1B. PG sees the sale adding $1.4B (or around $0.44/shr) to earnings after tax, followed by EPS dilution in the range of $0.10 to $0.12 per share in fiscal year 2010. Shares of WCRX are up 30% on the news, while PG is more or less flat on the day.
- In currencies, the greenback has seen strength from the European morning slip away as commodities maintain their steady tone despite cautious comments from the Chinese government earlier today. Overall, currencies continue to take their lead from equity markets. EUR/USD is little changed from its opening levels seen in Tokyo around the 1.4330 area. USD/CHF is holding above Friday's lows of 1.0550. Sterling is bucking the trend as fiscal concerns continue to dog the pound. GBP/USD trades at the 1.6420 area and off by 70+ pips from its Asian opening levels. The commodity-related currencies are firmer with CAD getting an added boost from better-than-expected retail sales data for the month of June.
- US equity indices are on a tear this morning after a big improvement in July existing home sales, which outpaced expectations to rise 7.2% m/m and hit their highest level since August 2007. Earlier the S&P500 hit fresh 10-month highs above the 1023 handle. Opening Fed's annual symposium in Wyoming, Fed Chairman Bernanke said the US is on the verge of recovery and the global economy is starting to emerge from recession (while also warning challenges remain). The Fed's Bullard added that the economy is on track to see positive growth in 3rd and 4th quarters. Front-month crude briefly traded above $74 to levels not seen since last summer, while natural gas is off lows and making a run for $3
Treasury markets began the day on another positive note, and look primed to finish the week out strongly consolidating a move lower in rates. But sellers came in after the housing data backing rates up. The 10-year note is now down nearly three quarters of a point which has pushed the yield back above 3.5%. The 2-year yield has bounced off that 1% level to trade at 1.065%.
- Capping a week of retail earnings, The Gap managed to narrowly beat analysts' estimates, earning multiple equity rating upgrades. Ann Taylor beat expectations and guided improved sales and earnings for next quarter. Footlocker was well below expectations. Shares of GAP are up 3%, while ANN is down 2% and FL is down nearly 8%. Salesforce.com is up 15% after beating the Street and guiding somewhat higher for the year. CRM's CFO cited some stabilization in demand, but said there has been no improvement in IT spending. In other news, there were press reports that Brazil's Vale has dropped plans to bid up to $25B for Mosaic, due to government pressure.
- The currency price action remains dependent upon the direction of equities markets. Rising risk appetite was initially fueled by European PMI data earlier today and has been sustained by the US homes sales data. Both the USD and JPY were softer against the European and commodity-related pairs as a result.
- Ahead of the NY open Chinese markets were leading Europe and US equity markets higher after the Shanghai Composite registered its second biggest one-day gain of the year, right on the heels of yesterday's big losses. The S&P500 crossed back above 1,000 just after the open, although some hesitation can be expected below early August highs around 1,010. Thus far markets are shaking off both initial and continuing jobless claims that rose more than analysts' forecasts. Initial claims are averaging 568k in August compared to a 558k average in July but a bit below averages of 612k in June. Second quarter mortgage delinquencies unsurprisingly hit another record high at 6.24%, although the rise in the prime mortgage delinquency rate to 6.41% is providing cause for real concern. Brighter data was seen in the August Philadelphia Fed survey, which posted much better-than-expected numbers and a big improvement in its employment sub-index. Front-month NYMEX crude is making fresh weekly highs above $72, while natural gas is looking to test the $3 mark despite reports overnight that an unnamed hedge fund placed a big bet that prices would be at $10 by January. Treasury prices are marginally lower even after the US Treasury said they were going to be auctioning off $109B in notes next week, which was a little below what many analysts were expecting. The 10-year yield remains just below 3.5% while the 2-year is pinned at 1%.
- On the fifth anniversary of its IPO yesterday, Goldman Sachs added Google to its Conviction Buy list and set a price target for the stock of $560, noting that Google merits a bigger premium than downstream customers like Ebay and media companies, which are slower growing and less global. Shares of Google are up more than 4%. In other tech news, Tech Data crushed earnings and revenue estimates, noting that the IT market in the Americas is showing signs of stability. TECD is up nearly 10% in the session. Goldman published a bullish report on Chinese solar names and warned that major European manufacturers face intense competition from China due to industry oversupply and China's cost advantages. Shares of Renesola are up around 20% after Goldman singled it out for praise in the report. In other solar news, Chinese solar name STP did fairly well in Q2, beating profit targets, and said Q3 shipments would rise 50% sequentially, although for the year the company said its shipments would fall to 600MW, below its prior estimates. Shares of STP have slipped into negative territory in mid morning trading.
- Another crowd of retail earnings came out yesterday and today. Sears Holding dramatically missed earnings estimates, reporting -$0.17 (ex items) v $0.35e. The firm noted that costs for store closings and hedging losses were a big impediment in the quarter. Limited Brands beat expectations and raised its 2009 guidance. Ross Stores met expectations and increased its full-year outlook somewhat. Sears is down more than 10%, ROST is struggling to sustain modest gains while LTD has given up 2% gains and moved into negative territory. Consumer staples names Heinz and Hormel both beat earnings expectations and offered strong guidance for the full year, sending shares of both companies up 2% in early trading.
- Currency trading in the USD has continued following in the wake of the equity action in the New York. Some risk aversion surfaced following the higher initial and continuing US jobless claims data, as the numbers reflected cautious comments about the global economic recovery. S&P noted earlier today that a sluggish US economy would hinder a rebound in the Asian region. The Q2 mortgage delinquencies data also supported risk aversion with another month of rising prime mortgage delinquencies and mortgages in foreclosure. EUR/USD is around 1.4225 in mid-NY morning trading while the USD/JPY is moving back above the 94 handle.
- More steep losses on the Shanghai Composite sparked softness in European trading and hit US equities before the bell this morning (note that the Shangahai Composite is now almost 20% off its early August highs). The leading US indices opened a bit below yesterday's opening levels, although they have retested yesterday's highs within the first hour of trading. Some commentators singled out Warren Buffet's op-ed piece in the New York Times for adding to the overall risk aversion in global markets, as the Sage of Omaha wrote that "...unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress." Yale Economist Robert Shiller was also out with his own predictions, telling CNBC that house prices would likely increase a sluggish 4% over next 5 years, but he is unable to rule out the possibility of another housing bubble. Crude, gas, copper and aluminum were down significantly heading into the New York session, although the front-month NYMEX contract is rebounding with strength following the unexpectedly large draw downs in stocks seen in weekly DoE inventory data. Bond prices opened up on a flight to safety bid but as stock prices have recovered Treasuries have given back some gains.
- Chinese metals traded limit down overnight, driving follow-on weakness in US mining and metal names. Steel, aluminum and copper names are all under pressure in early trading. Goldman Sachs Cuts AA to Neutral from Buy, insisting that increased supply will slow gains in aluminum market prices. AA is down 4% on the news.
- In earnings, HP was largely in line with the Street in its Q3 results and forward-looking guidance. HP's CEO said that business is stabilizing and expressed his confidence that the company will be an early beneficiary of an economic turnaround. Nevertheless, he also said HP is not ready to say business conditions have turned the corner. John Deere outperformed on top- and bottom-lines in Q3, although the company also offered plenty of cautious guidance on its business for the final quarter of its FY, noting that Q4 equipment sales would still be -34% y/y, thanks to significant production cutbacks that are being made to match retail demand. BJ's was a bit ahead of the Street and raised its full-year outlook by a hair. Executives said they saw positive membership trends in Q2, with renewals still tracking slightly ahead of plans. Shares of HPQ are down 2% and DE are down 4%. Shares of BJ spiked up nearly 4% after the open, before settling down to a modest +1%.
- Currency trading in the New York session initially looked ready to extend the risk aversion led by the yen as its advanced against the USD and European and commodity pairs. Early on USD/JPY moved below the 94 handle to make one-month lows while EUR/JPY approached the 132.10. However, a degree of calm returned with the US equity open, along with some retracement of the late Asian and European price action, with earnings from Deere driving away the initial sting. EUR/USD managed to cover from its earlier losses and hit fresh session highs of 1.4180 prior to the DOE crude inventory report. Note that the IFO's Nerb commented that most German companies could handle a euro exchange rate at 1.40, but any level above 1.50 could be a "big problem."
- The Swiss Franc was also on the radar of dealing desks. The U.S. government reached an final settlement of its tax tussle with UBS this morning and there was vague chatter of a central bank selling the EUR/CHF, along with speculation the Swiss government might start selling off its CHF 6B stake in UBS as the lockup period of its investment expired a while back. Dealers said the 1.5130 area in the EUR/CHF cross could be a critical sentiment level as it reflected both 30-week and 200-day moving averages.
- US indices are in positive territory this morning on a few decent earnings from the retail sector and a sense of relief that yesterday's weakness seems to have abated. The data picture is mixed: the July housing starts registered its fifth consecutive month of growth, although the total figure fell short of expectations, while July PPI inflation data remains in negative territory. PIMCO's El-Erian reiterated once again that the equity rally had "hit a wall" and insisted that valuations were ahead of fundamentals. Front-month NYMEX crude has gained somewhat in mid morning trade but remains below $68. Bond prices remain right near the unchanged mark with the benchmark yield remaining below 3.55. Trading across all markets is in generally lackluster with more typical summertime volumes.
- CIT reported a $1.68B loss in its Q2, missing analysts expectations by wide margins, and again warned it might have to file for bankruptcy protection if it fails to restructure its business. Just last month, CIT was bailed out with a $3B loan from some of its largest bondholders as it faced a cash crunch. CIT does not expect to return to profitability during 2009. Nevertheless, shares of CIT were up as much as 9% right after the bell, and are still up % in mid morning trading. BBT's CEO appeared on CNBC this morning to discuss his bank's takeover of Colonial Bank, noting that the deal with the FDIC should limit potential losses to a maximum of $500M.
- Home Depot has trounced rival Lowe's in quarterly earnings out this morning. Home Depot beat earnings expectations (ex items) and came in even with revenue targets, and improved its full-year forecast. Executives said concerns remain over housing, but that the company had its best gain in market share in the last five years in the quarter and saw improving comps in troubled markets in California and Florida. Shares of HD are up 3%, while LOW is sustaining losses suffered yesterday post-earnings. Department store Target also beat bottom-line expectations and met top-line targets, while apparel name TJX was a bit ahead of earnings estimates and in line on revenue. Saks reported a quarterly loss that was half the expected amount and insisted that its business is on the rebound. Shares of TGT and SKS are up about 5% or so on the day, while TJX is down 4%.
- Currency trading during the New York session has been quiet in terms of volatility so far, with price moves in the dollar continuing to reflect equity moves. Note that cautionary comments from German ZEW officials seem to have capped the rally in European equity markets. IMF Chief Economist Blanchard also reiterated caution towards all the optimism, saying that the economic recovery has begun but the potential for economic output is lower than it was before the crisis began. EUR/USD was drifting backs towards its key hourly pivot level of 1.4050 (near Monday's lows, on chatter of Asian sovereign bids). Some chatter was also circulating regarding option-related flows picking up, with 1.38 and 1.35 strikes going through with October expirations in the pair.
- Swiss National Bank Chief Jordan commented that the economic recovery in Switzerland would arrive later given its recession has lagged the ones in other countries. He also said that markets have understood the SNB's currency intervention policies, and also confirmed that the bank is content with the recent 1.50-1.53 range in the franc and would not accept appreciation against the euro.
- US equity markets are extending a correction begun in Friday's session, with the leading US indices down 2% or so in the early going, USD and JPY strong, and front-month crude below $66 for the first time this month, while natural gas is testing seven-year lows. Note that after closing just above 1,000 on Friday, the S&P500 opened below 990 and remains below the key level of 1,000.. Government bonds on both sides of the Atlantic are seeing risk aversion bids after Chinese stock markets slid nearly 6% overnight. The US 10-year yield is back below 3.5%. nvestors are disregarding the August Empire Manufacturing survey, which showed a striking uptick in factory orders in the Northeast and turned positive for the first time since April 2008. There was some verbal support for the ongoing equity rally, with the CEO of NYSE Euronext saying he is more confident in US stock market rally than he was in April. Goldman Sachs' Abby Cohen reiterated her cheerleading, saying that she expects US GDP growth of up to 3% in coming quarters.
- Hedge funds disclosed quarterly holdings on Friday after the close, prompting a few notable moves this morning. Lone Pine Capital cashed out of its 31M stake in Las Vegas Sands, with the name off 9% from the news. Pershing Square flushed stakes in Wendy's, Yum and Visa - shares of WEN initially reacted very negatively to the news, dropping nearly 5% just after the open, although they have recovered somewhat. Becton, Dickinson is up a few percent after Berkshire Hathaway disclosed a new 1.2M share position in the medical technology company. Berkshire cut takes in health insurance names Wellpoint and UnitedHealth. Bill Miller's Legg Mason Capital Management raised its stake in Bank of America but reduced stakes in other financials.
- In other equity news, managed care names are up four or five percent on news out over the weekend that the Obama administration is backing away from a public option as part of the US healthcare reform. Lowe's quarterly report was full of doom and gloom. The home improvement name missed top- and bottom-line estimates, and also guided below par for the coming quarter as well as the full year. Executives warned that consumers remain reluctant to take on discretionary projects until signs of economic improvement are more evident. Shares of LOW are down 10%, and rival Home Depot is down 5% in sympathy (HD reports tomorrow morning). Major credit card issuers disclosed July master trust data, with net charge offs seen declining slightly or holding more or less steady across the board.
- In currencies, the greenback consolidated its overnight gains as the New York morning progressed. Less was heard of the risk aversion song following Empire manufacturing data, although the retracement has been limited as both the USD and JPY have maintained their strength against the major European and commodity-related currencies. The continued weakness in Chinese equities and the fifth largest US bank failure have been cited for the fresh spat of risk aversion. The Fed extended its TALF program but said they did not expect to add any further types of collateral eligible for the facility. The June TIC flow data showed that China dumped just over $25.1B in Treasuries, while other foreign buyers picked up $90.7B in net US long term assets.
- Stock sentiment was clearly weak at the NY open after the July CPI declined at the fastest pace on a year over year basis since 1949. The mood was only dampened by a miss in the University of Michigan's preliminary August confidence data. After July's strong reading of 66 analysts were projecting another leg up in August to 69, but discomfort over the state of the economy relative to the move up in stocks only worsened. Equity rally skeptic Mohammad El Erian told CNBC he believes much of stimulus impact has already been figured into the economy. Other more positive news has been overlooked, with investors disregarding the first positive industrial production reading since last fall and bellwether Genesee & Wyoming's strong carloads data. Treasury prices continue to rally sending the benchmark 10-year yield back to 3.5%. Commodity prices are under some pressure led by declines in oil. A strong Greenback and soft stock market has pushed September crude back below $69 and copper 2.5% off multi-month highs made just yesterday.
- Quarterly reports from mid- to high-end retailers continue to be mixed. Mid-range department store name JC Penney had its worst results in memory, but managed to squeak in just above expectations at breakeven. Revenue was in line with expectations. Guidance for next quarter was much lower than the consensus, although the company raised its full-year forecast considerably. JCP's CEO added color on the conference call, noting that pent-up demand is aiding back-to-school season. High-end apparel names Nordstrom and Elizabeth Arden offered solidly in-line results; JWN raised its full-year guidance and RDEN's initial FY10 EPS outlook was well below expectations. Abercrombie & Fitch's loss was more than four times the expected figure, while comps were down 30% in the quarter. Executives reiterated their commitment to not cutting prices on the conference call. Shares of long-suffering ANF actually gained 5% in early trading and remain in positive territory post-U of Michigan. JCP, JWN and RDEN are all in negative territory, with JCP down nearly 5%.
- In currencies, the yen has managed to cling to its upward momentum from the past few sessions. As noted in the European update, yen strength is being fueled by press reports out of Japan that the major Japanese exporters have lowered internal budget rates for USD/JPY from 95.00 down toward the 90 and 91 handles. This seemed to complement growing speculation that a new Japanese government run by the current opposition might accept the stronger yen seen in recent sessions after its likely victory in the country's August 30th national elections. EUR/USD is floating along above the 1.4300 area despite chatter of recent buying from Middle Eastern names, reportedly on behalf of Volkswagen's financial partner to take care of its tie-up with Porsche.
- US equity indices have been pretty whippy since yesterday's FOMC decision, as traders try to decide what to make of the Fed holding steady on rates and asset purchases. Overall stocks are holding onto and in many cases adding to gains, while Treasury yields remain below where there were heading into the announcement suggesting the Fed is doing a decent job corralling market expectations. The flood of debt and equity offerings continues apace, leaving investors and prognosticators alike to wonder whether the rush to raise capital indicates a temporary top or a healthy indicator this rally has legs. Initial jobless claims came in slightly higher than estimates and above last week's figure, reminding everyone once again that the jobs picture is far from clear. Last night RealtyTrac reported that US foreclosures in July were up 7% m/m (and 32% y/y), for a new record high in the company's monthly foreclosures data. To top off a dreadful data morning, the July advanced retail sales numbers declined unexpectedly, underling the continuing threats to consumer spending and the overall recovery from the toxic combo of rising unemployment, declining home prices and tight credit. The front-month NYMEX contract shot up above $72 on European GDP strength, but has traded off somewhat on equity declines in the US.
- Bond prices are higher this morning as investors become more comfortable that Fed will remain on hold in terms of raising rates for the foreseeable future regardless of volatility in the economic data. The long bond yield is just below 4.5% ahead of this afternoon's auctions results while the benchmark rate at 4.66% is some 7 basis points below where yesterday's auction went off.
- Hedge fund manager John Paulson (who won big betting against subprime last year) bought 168M shares (for a 1.9% stake) of Bank of America, making him the fourth-largest holder in the bank. Paulson also added 2M shares in Goldman Sachs, as well as new positions in Capital One, Regions Financial, State Street, M&I and Suntrust Bank. BoA jumped 5% in the premarket on the news, while other tier-one financials rose modestly on the news as well. Regions Financial was up 7% in the premarket on the news, Suntrust is up 5% in early trading and other regionals have gained one or two percent. Elsewhere in the financials, CIT is up nearly 15% after adopting a rights plan to protect its substantial tax assets.
- In earnings, Walmart came in slightly ahead of earnings estimates and a bit below revenue targets, but same-store sales notably turned negative for the quarter, declining significantly from last quarter and turning negative for the first time in years. Mid-market department store chain Kohl's reported in line and guided a bit below expectations for the coming two quarters and the full year. On the conference call, Kohl's CEO said the company had gained significant market share in 2009. Dr Pepper Snapple blew out profit estimates and raised its full-year forecast. Revenue for the quarter was in line.
- In currencies, the better risk appetite stemming from gains in European markets hit turbulence early in the US session. The price action in most commodities and equities described a parabolic arc, soaring upward in the European morning and plunging back again as US trading got underway, coupled with a modest retracement in the greenback's soft tone. The yen benefited most from the risk aversion, with USD/JPY probing the lower end of its 95 handle. Dealers were talking about big USD sell stops building below the 95.10 area. EUR/JPY and GBP/JPY crosses retreated almost 200 pips from session highs to move back into negative territory. Dealers did note that the JPY was lagging behind the risk appetite theme earlier today, with rumors making the rounds that Japan's DPJ might be willing to tolerate a strong yen if the party took power after the Japanese national elections on August 30. The South African Central Bank unexpectedly cut its interest rate by 50bps to 7.00%. The ZAR weakened against the major pairs in the aftermath of the rate decision. The Danish Central Bank also unexpectedly lowered its key interest rate by 10bps to 1.45%.
- Investors are jumping right back into the pool this morning, sending US equity indices up nearly 2% in early trading ahead of the FOMC decision later this afternoon. The hesitation that drove two days of losses on the major indices has evaporated, thanks to follow-on strength from Europe, a strong quarterly report from Macy's and bullish preliminary earnings from Toll Brothers. Markets aren't blinking at another big batch of secondary equity offerings either, with nearly all of the names selling shares up on the day. Front-month NYMEX crude was up almost $1.50 per contract higher following the monthly EIA report earlier today and has managed to maintain its strength despite yet another big build in crude stocks seen in the weekly DoE inventory report.
- Treasury prices began the day moving higher but have reversed as stock momentum builds. The 10-year note future was up more than to ticks at one point with its yield moving below 3.65%, but prices are now in the red and the yield is back above 3.7%. This afternoon is expected to be extremely eventful with the $23B 10-year auction results due out a little more than an hour before a highly anticipated FOMC statement. It is also worth pointing out that Fed Fund Futures prices looking out into 2010 have pretty much recouped losses seen following Friday's jobs numbers. The March contract was at one time putting a better than 50% chance the Fed hikes the funds rate up to 0.75% by the end of the first Quarter, but that same contract is now not fully pricing in a 25 basis point hike.
- Macy's strong earnings beat estimates and missed on slightly on revenue, with quarterly profits up on robust cost cutting. The retailer nearly doubled its profit forecast for 2009. High-end apparel retailer Liz Claiborne reported its third consecutive quarterly loss, missing top- and bottom-line estimates. The company said it is looking for an additional $100M in cost cuts (on top of the $70M already announced), but said it believes the big declines in same-store sales would moderate in the coming quarters with quarterly results improving as well.
- Homebuilder Toll Brothers reported preliminary Q3 revenue figures this morning, beating the Street by nearly $100M. Toll's CEO pointed to the increase in the number of net contracts signed this quarter as a reason for optimism. "This marked the first time in 16 quarters - dating back to Q4 of FY05 - that our net contracts exceeded the prior year's same quarter. It also marked the first quarterly sequential unit increase in our backlog in more than three years," he said.
- Food name Sarah Lee beat estimates (before impairment charges), while revenue fell short of expectations due to big declines overseas. Heinz boosted its forecast for 2010, offering guidance that was much better than the consensus view, but warned of "unprecedented currency volatility" in the coming FY. Note that Nestle, the world's biggest food company, pared its FY09 outlook after missing forecasts this morning.
- In tech, Applied Materials seems to have staunched the bleeding, with Q3 results at break-even, well ahead of analysts' expectations for an $0.08 loss. Revenue was much better than expected. Solar names JA Solar and Rensola both reported quarterly losses. JA Solar's loss was three times the expected amount. Rensola met consensus EPS estimates, but missed on the top line. JA Solar's CEO said the company is seeing significant signs of market improvement in both end-market demand and financing.
- In currencies, follow-on risk aversion from the Shanghai stock sell-off and the European open seems to evaporated as equity indices in both Europe and the US rack up gains (with fresh lows in USD and JPY). EUR/USD was testing above the 1.42 handle after electing some minor sell-stops below the 1.41 level just a few hours ago. USD/JPY was back above the 96 level after probing 95.10. In Scandinavia, the Norwegian Central Bank surprised the market with hawkish rhetoric. The bank left its deposit rate unchanged at 1.25% (as expected) but acknowledged that it might be appropriate to start raising interest rate earlier than previously indicated. NOK rallied against the euro and dollar pairs as market participants seemed to be short on NOK. EUR/NOK was testing the 8.6770 level, down from the 8.81 level ahead of the comments.
- US equity indices are making fresh lows in late NY morning trade as investors position themselves ahead of Wednesday's FOMC decision. The non-farm productivity and unit labor costs readings are only adding weight to equities, as they paint an unsettled picture for those looking for a solid rebound in employment: unit labor costs saw their biggest sequential decline since early 2000 while productivity made its largest gain since 2003. Energy and metals are seeing gains from the European session erode, with front-month NYMEX crude off over $1.50 and ready to dip below $69, while copper is down over 8 cents from its electronic session highs of around 2.81 to test 274. Treasury prices remain bid up on the back of lower stock prices globally despite some trepidation around today's Fed coupon pass and tomorrow's FOMC statement. The 10-year yield is back below 3.7% while the 2-year is sub 1.2% ahead of this afternoon's 3-year auction results.
- A broad selection of financial names are in the red this morning. Before the open Rochdale's Dick Bove recommended taking short term profits in bank holding companies, noting that bank stocks are "running on fumes." Adding to weight in the sector were fresh CIT bankruptcy fears stemming from the company's delay of its 10-Q. CIT warned that "going concern" issues remain and reiterated it still expects to report a net loss of more than $1.5B. Citigroup published its Q2 TARP report, crowing that it approved $6B in new TARP-supported initiatives in the second quarter. A Citigroup analyst commented on Bank of America, noting that BoA has a "clear intention" to "partially repay" TARP "before the end of 2009." The analyst also said that credit quality trends at BAC seen in 2Q are carrying through into 3Q, clearing the way for TARP repayment.
- In earnings, engineering firm Fluor modestly exceeded consensus EPS estimates and missed revenue targets by 10% or so. Shares of FLR are down in the mid single digits. Watchmaker Fossil beat bottom-line estimates while falling short on revenue. The firm guided lower for next quarter, although it said revenue and earnings should really pick up in Q4. Shares of FOSL are down 12% and heading lower. Force Protection is really blowing up in early trading, with shares down 18% after barely eking out a profit in the quarter. The company was hurt by manufacturing costs related to lower vehicle shipments. In other news, GM was bragging about the Volt's fuel efficiency this morning, claiming it would get 250 mpg in city driving. A closer look at the figures shows that this would be for the first 50 miles (40 on the battery alone, 10 on the gas generator), while longer driving on the gas generator would make for efficiency of 50-100 mpg.
- Numerous firms have filed to launch secondary offerings over the last 24 hours and most of them are deep in the red this morning. Bunge is down 6% after filing to offer 10M shares to repay debt. Boardwalk Partners is selling 7M shares to fund its expansion plans; shares of BWP are down 4%. Small cap names SPH and PSB are down around 8% after launching offerings. Pharma name Chelsea Therapeutics was initially up 4% after filing a mixed shelf that was equal to 40% of its market cap, while its shares have fallen to -6% in early trading. PETD is down 20% after filing to sell shares equal to around 25% of its float.
- In currencies, risk aversion slowly gathered momentum as the New York session wore on, with the yen leading the charge. Dealers say the yen's firm tone gathered momentum after word went around that CIT would delay its Q2 report amid rumors of bankruptcy. Note that there are numerous USD/JPY sell stops lurking below the 95.80 level. EUR/USD slowly gave away its European highs to probe 1.4110, where alleged sovereign bids from Asian and Middle Eastern names were lurking. There was also plenty of dealer chatter of massive euro sell-stop orders building below 1.4100, which corresponds with a late April uptrend line for the pair and could set the tone for a test toward 1.39. CAD and AUD maintained a softer tone on weaker energy and metal prices, with USD/CAD over the 1.10 handle and AUD/USD moving below 0.84. July Canadian housing starts came in below expectations to add to bearish Cad momentum.
- US Equity markets are digesting Friday's payrolls induced gains quite well, as stocks are slowly working up from opening losses to post marginal declines. With no data on the docket lingering Q2 earnings results are the main focus. Treasury prices are getting back a small portion of last week's declines but yields are consolidating at higher levels. The 10-year remains above 3.8% while the long bond has dipped back below 4.6%. Fed fund futures are recovering as well with the March contract now pricing in less than a 30% chance of a 0.75% fed funds rate in Q1 2010. Those odds had spiked to above 50% post the payroll data on Friday. Energy prices are posting modest gains and remain near early session highs while Gold has moved back below $950 as the Dollar continues to find some traction.
- Foodservice giant Sysco came in broadly in line with the Street in earnings this morning, with the company apparently dealing well with the broad downturn in consumer spending at restaurants. McDonalds reported July global comps at +4.3%, its weakest monthly showing since its +1.4% February comp. The company noted that its Asia sales were impacted by declines in China without elaborating on the point any further. Unemployment may have been down a hair on Friday but Spam is still a great way to beat the recession: Hormel Foods raised its full-year forecast thanks to stronger than expected results in the third quarter. HRL is up 7% on the guidance call, MCD is up 2% and Sysco is unchanged.
- In tech news, Microsoft officially announced the sale of its Razorfish online advertising unit to French ad giant Publicis for $530M. The move has been widely discussed over the last week, and seems to be a natural outcome of Redmond's shiny new pact with Yahoo. Dish Network faced a rough Q2, missing profit forecasts in a big way, although revenue met analysts' expectations and the company pulled of a stunning turnaround in subscriber additions. Investors seem to like the latter two points, sending shares of DISH up 10% in early trading. Priceline.com beat its Q2 top- and bottom-line estimates and guided higher than expected for next quarter. On the conference call executives said leisure travel demand was stronger than expected in the quarter, driven by lower prices.
- As noted during the European session, the overall theme in currency trading comes down to markets trying to determine whether the dollar is really decoupling from rising risk appetite. Markets continue to pick apart Friday's US employment reports as they await the results from the FOMC's policy meeting due Wednesday afternoon. The greenback for much of the morning grinded higher against its European pairs, with EUR/USD holding above the 1.4150 level - speculation there are plenty of euro sell stop lurking below this point. For the moment dealers are saying Middle Eastern names are buyers of euro ahead of this level. Just after 11AM ET Euro broke below that level electing some the purported sell stops down trading down to 1.4128. The dollar is also shrugging off news that would have typically damaged sentiment, as the US Treasury projected that the current debt limit could be reached as early mid-October, citing a letter Secretary Geithner recently sent to lawmakers. Geithner wants Congress to increase the current $12.1T debt limit over the next two months, although the letter did not request a specific increase.
- One story and one story only is dominating markets this morning: the better-than-expected July employment data. Equity futures jumped after the July payroll reading and the leading indices are sustaining gains in early trading. Commentators and talking heads are dissecting the data ad nauseam; the question now is whether today's numbers are a sign of lasting economic improvement or just another false dawn. Note that in a speech yesterday evening President Obama said the payroll losses for July had been cut in half, while a Goldman Sachs economist sent around a note predicting a 250K loss - in fact neither were far off the mark of -247K (prompting all sorts of conspiracy theories). July nonfarm payrolls showed their first improvement since April 2008, and fell by fewer than 300K for the first time since last August, while the decline in manufacturing payrolls was half the expected amount. The annualized unemployment rate fell to 9.4% in July from 9.5% in June, marking its first drop since April 2008.
- Even with Obama telegraphing the jobs numbers, Treasury prices still moved sharply lower post data. Yields have moved higher across the curve and are holding most of the knee jerk gains. The long bond is holding around 4.6% and the 10-year is consolidating at 3.85%. Short term yields moved up as well sending the 2-year above 1.3% for the first time since the better than expected May jobs report jolted markets. Similar to a previous spike move seen in Fed fund futures, expectations of a more aggressive Fed next year are rising. The March 2010 fed fund future now prices in better than a 50% chance the Fed hikes rates as much as 50 basis points early next year. Bernanke and crew have been pretty stern that rates are likely to remain low so markets will be watching closely to see if this hawkish sentiment holds or quickly dissolves as it did back in June.
- In other news, AIG reported its first profit in six quarters, beating estimates by a wide margin. Revenue was $10B higher than the year-ago figure. Results from the firm's various operating units showed marked improvement, with double the operating income in general insurance and operating losses in financial services cut by a factor of ten. AIG's CEO said the primary drivers of the results were reductions in net realized capital losses, primarily due to the decline in other than temporary impairments, and insisted the company's business has stabilized. Share of AIG had risen by more than one third over the last two trading session on anticipation of the results; the name was up nearly 20% this morning before dropping to +10%.
- In currencies, the payrolls data put fundamentals back in the saddle, although commentators warned that the unhappy marriage of aversion & risk appetite will doubtlessly get back to work sometime soon. Initially the USD and JPY were softer against the major European and commodity-related pairs as risk appetite rose following US payroll report that the worst of the recession has passed. EUR/USD retested its historical pivot point of 1.4430 before the dollar rallied aided by interest rate sentiment. The jobs numbers has put some upward pressure on rates, with the March Fed Fund Futures coming in around six basis points and now pricing in a 50% chance the Fed raises rates 50 bps early next year. Dealers are noting that the USD rally stemmed from the Euro Dollar futures pit, with the March 2010 contract registering a massive 14 bps range. The yen exhibited weakness across the board and was probing a key technical point against the USD at the 96.70 area. Dealers are saying the break of the one-year down trend line could help the USD/JPY re-establish itself above the historical pivot point of the 95 level, which would likely suit the goals of Japan's MoF and the BoJ.
- US equity indices are mimicking yesterday's session, dropping sharply from the open in the first hour and then slowly marching back towards the unchanged mark. With yet another dismal month of same-store sales, mixed quarterly reports and a mildly better-than-expected weekly claims report, no clear theme is driving trading, although volumes much higher than usual. The FTC published new rules for oil trading today, threatening fines of up to $1M a day against violators who offer misleading reports in an attempt to manipulate markets. Front-month NYMEX crude is down more than a buck to trade just below $71 and natural gas prices moving back below $4 after a larger than expected build in stockpiles. Bond prices are marginally higher after opening lower with extra attention being paid to Europe after the BOE extending and expanded their quantitative easing program. The 10-year yield is just below 3.75% nearly matching that of the 10-year GILT.
- AIG has absolutely astonished markets over the last 24 hours, doubling in value on little news besides the recent choice of a new CEO and earnings scheduled for Friday morning. Yesterday the stock jumped to $22 from $14; the name shot up again before the open today, to top $28. AIG's rise has pulled the major US financial names along with it, with tier-one banks making robust gains yesterday and this morning. In other financial sector news, Prudential repeated the very strong earnings performance from Q1 in Q2, beating estimates and raising its 2009 forecast. Allstate, which has been hit harder than many insurers by losses on mortgage-related securities, missed earnings estimates by half but beat revenue targets. Both ALL and PRU are underperforming.
- Cisco offered solid results that were more or less in line with the Street. The company's CEO has been verbose, on both the company's conference call and in the media, noting that Cisco's Q4 was a tipping point and the firm's business is looking to improve moving forward. Consumer-oriented names Sirius XM, DIRECTV and Metro PCS offered lackluster quarterly results, with SIRI's loss in line with expectations and PCS's earnings half the expected amount. Customer churn was up at all three companies, while SIRI and PCS managed to significantly boost their net customer additions. DTV is around even, SIRI is down 6% and PCS has fallen 25% in early trading.
- Restaurant names Wendy's and Brinker both missed earnings and revenue expectations. Investors are dumping EAT, which is down 12%, while WEN still appears appetizing to some. Casual dining name DRI is down 4% on the Brinker news. Media firms Thompson Reuters and News Corp offered decent quarterly results. Warner Music Group's loss was much bigger than expected, with FX having a significant impact on earnings. Murphy Oil stomped top- and bottom-line estimates, although MUR is down 4% on the day.
- No real signs of economic improvement are coming from the July same-store sales data, although some moderation is seen in the y/y declines at certain companies. Comps at broadlines BJ's, Costco and Target all declined more than expected. After improving somewhat in June, high end department stores Macy's and Saks swung back to bigger than expected declines; Kohl's was the only department store name to show y/y growth (beating estimates). Apparel companies were as dismal as ever, although comps from The Limited and Zumiez were notably better than expected (but still down sharply y/y). Apparel segment darling Aeropostale missed SSS estimates, although it is among the few clothing retailers to show growth. TJX was a rare bright spot, with sales growth beating expectations.
- In currencies, the greenback gained mid morning in the New York session after the FTC announced new rules for oil trading. Also note that softer equity price action has also been a contributing factor. The ECB left its key interest rate unchanged at 1.00% this morning, as expected. During the press conference, ECB Chief Trichet addressed the economic, inflation and aspects of the decision. JPY-related currency pairs reacted the most to his talk, as dealers noted that Trichet's overall tone on the economy sounded quite optimistic. However, EUR/USD's inability to sustain any move above the 1.44 area contributed to a mild bout of profit-taking ahead of the US payroll report on Friday. The soft tone in August crude gave the hunt for euro sell stops momentum, trailing the recent trend. The BoE surprised the market by increasing its quantitative easing program, and GBP/USD made fresh post-lows of 1.6790, down from over the 1.7000 area just ahead of the increase of QE bond purchases program. Commodity currencies were softer on lower energy prices, with USD/CAD up 50 pips at 1.0750 area and AUD/USD drifting back below the 0.84 level.
- US equity markets are down somewhat this morning after the ISM reading came in lower than expected and selected corporate names missed estimates. The July ISM non-manufacturing data was just shy of expectations and the June ADP job losses were smaller than the consensus view, but this, coupled with nervousness ahead of Friday's payroll readings, has been enough to upset investors. The White House acknowledged that the looming jobs report on Friday would likely show "hundreds of thousands" of jobs lost (the July Nonfarm Payrolls consensus is -328Ke). Note that the June factory orders data showed a third consecutive month of growth, although a smaller move up than was seen in the May data. There were patches of sunshine, with financial names making solid gains thanks to much better than expected results out of leading European banks. Front month crude is down a hair, trading just below $71.
- US Treasury prices were losing ground once again ahead of the equity open in NY. Prices reversed course after the ADP jobs data as equity markets headed South. The 10-year note future has rallied more than half a point from lows and the yield is back below 3.65%. The 2-year yield has declined by 10 basis points from its highs to trade back at 1.15%.
- Consumer staples names are not helping markets this morning. Dow component Proctor & Gamble missed revenue estimates by a significant amount, spooking investors, although bottom line profit met expectations. Proctor's CFO expects more contraction in consumer discretionary markets and warned that FX would continue to be a problem this year. Kraft also missed on the top line, while earnings were slightly better than expected. The company said it would concentrate even more on cutting costs and increase promotion spending. Dean Foods missed on revenue too, and offered tepid guidance for next quarter and the full year. Shares of PG are down 3%, KFT is down 2% and DF is down a whopping 8%.
- Cult tech stocks Garmin and Coinstar both crushed earnings expectations, sending both names much higher in early trading. Note that Garmin's gross margin was significantly higher sequentially in the quarter. GRMN is up more than 20%, while CSTR is off its best levels around +5%. Video game giant Electronic Arts cut its losses more than expected but still didn't manage to break even. On the conference call, ERTS's CEO noted the game industry is "weaker than originally expected," and that the company remains cautious on the macro environment.
- In other earnings, bond insurer Radian Group astonished with a very large quarterly gain (versus expectations of a sizable loss), sending its shares up 50% and competitors ABK, PMI and MTG up 10-20% a piece in sympathy. Agrium destroyed earnings and revenue targets. The CEO said Agrium is seeing signs of improving demand fundamentals as fall approaches and continues to anticipate a recovery in potash demand later in the second half of 2009. Shares of AGU rose to as much as +4% in early trading, lifting POT and MOS along with it, before it lost altitude with sinking equity indices.
- In currencies, USD and JPY pairs benefited from a combination of profit taking and risk aversion in the New York session on the ISM data and ahead of Friday's big employment data. The greenback did manage to shrug off the Treasury's record $75B quarterly refunding package. The Treasury said it would work with Congress to ensure the national debt limit was raised in a timely fashion and insisted it was not concerned about demand. EUR/USD again retesting its trend high, testing around 1.4440 before retreating well below the 1.44 handle. GBP/USD posted 9½ month highs earlier in the European session at 1.7043, although in New York trading it fell around 80 pips. USD/JPY continues to muddle around the 95 level, although it managed to recover from session lows against its European counterparts. GBP/JPY tested 162.45, although earlier it was probing below the 161.00 level; EUR/JPY drifted over 100 pips from its session highs of 137.60.
- US equity indices opened slightly below yesterday's closing levels in the wake of the June personal income reading, which indicated the largest decline in the series since August, 2005. But equity markets picked up following the better-than-expected US pending home sales (which has registered positive gains in each of the last five months), sending indices back to around even by mid morning. Front-month NYMEX crude is largely unchanged, trading above $71. Bond prices began the session in positive territory moving inversely once again to the pre-market weakness in stocks, but prices have reversed sending yields higher after the home sales figure. The 10-year yield has pushed back towards 3.7%. Commodity prices trimmed early losses helped by the Dollar paring early gains. Crude is fractionally lower near $71.50.
- At an analyst day event Caterpillar offered a long-term view of its future performance. It reaffirmed its FY09 outlook after tweaking the forecast two weeks ago in its second-quarter earnings report. It insisted that 2010 earnings would be better than 2009, even if the recession continues, and discussed its earnings potential out to 2012 as well. Executives also said the company's strategy in this period would be to maintain the dividend. Other major earnings included CVS, whose second quarter results and full-year outlook were in line with expectations. CVS missed analysts' expectations for next quarter in guidance, however. Ag giant Archer-Daniels-Midland missed earnings targets by a huge margin on collapse in demand for ethanol and sluggish demand in other businesses. On the conference call, executives reiterated their positive long-term view on ethanol.
- PepsiCo has achieved a breakthrough in its quest to take over its independent bottlers, Pepsi Bottling Company and Pepsi Americas. Pepsi launched its offer for the firms back in late May, and the two bottling companies have repeatedly turned down its offers as too small. This morning PBG accepted a deal at $36.50/shr in cash (or a prorated stock/cash combo), up from the original $29.50/shr offer; PAS accepted $28.50/shr (or the prorated stock/cash combo), up from $23.27. The aggregate value of the two deals stands at $7.8B, and will lead to the creation of one of the largest global food and beverage companies.
- Homebuilders DH Horton and Pulte Homes both registered quarterly losses that were larger than expected. However, revenue totals at both firms beat expectations and key metrics including closings, orders and backlogs showed sequential improvement. Note that these positive notes come hand in hand with this morning's m/m pending home sales improvement, as well as positive housing data from last week. Pulte's CEO said the company is seeing signs of stability emerging in Q2.
- In other earnings, manufacturer Emerson Electric offered largely in line results. Anadarko's quarterly loss was smaller than expected. Managed care name Healthspring beat EPS expectations, competitor Health Net missed by a hair, and healthcare product distributor Henry Schein was in line with the Street. GMAC said its Q2 loss would be nearly one third larger than last quarter's results, stating that the quarter was adversely affected by the overall turmoil in the industry and specifically by GM's bankruptcy process. Auto parts manufacturers ArvinMeritor and TRW Automotive both did better than expected, with TRW back in the black ahead of selected items. TRW's guidance for the coming quarter and the full year is well ahead of estimates.
- In currencies, risk appetite was looking hard for fresh energy during the New York morning after a touch of profit taking hit markets during European session. With data showing US personal income declining by 1.3% in June, investors expect consumer spending will take some time to recover, possibly providing an additional catalyst for risk aversion. Dealers noted that the decline partly stemmed from the unwinding of one-time transfer payments from the US stimulus plan. EUR/USD hugged the 1.4400 level through most of the New York session, ahead of the option expiration cut at 10amET. But the better-than-expected US pending home sales helped to calm risk aversion, sending EUR/USD back toward the 1.4430 level and USD/JPY back above 95. Now markets participants are waiting to see whether the US employment data due over the next three sessions will support the stabilization and economic recovery scenario; note that major commodities, equity indices and currencies have touched key psychological levels over the last 24 hours (NYMEX Sept crude is over $70, the S&P 500 is testing the 1,000 handle and GBP/USD is touching the 1.70 mark.
- Follow-through strength from Europe and Asia bid up US futures before the bell while the ISM data helped sustain momentum after the open. At 10:30amET the S&P500 broke above the 1,000 mark at for the first time since November 5th, 2008. The July ISM Manufacturing index was better than expected, while the prices paid and new orders sub indices were both above 55, indicating growth. This is the seventh consecutive gain in the index, although the headline number still remains below the 50 level. The ISM's Ore said that it would be difficult to convince manufacturers the US is on the brink of recovery, "but the data suggests that we will see growth in the third quarter if the trends continue." Yesterday former Fed Chairman Alan Greenspan told ABC's George Stephanopoulos he is "short term optomistic with many caveats," in particular housing and hopes the Fed can hold off on rate hikes for "a couple of years" (but does not believe they have that much time). Front-month NYMEX crude is finding traction above $70 once again while copper has made another high going back to October. Treasury prices are under pressure pushing the 10-year yield back above 3.65% ahead of this afternoon's quarterly refunding announcement.
- In earnings news, MGM's loss in the second quarter was much higher than expected, thanks to impairment charges and big costs for retiring debt. Investors are looking past the results, with shares of MGM spiking up as much as +7% just after the bell and around +3% mid morning. Conglomerate Lowes Corp missed earnings estimates, driven primarily by impairment charges Loews had to take on investments losses at insurance subsidiary CNA Financial. CNA's quarterly earnings exceeded analysts estimates. Shares of CAN are up 10%, while L is up 4% and headed in the right direction. Tyson Foods beat earnings and revenue targets thanks to cost cutting and lower input costs. Shares of TSN were up 4% in the premarket, but have quickly sunk to around -4% early trading. Second-tier energy names Marathon Oil and FirstEnergy are up in the low single digits after offering solid second quarter results and exceeding analysts targets.
- In currencies, the greenback hit fresh 2009 lows against European and commodity-related pairs, with EUR/USD testing the 1.4400 level, USD/CHF probing the 1.0600 and GBP/USD above the 1.69 handle. Continued strength in global equity markets highlighted the ever growing appetite for risk, which is providing a negative backdrop for the USD. Pre-Lehman collapse PMI readings throughout most of Europe have driven stock markets higher this morning. Sterling led the pack as the UK PMI manufacturing moved above the pivotal 50 level for the first time since April 2008. In the US, the ISM survey is only boosting risk appetite.
- Note that the overall tone for the USD is nearing some key chart momentum points, with the 1.06 area being eyed in USD/CHF. The SNB will report its July CPI data in tomorrow's session and intervention chatter could get louder if the pairs is below 1.06 for any prolonged period of time. In addition, the RBA has a rate decision on Tuesday, and could step up its rhetoric over strength of AUD.
- US equity trading has been jumpy and erratic this morning, with investors evidently undecided whether the Q2 GDP reading is a positive or a negative. The Commerce Department released its preliminary view of annualized Q2 GDP at -1%, beating expectations for -1.5%, while the personal consumption component was much lower than expected. Nevertheless, the economy has been in negative territory for four quarters now, its longest stretch in the red since 1947. Commentators have been discussing the figures ad nauseam this morning. The IMF said it sees a gradual economic recovery in the US, but warned that growth will stay lower than past recovery trends and said near-term risks are to the downside. JP Morgan's chief economist raised his Q3 GDP forecast to +3% from +2.5%, but warned that unemployment would remain high for years to come.
- Treasuries opened marginally higher this morning and prices accelerated to the upside after the initial look at Q2 GDP. While the headline figure beat expectations, GDP still contracted in the second quarter at a rate of 1% keeping inflation hawks from crowing too much. Despite these "better" outcomes, traders seem to have picked up on another revision of the Q1 figure to down more than 6% and following the data money came out of stocks and into bonds. The long bond future has gained more than a point, pushing the cash yield below 4.4%, while the 10-year is up more than half a point. As we have seen for much of the week the curve is getting flatter and the benchmark spread is narrowing below 245 bps.
- Chevron and Total were the final two global energy giants to report second quarter results, following reports from Exxon, Shell, BP and Conoco earlier this week. Like Exxon, Chevron missed earnings targets while beating revenue estimates by a significant margin. Profit was down 71% y/y, and its downstream segment operated at a loss for the quarter. Total's quarterly profit was in line with expectations, revenue was much better than expected. Shares of CVX are struggling to keep in positive territory, while shares and ADRs of the other four supermajors are down in low single digits.
- Car retailer AutoNation has been much in the news this morning with all the talk about cash for clunkers. The company's CEO told CNBC that it has seen a 36% surge in traffic following the initiation of the cash for clunkers program. The firm beat expectations in its second-quarter report, but missed revenue targets by 10% or so. Shares of AN are down 3% or so; fellow auto retailer Sonic Automotive is up 3% and Ford is up 6% in early trading
- Energy firm Constellation beat top- and bottom-line expectations and guided higher for the year. On the conference call, the firm's CEO discussed the ongoing tie-up with EDF, noting that the merger does not need to be made "at all costs." The company expects power prices to stay weak in the near term and then bounce back in 2011 and 2012. Utilities Dominion Resources, American Electric Power and PSE&G all beat earnings estimates, while the former two names missed revenue estimates. PSE&G warned the abnormally cool weather conditions this summer would make it hard to achieve its 2009 earnings guidance.
- In currencies, New York trading has centered around the US and Canadian GDP numbers as well as month's end liquidity concerns. The better-than-expected US number was certainly welcome, but the lower benchmark revision for 2008 GDP (+0.4% instead of +1.1% as previously reported) curbed risk appetite just a bit. Dealers cited the narrower trade deficit and a surge in government spending as positive factors for GDP. In Europe, ECB sources told the press that the bank does not have a clear outlook for the economy and reiterated there is the possibility of another credit crunch. According to the sources, some in the ECB believe government bond purchases need to be added to the current covered bond program. If the Euro Zone economies weaken further, the bank would discuss further rate cuts. In its report, the IMF said the USD is moderately overvalued. EUR/USD ending the morning at its best level moving above 1.42.
- Equity indices are surging this morning after spending several sessions in the doldrums, with the DJIA up triple digits, Nasdaq above 2000 for first time since last October, and the S&P actually eying 1000. The continuing claims data was 100K below the consensus figure, offering optimists encouragement over employment, following on this week's hopeful housing numbers. Front-month NYMEX crude has recovered nearly all of yesterday's losses to trade above $66 after Goldman Sachs reaffirmed its $85 year-end WTI crude target, calling recent weakness temporary. Goldman forecasted US stabilization and Chinese growth would drive oil higher. Commodities are bid up across the board with gold up 1%, copper higher by 3.5%, grains higher led by a 5% increase in soybean futures. Treasury prices remain lower as sentiment remains fragile ahead of today's 7-year and in the wake of the disappointing 2 and 5-year results. The US benchmark 10-year yield is holding right around 3.7%.
- Behemoth integrated energy firms Exxon and Royal Dutch Shell each reported sharply contrasting results this morning. Like ConocoPhillips, Exxon's revenue beat expectations but was down significantly from 2008 (-66%), while its earnings were well off the consensus view thanks to big quarterly declines in upstream and downstream profits. RDA blew out top- and bottom-line estimates, but said it too is facing a difficult environment in both upstream and downstream segments. RDS also warned that energy demand remains weak, cautioned about excess capacity in the market and complained that industry costs remain high. XOM is down a percent or two in early trading. Earnings from second-tier energy names Tesoro and Apache were better than expected, although Tesoro missed top-line revenue targets, while Apache outperformed on the top line. Both names are up 5% or so in the early going.
- Results from chemical industry leaders Dow and BASF indicate zero recovery for chemicals. BASF's net in Q2 was well below estimates and the firm warned it expects a significant decline in sales and earnings in 2009. Dow's bottom-line earnings were much better than expected while revenues were a big miss. Dow said its 2009 operating plan does not count on material improvements in market conditions for the remainder of the year. Note also that CitiGroup Raised DOW to Buy from Hold.
- Credit card rivals MasterCard and Visa both crushed the Street's earnings expectations, although revenue at both firms was merely in line. Both firms offer more qualitative guidance: Visa reaffirmed that it would achieve its targeted revenue growth in the high single digits in 2009, while MasterCard does not expect to meet its 2009 revenue growth target of 12%. MA's CEO said he does not expect global crisis will improve until some time next year, while a Visa executive said the company is not observing any indications of a sustained turnaround in the US economy.
- Newly-minted DJIA component Travelers was largely in line with expectations, and competitor Hartford Financial Services destroyed consensus estimates but cut its full-year outlook in half. Note that CIT took another step away from bankruptcy this morning, after Barclays extended another $1B in (very expensive) credit to the troubled firm
- Consumer staples names Kellogg and Colgate-Palmolive beat earnings targets and missed on revenue by a hair. On the conference call, a Kellogg executive said cost pressures this year are way down from 2008 levels, aiding results. Motorola managed to turn a (tiny) profit after two quarters in the red, but its guidance for next quarter makes it questionable whether it can earn a profit next quarter. Motorola's CEO sees Q3 mobile device sales flat q/q with unit shipments lower and said the firm has not changed its strategy of splitting off its mobile device business. Wynn Resorts surprised investors with a solid quarterly profit, but warned that its y/y results were not comparable as the quarter included Encore at Wynn Las Vegas, which was not open for Q2 2008.
- In currencies, corporate earnings are sustaining in the New York session the risk appetite that blossomed on Asian and European bourses. Also aiding sentiment was a reiterated pledge from China's central bank to "unswervingly continue applying appropriate, loose monetary policy," complemented by a drop in US continuing claims that only reinforced the sense that recessionary forces are moderating.
- EUR/USD began the NY session in the upper third portion of its session trading range but continued to struggle to pierce the 1.41 level. Mid-morning the IMF commented that the euro was overvalued by 15% versus fundamentals and urged the ECB to maintain low interest rates, insisting that the central bank had scope for more interest rate cuts. The tone of the IMF statements seemed to differ with IMF Chief Strauss-Kahn's recent comments that the USD was not weak and that the market was valuing it correctly. The USD's move into positive territory of 1.4015 was short-lived as equities and oil maintained their firm tone.
- USD/JPY tested the 95.70 area as the market gunned for stops that were lurking above the 95.30 area. Sterling sustained most of its earlier momentum after better UK house price data, which rose for its third straight month. GBP/USD continued to hover around the 1.65 area after opening in Asia at 1.6355. Commodity-related currency pairs were firmer by 100 pips from their opening levels in Asia thanks to Goldman's big call on crude.
- US equity indices are soft again through the first part of today's session, looking much like the previous four days, with a few weak earnings reports putting pressure on trade. PIMCO's El-Erian reiterated his view before the open that the stock market has gotten ahead of reality on underlying growth and earnings. The Commerce Department's June Durable Goods data was mixed, with the index turning negative again after last month's growth and the ex-transport figure sustaining May's slightly positive trend.
- Commodity markets are all under pressure from a resurgent Greenback. Weekly DOE crude inventories swelled an unexpected 5M barrels confirming similar data from API yesterday. August NYMEX crude futures have slid more than 5% headed toward the $63 figure, while spot gold and other metals are also dropping noticeably too. Grain futures are lower across the board as well led by wheat which trades at its lowest level in months.
- Treasury markets are anxiously awaiting this afternoon's $39B 5-year note auction. Though yesterday's 2-year results were strong on a historical basis, traders did pick up on an appreciable decline from the metrics seen in June. Prices are rebounding in today's session helped by the consternation in other asset classes. The long bond yield remains pegged near 4.5% while the benchmark is holding 3.6%. The benchmark spread has narrowed back towards 250 basis points.
- Sprint continues to hemorrhage monthly wireless subscribers, partially driving an unexpectedly large quarterly loss in Q2. The company lost a total of 1M of these post-paid customers over last quarter, a figure the company said was only partially offset by its pre-paid business. The Palm Pre smartphone is also helping; executives said the Pre helped blunt the assault from Apple's iPhone juggernaut. The other big (but not unexpected) tech news was the official confirmation of a Yahoo/Microsoft search deal, with a ten-year term. The announcement has been expected for a week now, and the only really surprising part of the deal was the lack of any cash component, with the arrangement essentially a search-for-advertising swap. Note that electrical components names Arrow and Tyco Electronics both beat earnings expectations and offered strong guidance for next quarter. Tyco's CEO said demand for consumer products is showing signs of improvement and inventory reductions appear to be substantially over.
- Earnings at integrated oil major ConocoPhillips were in line, although its profit was down a shocking 76% on a y/y basis dud to declining revenue margins and revenue was a big miss. Net income from E&P was $725M, about 82% lower than a year ago. Second-tier energy name Hess saw its profit fall even further, down 89% y/y, although it did much better than the Street had expected. Like COP, revenue was well short of expectations.
- Time Warner and Time Warner Cable both had strong quarterly results, with earnings comfortably ahead of the consensus view in the quarter. Both companies also reaffirmed their full-year earnings forecasts. A Time Warner Cable executive warned that the firm has not seen much change in the dismal advertising environment, although a Time Warner, Inc. exec did note that some stability has returned to advertising markets. Online media name IAC Interactive missed bottom-line expectations by a wide margin, but managed to return to profitability after last quarter's loss. Revenue at IACI was better than expected.
- Multiple healthcare names reported results yesterday and today. Benefits manager Medco was in line with expectations across the board; managed care names WellPoint and WellCare beat earnings expectations, and WellCare guided earning well ahead of target for the year; specialty pharmaceutical name Hospira beat top- and bottom-line estimates and guided slightly higher for 2009. Auto rental names Hertz and Penske both crushed earnings estimates. Hertz also raised its full-year forecast. Penske cited cost reduction estimates for its solid quarterly performance.
- In currencies, the dollar and yen have broken from their usual relationship with equity price movements. Overall the late drop in the Chinese equity markets before the New York session made many players wonder whether the July equity rally is sustainable, particularly as the traditional August vacation period commences. The USD was stronger against the major currency pairs as both energy and metals maintained a soft tone in the session. Month-end profit taking appearing to be the overriding sentiment. Germany's July CPI registered its first negative annual reading since reunification back in 1990; ECB officials have expected to experience a brief period of negative inflation in Germany and across the Euro Zone in general. EUR/USD is hovering near session lows of 1.4085 with dealers noting of some Euro sell stops lurking below the 1.4050 area. The 30-day mvg avg currently at 1.4047 level. USD/CAD consolidated under Tuesday's 1.0905 highs, but dealers are noting of some significant USD buy stops building above the 1.0930 area. AUD/USD also consolidated around the 0.8200 area.
- US equities are under a little pressure from dismal earnings out of US Steel, Deutsche Bank and Valero, as well as declining consumer confidence, with all three leading indices in negative territory. Another shot of positive housing data is raising hopes for stabilization in home prices, coming as it does on the heels of yesterday's increase in June new home sales yesterday. The May Case Shiller home price index logged a very small sequential increase, prompting commentators to trumpet that this is the index's first move upward since July 2006. Adding to the froth was a stronger than expected July Richmond Fed Manufacturing number, although the Commerce Department's July Consumer Confidence reading declined m/m and was weaker than expected. Front-month NYMEX crude is plummeting, wiping out three sessions worth of gains in early trading this morning. Gold prices are giving back 1.5% to trade below $940 for the first time in more than a week.
- Treasury prices are rebounding as a renewed bout of risk aversion works it why through US and European markets. The US 10-year note is up half a point in the cash market yielding 3.65%. The 2-year yield is unchanged holding above 1% in terms of yield ahead of this afternoon's $42B auction results.
- US Steel reported its second consecutive quarterly loss this morning, although the shortfall was smaller than analysts had projected. The company missed revenue targets. US Steel's CEO said there are signs destocking has ended in North American and Central European markets, although the firm's outlook remains opaque. Recall that mid-cap US steel names Nucor and Reliance both reported quarterly losses last week. Goldman Sachs is more optimistic about the sector, apparently, and raised the US Steel Industry to a buy from neutral overnight. It also offered a buy call on US Steel itself. US Steel opened down 4% and made a run for breakeven before heading back to the downside. Industry ETF SLX is down 2% in early trading.
- Office Depot's quarterly loss was almost twice the expected amount and the company's quarterly same-store sales were down 18%. Revenue was in line with expectations, however. On the conference call, ODP's CEO said he was "cautiously optimistic" that the economic decline has hit bottom. Retail names Supervalu and Group 1 Automotive both fared better in the quarter than ODP. Supermarket chain SVU reported in line and cut its full-year outlook, warning that it sees no near-term change in consumer spending patterns. Car and auto parts retailer GPI blew out earnings estimates and exceeded expectations in its full-year guidance, saying it believes that the automotive retail market has stabilized. Shares of ODP are down 15%, GPI is down 5% and SVU is up nearly 10%.
- Quarterly reports from Viacom and Interpublic Group shed some light on the media/advertising industry. Media conglomerate Viacom's earnings were in line, while revenue was well short of the consensus view. Domestic ad revenue was -6% and international advertising was -8%; in films, theatrical revenue was -27% and home entertainment was -29%. Advertising giant IPG missed top- and bottom-line targets, but executives struck a positive note on the conference call, saying the worst is behind the industry, which seems to be coming off a bottom.
- Other major earings included integrated oil name Valero, with a slightly smaller than expected loss and better-than-expected revenue. Health insurance firm Coventry Health was much better than Aetna's results yesterday, beating earnings and revenue targets and raising its 2009 forecast. Generic pharma name Teva offered solid results and reaffirmed its full-year guidance, noting that Barr integration is ahead of schedule. Shares of VLO are down 3%, TEVA is up 4% and CVH is up 10%.
- In currencies, the New York session saw the greenback hit the brakes and reverse earlier losses after hitting fresh eight-week lows above 1.4300. Overall dealers were noting that the urge to take profits was creeping into market sentiment after major option barriers were tested during the European morning, including 1.43 in EUR/USD and 1.0770 in USD/CAD. The failure of the USD/JPY cross to hold above its 21-day moving average was cited as a potential range breaker.
- More drama is emerging from the Baltic region, with chatter circulating among dealing desks that Latvia might have devalued its currency despite the recent agreement between it and the IMF for emergency funding. Dealers noted that despite the fact devaluation was not one of the IMF's conditions for the aid, Latvia might decide to devalue the Lat anyhow. The rumor hinged on sharp price movements in the EUR/SEK cross, which rallied 13 big figures from the European open, propelled by a market trying to find the news behind the move. But the overall market was caught massively short on EUR/SEK and USD/SEK as corporate buyers came in. Separately, the IMF noted that needs of emerging markets (ex China) could be in range of $1.3T to $2.0T over the next decade.
- Cuts to full-year guidance at Aetna and Honeywell are apparently trumping the latest improvements in housing data, with all three major equity indices trading in negative territory this morning. The June new home sales logged a strong 11% sequential improvement over May's numbers, although the data also showed median prices continue to decline on both a y/y and m/m basis. Note that the July Dallas Fed manufacturing index was very bearish, at -25% v -11%e. A two-day US-China trade summit opened in Washington, DC, with very general commentary out of President Obama, Treasury Secretary Geithner and senior Chinese officials. Front-month NYMEX crude is more or less unchanged, around $68. Treasury prices continue to head South pushing the US 10-year yield back towards 3.75% ahead of a week stuffed with new supply.
- Dow component Verizon reported quarterly results that were just a hair ahead of the consensus and largely flat business metrics. The company typically does not offer forward-looking guidance, but it did say it is planning 8,000 job cuts in the second half of the year. Shares of VZ are down 2%. Aetna reported its Q2 earnings ahead of its prior schedule this morning. The health insurance giant reported more or less in line with analysts' estimates and also announced steep cuts to its full-year forecast. Aetna said higher-than-projected medical costs have not been fully captured in 2009 pricing and warned that earnings will continue to be adversely affected by a higher commercial medical benefit ratio. Shares of Aetna are down 5% or so in early trading, while shares of the other health insurance majors are making modest gains.
- Like Aetna, Honeywell's Q2 results were in line with expectations while the company shaved the top end off its full-year earnings guidance and cut its revenue forecast significantly. Honeywell's CEO said that economic conditions remain challenging and the company is not planning for any recovery in 2009. Specialty manufacturer Corning beat top- and bottom-line expectations, and managed to raise its gross margin by nearly a third over last quarter. Corning raised its forecast for 2009 by 15% over last year thanks to strong LCD TV sales in the first half of the year. Investors are not impressed, however, and shares of GLW are down nearly 4%. HON opened down 2% and are now around even.
- In currencies, emerging market rumblings helped the USD come off its worst levels in early New York trading. EUR/USD failed to break above the 1.43 handle as chatter of some large USD buy stops building above 1.4300 but "protected" by option barriers that are in play at 1.4300 level. Also contributing to the profit-taking sentiment was the lack of market response to the increase risk appetite following the US new home sales, the biggest gain in eight years. EUR/USD wrapped up the New York morning just above the 1.4210 level. In Eastern Europe, a Latvian parliamentary coalition member has decided to withhold its vote in favor of an emergency funding agreement with the IMF. Lavian press outlook Leta had noted that the IMF might sign LOI with the country as soon as today to keep bailout funds flowing. The Hungarian central bank slashed its key interest rates by 100bps to 8.50%, more than the 50bps expected. Commodity currencies retreated from session highs as profit-taking ensued. USD/CAD failed to elect the slew of USD sell stop orders said to be lurking below the 1.0770 area.
- The Q2 earnings season rally hit a wall this morning, with commentators blaming lackluster results from Microsoft and Amazon for being unable to sustain the upward momentum. The two tech sector giants did not excel in the April-June period, and investors have dumped each, helping to send the Nasdaq down more than 1.5% and weighing down US equities across the board. Note that the final July University of Michigan Confidence Index was one point better than expected, although the reading was a solid 5 points below the final June reading. Front-month NYMEX crude has been trading in a tight range around $67. Treasury prices are rebounding very modestly from yesterday's selloff helped by the selling in stocks. Yields are not giving back much though, with the 10-year staying above 3.65% and the 2-year holding 1%.
- Microsoft missed revenue targets by a non trivial amount and was merely in line with analysts' earnings expectations in its fourth-quarter report last night. Microsoft's CFO said business continues to be negatively impacted by weakness in the global PC and server markets. He said there are signs the worst is over, but warned the balance of the year would remain difficult. Amazon also slipped up on the top line, but by a trivial amount, while earning were uninspiring. Analysts cut both names to neutral from buy overnight and investors are dumping the stocks, with Amazon down 7% and Microsoft down 10%.
- US solar power names SunPower Corp and MEMC outperformed analysts' expectations. SunPower's earnings were nearly twice the anticipated amount while MEMC reported $0.03 (versus expectations for $0.00); revenue at both firms was well ahead of the consensus view. Executives at SunPower said they were confident about the second half of the year, although MEMC's CEO said the solar industry faces limited demand growth and excess inventory. Shares of SPWRA are up 25%, boosting selected solar names as much as 5%, with TAN up 3%. Shares of WFR are down 15%.
- Both American Express and Capital One opened in the red this morning after offering leaden earnings reports after the close yesterday. Charge offs at both companies have kept rising on a sequential basis, although provisions for losses are beginning to creep down at both. AmEx missed revenue targets by a bit, while Capital One beat top-line estimates (and reported a quarterly loss that was slightly smaller than expected). COF opened down 5% but has shot up to +3% in the first hour of trade. AXP has muddled along in the low negative single digits.
- In currencies, attention seemed to focus on the CAD in the New York morning as loonie tested the 1.0800 level after overnight remarks from Canadian Trade Min Day. The minister said that while a rising CAD hurts exports, he was not concerned about the currency and reiterated the BOC view that the Canadian economy is moving closer to positive growth. USD/CAD saw good two-way flows as the pivotal 1.08 level sustained attacks. Dealers said there were a few extremely aggressive directional accounts trying to gun for the alleged USD sell stops lurking below the 1.0770 level. The overall USD trend has been down over the last two weeks, with dealers noting that of some 'cyclical' observations with July 27th cited as an important date for most currencies.
- Unbridled enthusiasm is sending the major US equity indices through the roof this morning, with the DJIA breaking above 9,000 within the first hour of trade. Solid quarterly results from Dow components and a positive housing report from the National Association of Realtors is fueling this morning's rally. The June existing home sales number was in line with expectations, but the m/m growth trend in overall sales and median prices, coupled with a faint decline in inventory are all good news for housing. The NAR also emphasized that the share of distressed properties in sales is "declining measurably," further indicating a trend toward normalization. Front-month NYMEX crude fell below $65 before the opening bell, but has shot up above $66 along with the equity rally. Treasury prices are declining as investors' risk appetite rebounds with every tick higher in stocks. The 10-year yield is back above 3.6% while the long bond is testing 4.5%.
- Dow components McDonalds, 3M and AT&T reported solid second-quarter results this morning. 3M was the standout, soundly beating top- and bottom-line expectations and boosting its forecast for FY09. 3M's CEO said he expects the US economy has bottomed out, although he also warned the company is not seeing any improvement in demand yet. McDonalds and AT&T both modestly exceeded analysts' estimates and reported healthy gains in major business metrics. Economic bellwether UPS reported in line with the Street, but missed a bit on its guidance for next quarter. On the conference call, UPS executives said that while they are seeing economic stabilization, there have been no signs that growth is returning, noting that the Q3 business environment would remain similar to that in Q2.
- Tech names Qualcomm, eBay and EMC all modestly exceeded expectations. Chipmaker Qualcomm's Q4 results were positive, much better than AMD's disastrous quarter but hardly the blowout quarter seen out of Intel. Qualcomm also raised its FY09 revenue outlook. Online retailer eBay also met consensus estimates and guided slightly above par for next quarter. EMC said the Data Domain merger would boost profits in 2010. Sandisk roared back to profitability, crushing estimates for a $0.16 loss and nearly doubling its margins.
- Ford's Q2 results showed that the automaker is firmly on the highway to stability, with executives insisting the firm would "achieve or exceed" its 2009 financial targets. Even Ford Motor Credit managed to turn a proft. After taking account of its debt reductions, the company was in the black to the tune of $2.3B, although its manufacturing operations are not profitable yet.
- Mid-cap steel makers Nucor and Reliance Steel did not have a good second quarter. Reliance racked up an unexpected quarterly loss and fell $200M short on the top line, making for the company's first net loss since becoming a public company in 1994. Nucor's loss was slightly smaller than expected. Nucor executives are concerned that the marginal uptick in orders is not representative of an increase in "real" demand but more a result of both inventory adjustments and concern over rising prices. Reliance's CEO said he believes the worst is over but still does not anticipate any meaningful improvement in demand for the balance of the year.
- In other earnings, tobacco names Phillip Morris and Reynolds American both beat earnings expectations and raised their FY09 forecasts modestly. Fertilizer company Mosaic was solidly in line with the Street, while competitor Potash Corp. slipped a bit. Mosaic said customer confidence is returning, pipeline inventories have been drawn down and soil nutrients need to be replenished, pointing to recovering crop nutrient markets in 2010. Potash cut its 2009 forecast and limited its qualitative comments to the standard line that buyers have been extremely cautious thanks to the crisis.
- In currency trading, the dollar maintained a soft footing early in the New York session as price action followed in the wake of US earnings. In addition, the euro's inability to take out the recent high of 1.4277 was seen as a good reason to lighten up positions and take profits. EUR/USD briefly tested below the 1.4200 level but headed higher as the Dow Jones tested 9,000. The JPY was broadly weaker against the major pairs ahead of tomorrow's Japanese investment trust launch. USD/JPY probed toward the 95 neighborhood, up over 130 pips, while the EUR/JPY and GBP/JPY pairs were well over two big figures firmer in the session. JPY weakness was initially attributed to rumors that the Japanese MoF might have told some large Japanese accounts that it is safe to buy USD/JPY around the 93 area. AUD/USD struggled to stay above the 0.82 area as chatter circulated that the Australian Central bank (RBA) might conduct more reserve management activity.
- Uncertainty seems to be interrupting the earnings season rally that has been under way for the last seven or eight sessions, with a big miss from Morgan Stanley unsettling investors this morning and US equity indices zigzagging in and out of negative territory. Bond prices are lower after yesterday's rally as Fed Chairman Bernanke's second day of testimony on the hill appears to have much less of an effect. Oil is recovering some early declines after weekly inventory data from the Department of Energy.
- Morgan Stanley has proved to be the laggard among the top five bank holding companies. The firm reported a quarterly loss that was bigger than expected, and more than twice the expected figure once charges for repaying TARP were factored in. Results were also significantly hampered by an accounting rule related to the value of its debt. Strength in the firm's wealth management and investment banking revenues was not enough to offset declines in trading revenue and real estate losses. Shares of MS opened down 4% but have recovered somewhat in mid morning trading.
- Four leading regional banks reported better-than-expected results, including Wells Fargo, US Bancorp, SunTrust and Bank of New York. KeyCorp's loss was greater than analysts' estimates. Note that results from Wells Fargo and Bank of New York were well below expectations after additional charges for TARP, various write downs and merger expenses were taken into account. Shares of WFC are down 5%, while BK is down 8%. STI's loss was less than expected, although its non-performing loans keep increasing. USB remains firmly profitable, stating that deposit growth is strong while its commercial real estate portfolio is under pressure. Shares of STI and USB are making modest gains this morning. KEY's loss was somewhat offset by revenue that beat expectations and big improvements in ROE and ROA.
- Yesterday evening boldface tech names Apple and Yahoo both blew out analyst estimates, although Apple's guidance for next quarter was notably lower than expected on top- and bottom lines. On the conference call, Apple's CFO said the company has been unable to meet demand for the new iPhone 3G-S, and warned iPod sales are continuing to decline over time. Yahoo's CEO said she is seeing "less fear in the marketplace" and advertisers spending more actively. AMD's results contrasted dramatically with Intel's results, with AMD reporting yet another quarterly loss. AAPL is up 4%, YHOO in the red but off its worst levels and AMD is down 14%.
- In other earnings, Boeing managed to exceed consensus estimates in Q2 and its FY09 guidance despite the recession and ongoing trouble with the 787 Dreamliner. Executives said the firm is still assessing the schedule for 787 test flights and first deliveries more than a month after announcing yet another delay due to problems with a body component. PepsiCo offered results that were more or less in line with expectations and reaffirmed its full-year forecast, noting that it has begun to see the return of consumer spending, even in developed markets. Pfizer also reported in line, and increased its 2009 forecast by a hair. Mid-cap industrials WHR and ITW offered solid results and better-than expected guidance.
- The consolidation in EUR/USD seen throughout the European morning continued into the New York session as option expiration chatter tamed the price action. The 1.4200 strike remained a magnet for choppy price moves ahead of the NY cut. The USD looked like it would initially gain some upward momentum as risk aversion appeared in the wake of Morgan Stanley's poor quarterly results. Dealers noted that the EUR/USD almost broke an eight-day string of higher lows with the 1.4150 level cited as pivotal support. Thus far, market has paused above just above the 1.4150 area. CAD eventually reacted to better retail sales data for May with the 1.10 handle again tested during the morning in USD/CAD. Dealers are noting that prospects for softer equity markets and lower oil prices could cap further gains in the CAD-related pairs. Looking ahead, the Brazilian Central bank is expected to cut its SELIC target by 50bps to 8.75%. The decision usually comes after the value date change (5:00pm ET).
- Investors have multiple tier one earnings reports to reckon with this morning, in addition to Fed Chairman Bernanke's Congressional testimony and more jitters over CIT. The DJIA has sustained modest gains thanks to strong results from Caterpillar and Merck, while the Nasdaq is in negative territory. S&P500 is around even. Treasury prices opened notably lower as the major indices tested the June highs, but as stocks gave back some initial gains bond prices recovered. Yields accelerated to the downside upon the release of Chairman Bernanke's testimony to Congress. Though much of it was covered in his WSJ editorial this morning he did stress that unemployment was likely to remain high into 2011 potentially undermining what is already expected to be a gradual recovery, and for that reason will only consider tightening fiscal policy once the job market shows signs of recovery. The US 10-year has rallied nearly a full point from session lows pushing the yield back towards 3.5%. The 2-year yield has slid more than 10 basis points from session highs of more than 1% sparking a rallying in fed fund futures contracts.
- Note that three of the four Dow components (CAT, KO, DD and MRK) that reported this morning beat EPS targets but missed revenue expectations; Merck managed to exceed expectations on both the top and bottom lines. Shares of Caterpillar, a widely watched economic bellwether, are up a whopping 10% after the company stomped earnings estimates and offered a very bullish outlook for the full year, with a broad range that is twice the consensus view at its high end. Coca-Cola reported top-line earnings that were a bit ahead of the consensus, although its revenue missed expectations by $500M. Shares of KO are down a few percent in early trading. Note that the company was significantly hurt by FX in the quarter. DuPont's earnings results were much better than expected and the company reaffirmed its 2009 EPS forecast. The company warned, however, that its revenue would remain below par next quarter, noting that it sees Q4 results broadly better than Q3 results. Shares of Merck are up 5% after a solid second-quarter report. Merck executives reiterated that the Schering Plough merger would close in Q4 and said they see continued improvement in top line results.
- Shares of asset managers State Street and Blackrock are both in negative territory this morning. State Street reported a giant after-tax "extra ordinary loss," although operating earnings were mildly better than expected. BlackRock beat top- and bottom-line targets solidly. Assets under management at both firms climbed showed sequential improvements, although STT reported q/q revenue declines in key product segments. Note that a BLK executive said clients are beginning to ask if they have "too much cash" and look to move into other asset classes with more risk. Competitor Legg Mason is bucking this trend, up 3% after returning to profitability for the first time since early 2008. Weak results from Zions Bancorp and Regions Financial are pulling down the other regional banks, with ZION down 10% and RF down 14%. Both reported disastrous ROE and ROA figures, boding ill for other regionals.
- While quarterly results from Texas Instruments were not as dramatically good as those out of Intel last week, they were still very strong, with operating earnings about one third ahead of the consensus view, gross margins headed back toward normal levels and order up 27% sequentially. TXN's outlook for next quarter is better than the Street's, although it warned demand trends remain uncertain. Nevertheless investors are selling shares of TXN, with the name down nearly 5% in early trading. Small enterprise software firm JDA Software is up 30% after a very strong quarterly report.
- Two more major US airlines reported huge quarterly losses this morning, on the heels of American last Wednesday. Continental's loss was in line with expectations, while United's loss was slightly smaller than projected. Southwest Air also reported quarterly results, which were more or less in line with analysts' estimates. Shares of UAUA are up 7%, while CAL and LUV are down 6%. Continental's president said that business travel has stabilized at low levels and warned there is no visibility as of yet on autumn travel demand. All three airlines continue to slash capacity, with promises of more reductions in coming quarters.
- In currencies, New York trading saw USD profit taking from the European session abate as better corporate earnings from Caterpillar and other major US corporations sharpened risk appetite. Sovereign accounts are continuing to show buying interest around 1.4190, indicating more reserve diversification. EUR/USD managed to break above the 1.4250 level for fresh six-week highs. BoE's Bean commented that Q2 GDP would likely be negative and said he was uncertain about the durability of any UK housing market recovery. CAD was also in the spotlight as the Bank of Canada left its key interest rate unchanged at 0.25% (as expected) and removed a key line from its statement regarding concern about the "unprecedented, rapid appreciation" of CAD, helping the currency firm above the 1.10 level. Dealers noted that the BoC's statement showed hardly any protest over the strong CAD. Energy and metals hit fresh session highs as a result.
- With an apparently hopeful outcome in the offing for CIT Group and European markets making gains, US equity indices opened modestly higher in New York with volumes even closer to normal and the DJIA back in positive territory for the year to date for the first time since early June. In the premarket, Goldman Sachs boosted its forecast for the S&P 500 Index, saying that improving earnings will spur the steepest second-half rally since 1982. But the enthusiasm has leaked away in mid morning trading and the leading indices are back around even. Note that business group NABE stated earlier this morning that the recession is abating although there are few signs of a robust economic recovery, and warned that conditions are continuing to weaken. Front-month Sep NYMEX crude, which tested $65 earlier today, is back around even near $63.50. Treasury prices opened lower on the back of equities' gains but have worked back towards unchanged on the day. The 10-year yield is hovering at 3.65% while the 2-year is just below 1%. Gold prices moved back above $950 for much of the morning but are relinquishing some of their gains.
- CIT seems to have come to an agreement with its bondholders over the weekend. According to widespread press reports, the bondholders will extend $3B in new credit to the company backed by its unsecured assets, allowing it to restructure outside of bankruptcy. No confirmation of the deal has come out of CIT as of yet, but is expected sometime today. Shares of CIT nearly doubled in value in the premarket, and remain up more than 80% in early trading. Financial sector names are up in the low single digits this morning, with the exception of Citi and BoA; there have been unconfirmed reports that Citi is considering a 30-year note, and Citi is down 5% on the news.
- Mid-cap manufacturing firms Johnson Controls and Eaton are both up 7% in early trading. JCI beat earnings estimates while missing revenue targets; investors are enthusiastic as the auto parts manufacturer returns to profitability after two consecutive losing quarters. The CEO said the company would increase its profitability next quarter and into 2010. Eaton's top line results were in line and revenue was below par, while its guidance for next quarter was better than expected.
- Oil services names Haliburton and Weatherford are headed in different directions in the wake of earnings reports this morning. Haliburton was more or less in line with the Street, although it said there would be little recovery in North America this year. Shares of HAL are up 5%. Weatherford is down 8% after missing top and bottom-line estimates. In other earnings, Hasbro is up 4% after earning more than expected and reducing the expected dilution from its JV with Discovery Communications.
- In currencies, risk appetite firmly underpinned sentiment in New York trading this morning, with USD and JPY currencies were under pressure against most other currencies, particularly the commodity-related and emerging market units. The Russian Ruble surged over 3% at one point against the USD to test the 30.80 level. This was the largest one-day gain for the ruble in over a decade. The NY morning was marked by consolidation of the price moves seen during the Asian and European session. EUR/USD is holding above the 1.42 level with some minor stops below the 1.4190 area. The pair was unable to break above the 1.4250 level where some quasi-government offers were rumored to be lurking. Note also that the IMF approved a $250B Special Drawing Rights (SDR) allocation to increase global liquidity. The proposal still needs to be submitted to Full Board of Governors for final approval.
- The impetus to buy stocks following the Goldman Sachs and JP Morgan results earlier this week seems to be wearing off today, with US equity indices are headed sideways in early trading. Citi and Bank of America offered uninspiring quarterly results and investors dumping shares of GE, leaving few catalists that would keep things rolling. Nevertheless, investors are consolidating what looks to be the best week for the major indices in months. The June housing starts and building permits totals were both better than expected, and the prior month's housing starts were revised higher. Some are seeing signs of hope in the crisis at CIT, which has started frantic talks with various parties to sell units and managed not to upset markets as much as might have been expected. PIMCO's Crescenzi said markets are taking the situation in stride, and their reaction shows stability returning to the system. Front-month NYMEX crude is up more than a buck this morning, trading above $63.
- Treasury prices have continued to trend lower following yesterday's hiatus, with some acceleration following the better than expected housing data. Yields have moved out to their highest levels in nearly 3 weeks as stocks consolidate gains in what looks to be the best week in months. The long bond yield has regained 4.5% while the 2-year is back at 1%. With the 10-year yield back above 3.6% the benchmark spread widened out to more than 260 basis points.
- Citigroup's Q2 earnings were something of a mirage: on the one hand, the bank racked up a $4.2B profit in the quarter thanks to the sale of Smith Barney to Morgan Stanley. But after backing out these gains, quarterly losses were only slightly better than expected. Bank of America's Q2 earnings were slightly better than expected, but hardly the blowout craved by many investors. The loss provisions, write downs and charge offs continue to rise at both BoA and Citi, with BoA's non-performing assets rising significantly on a sequential basis (the firm put special emphasis on trouble in commercial real estate) and Citi's total write downs rising to $6.57B in the quarter. BoA CEO Lewis did not that the integration of Merrill Lynch is on track and meeting goals, and expects his firm to see "normalized earnings" in 2010. Citi and BoA are making low single-digit gains in early trading, with most other major financial names in positive territory.
- General Electric was the other big earnings story of the morning. GE beat bottom-line expectations but slipped a bit on revenue, thanks to the impact of FX and declines in its industrial segments hit by the recession. Shares of GE are down 4%, but off their worst levels. The company has discontinued giving guidance, but it did talk a lot about its outlook on the conference call, noting that its FY09 outlook for non-finance related profits are "little changed" and warned that equipment revenue would be down 10-15% y/y in 2010. CEO Immelt said GE Capital is profitable, and also said he is seeing big improvements in capital markets. GE's CFO warned consumer lending losses are trending below forecasts and said GE's outlook on commercial real estate remains cautious.
- Tech giants IBM and Google both managed to beat Wall Street's earnings expectations, although revenue results at both companies were lukewarm. IBM's better profits certainly stemmed from its improved margin performance, as revenue declined in all of its major divisions. Big Blue remains positive looking forward, raising its 2009 earnings forecast and offering a glimpse of its FY10 outlook that was above the consensus. Google managed to grow margins, meet revenue expectations and keep top-line growth in positive territory, and on the conference call said that business has stabilized and cheerfully said that that large advertisers have "come back to the table." Investors are not impressed, however, and shares of GOOG are down 3% this morning. Shares of IBM are up 3% in the early going.
- Following a relatively quiet overnight session, the greenback has maintained some strength during the New York session, with EUR/USD holding above 1.4050 and chatter circulating that some decent euro sell stops are lurking below this level. With US housing starts hitting their highest level since last November, dealers are wondering if this might not be too much of a good thing given the ten months' supply of new homes on the market. Nonetheless the USD and JPY will continue to follow the equity price movement as risk appetite maintains its momentum.
- US equity indices opened in the red this morning as the government's refusal to throw CIT a lifeline overshadowed better JP Morgan earnings and sent the overall financal sector lower in the pre-market. The better-than-expected weekly jobless claims were overlooked as well, despite the fact the continuing figure was tantalizingly close to dropping below six million (the Labor Department did note that seasonal factors continue to play a role in the lower figures). The three leading indices popped into positive territory in the first 30 minutes of trade, only to get knocked down again by the July Philly Fed data, which offered a sharp contrast to yesterday's hopeful industrial tea leaves, with the figure nearly twice a bad as expected. Another piece of data is hovering in the background: RealtyTrac reported that the foreclosure activity surged to record levels again in the second quarter, up 11% sequentially and up 20% over the same period last year. June was the fourth consecutive month to see foreclosures above 300K.
- After dropping toward $60 earlier, front-month NYMEX crude is around unchanged at $61.70. Treasury prices have rallied getting back a good portion of yesterday's declines. The 10-year benchmark yield does remain above 3.5%. JP Morgan announced the sale $1.25B in credit card bonds not backed by TALF following their earnings announcement. This is ahead of a TALF announcement scheduled for later today that will be the first to include eligibility of CMBS.
- JP Morgan opened in negative territory along with the rest of the US financial sector despite the firm's Goldman-like quarterly performance. Adding to the weight in financials, FDIC Chairman Bair said tougher curbs and additional fees were needed for the largest US financial firms. JP Morgan's earnings and revenue totals were miles above consensus estimates, despite big charges for repaying TARP and the FDIC's special assessment fee. CEO Dimon had plenty to say before and after the conference call, noting that it is unlikely the credit card business will make money in 2010, and that the dividend could be increased next year if there are improvements in charge offs and overall conditions. Also note that Charles Schwab reported solid Q2 reports, in line with all expectations.
- Mobile phone giants Nokia and Sony Ericsson reported contrasting second-quarter results, although their outlook . Nokia came in below expectations on both the top and bottom lines, predicting its market share would remain flat in mobile devices next quarter and overall industry volumes would be down 10% in 2009 over last year. The Sony Ericsson JV's net loss was significantly smaller than expected, while revenue was a bit below expectations. The JV saw challenging market conditions everywhere in the quarter and said it expects the market to remain difficult all year, echoing Nokia in saying the global mobile phone market would be down 10% in 2009. Nokia's ADRs are down nearly 14% in early trading, while the ADRs of Sony and Ericsson are both down about 2%. Note also that shares of MOT are down 6% and headed lower.
- In other earnings, blood product and dialysis name Baxter offered in-line quarterly results and slightly upped its forecast for the full year. Biotech name Biogen Idec reported strong results in the quarter, although it cut back on its earnings outlook for 2009. Both names are up in the low single digits in early trading. Paint and coatings manufacturer PPG Industries shellacked earnings targets but slipped on the top line, noting that it only sees mild market improvement next quarter. Packaging manufacturer Sonoco also beat bottom-line targets and missed top-line revenue expectations, and trimmed its full-year earnings forecast. Both PPG and SON are both strong, up 6-7% in the early going. After a decent Q1, motorcycle legend Harley Davidson fell out of the saddle in Q2, thanks mainly to declining shipments and credit charges. After dropping a bit before the open, HOG is up 6% in early trading. Hotelier Marriott had a decent Q2, but cut its 2009 guidance due to economic conditions, sending shares of MAR down 8%.
- In currencies, dollar sentiment appeared soften up initially during the New York session as earnings and economic data, including JP Morgan's earnings and the US claims data, helped stoke risk appetite. Note that the dollar is at or near numerous key chart points heading into the weekly close. EUR/USD was above 1.4140 and close to breaking out of its one-year downtrend line after hitting the all-time high of 1.6030 last August. However, the Philly Fed number helped reign in the risk appetite and EUR/USD was heading into mid-morning New York trade just above 1.41. The yen has maintained a firmer tone as well, with USD/JPY in the mid-93 level after testing 94.45 earlier today.
- Strong industrial surveys coupled with volume levels trending toward normal, Intel's quarterly earnings and fresh strength in financials ahead of big reports from the sector on Friday are buoying the leading US equity indices. The July Empire Manufacturing survey came in dramatically better than expected (-0.55 v -5.00e), with both the prices paid and new orders sub indices flipping positive, while the Fed's June Industrial Production data crept even closer to positive. Master trust data from the leading credit card issuers showed some glimmers of improvement in charge-offs and delinquencies, adding some upside to the financials. Front-month NYMEX crude is holding the psychologically important $60 level, up nearly $1.50 in early trading, with the contract just shy of $62. Spot Gold is around $930/oz. A weaker US Dollar on overall increased risk appetite is helping commodity prices in general, and bringing some sellers into the Treasury market. Sep copper has made a 1-month high moving back to $2.40 while wheat and soybean futures are up 2% in Chicago. The US 10-year yield is firmly back above 3.5% while the benchmark spread is widening back towards 260 basis points.
- Results from DJIA component Intel, S&P500 major YUM and the largest US airline AMR are moving their respective sectors in early trading this morning. Intel's blowout results after the close yesterday prompted lots of price target increases in the name overnight and has buoyed the shares of numerous other semi stocks, with AMD, NVDA and the SMH fund all up in the high single digits. Shares of INTC are up 7%. Fast food giant YUM had a mixed report yesterday, exceeding bottom-line targets by a fair margin but missing on the top line. On the conference call this morning, YUM's CEO warned that the higher EPS but sluggish sales theme would continue in 2009, adding weight to his shares and those of other major fast-food names. YUM is down around 5%, while MCD, BKC and WEN are also a few percent into the red. A slightly smaller than expected loss from AMR is helping keep the airline stocks in positive territory this morning, despite a consecutive quarter of double-digit y/y comps for most of the company's major metrics.
- In other earnings news, Abbott Labs reported its Q2 and guided Q3 results more or less in line with expectations, and also reaffirmed its 2009 forecast for the fourth time in a row. Investors are evidently not impressed, as shares of ABT are down 5% in the early going. Media conglomerate Gannett is on fire, up 20% after destroying earnings estimates (but missing revenue targets). Note that GCI's publishing segment revenues are down more than 25% on a y/y basis, and even digital revenues are down more than 18%. Specialty chemicals name Lubrizol also killed their Q2 targets in a preliminary report this morning, providing no additional commentary on their very strong results. LZ is up 5% in mid-morning trading, but off its best levels, while other specialty chemical names such as ALB and WDFC are up 3-5%.
- In currencies, there has been little change in the overall dollar sentiment in the New York session as the greenback maintains its softer tone on the back of rising risk appetite and firmer commodity prices. The dollar was also weakened by news South Korean sovereign fund KIC would purchase inflation-hedging assets, including property and commodities. Dealers are noting that China had a hand in the price movements. PBoC economist Wang Yon stated that China should moderately increase its holdings of US Treasuries, saying that China and other nations with large dollar reserves should hold talks with the U.S. government on such funds can be injected into the world's largest economy, and those talks should include the possibility of shifting bond holdings into other assets such as stocks and gold. Some dealers have concluded that China has hit the reset button on the reserve currency issue. Treasury Secretary Geithner reiterated that the USD would remain principal currency and remained committed to strong USD. He also stressed that the US was committed to lowering its budget deficit. UAE Central Bank Gov Al-Suwadi stated that the UAE remained committed to its USD peg after meeting Geithner earlier today. EUR/USD tested the 1.4100 level where it encountered some additional selling orders. CAD and AUD pairs were firmer on the rising risk appetite, with AUD/USD moving above the 0.80 area and USD/CAD testing below 1.12.
- US equities are choppy this morning as investors weigh the widely expected record results from Goldman Sachs and solid numbers from Johnson & Johnson against a bit of a surprise in June wholesale prices. The June PPI data showed wholesale prices rose far more than expected in the month, for their biggest gain since November 2007, due to higher energy prices. The data has bought some sellers into the Treasury market sending the 10-year yield up to 3.4% while weighing on stocks. Front-month NYMEX crude spiked above $61 earlier this morning, but the contract has retreated towards opening levels below $60.
- The first major financial company to report this earnings season, Goldman Sachs fulfilled widespread expectations from the last week for a blow-out second quarter. Topping its impressive performance in Q1, the bank holding company destroyed earnings and revenue expectations and delivered an impressive 23% return on equity (versus 14.3% last quarter).Trading and investment revenues were up a whopping 93% y/y and 51% q/q. And just after the open Goldman's CFO said the company is still talking with regulators about altering its financial holding status to "allow additional activities," prompting commentators to wonder just how dead the investment banking model really is. Goldman is up a modest 1% this morning after its shares traded up more than 5% over recent days; competitors BAC, JPM and MS are all down about 1% a piece. Note also that CIT is up 25% or so this morning after last night's report in the WSJ that the government is in advanced talks with the company over some sort of bailout.
- Dow component Johnson & Johnson reported Q2 results that were a bit above estimates and reaffirmed its full-year earnings forecast, while trimming its revenue outlook for the year slightly. On the conference call, JNJ's CFO said the results were among the most challenging ever for annualized comparisons due to the loss of patent coverage for Risperdal and Topamax. The company is seeing tighter consumer spending in certain parts of medical device business and continues to experience significant impacts from FX translation (-$0.06 EPS, -6% revenue impact). Railroad CSX beat earnings expectations in its Q1, although revenue lagged the Street by a bit. The company said it expects revenue to continue falling in Q3 in 8 out of 10 markets, with a return to strength in 2010. Shares of CSX are up 6%, while other leading railroad names are up 2-3%. In other earnings news, Sun Microsystems said it expects a much larger loss than analysts have been projecting in its Q4, with revenue weaker than expected as well. Oracle noted that it still expects Sun to be accretive to earnings in the first year. Take-Two also said it would loose more than expected in the quarter, and said it now projects a significant loss for FY09 as well. Shares of TTWO are down 9%.
- PC industry leaders Dell and Microsoft are both making headlines. At an investor meeting, Dell executives said they are seeing demand stabilize but also warned that the competition has improved as the dynamics of the industry evolved. While the enterprise business is still weak, the consumer unit is seeing strong results in the current quarter. After providing a glimpse at its online application strategy the other day, Microsoft unveiled its strategy and pricing for its Azure cloud computing platform. Shares of DELL are down 7% this morning, while MSFT is around even. Note that Intel reports after the close today.
- In currencies, the USD and JPY sustained a soft tone into the New York session as risk appetite gained a bit. Note that while the Asia session provided some optimism about green shoots, news out of Europe indicated that some cracks remain in the recovery. The German ZEW survey in particular highlighted the fact that any recovery would be bumpy. EUR/USD pushed above the 1.40 level but encountered some resistance after ECB's Hurley noted that monetary policy must support real economy and any interest rate hike should only come when the recovery was shown to be totally solid. Sterling drifted off its best levels after the June UK Commercial Property Values survey fell by 0.9%, for its 24th consecutive decline. GBP/USD is around 1.6300 during the New York morning. USD/CAD is probing below its 30-day moving average at 1.1400 and AUD/USD has been hovering around the 0.79 level for most of the morning.
- US equity indices opened higher this morning and are making further gains after slipping a bit. However, volumes are still one-third below average and the overall sentiment remains substantially unchanged. In an interview with the FT published yesterday evening, Larry Summers said he "does not think the worst is over" for the US recession, warning that it "would not surprising" if GDP falls further. In the UK for talks, Treasury Secretary Geithner commented that there has been a significant easing of the financial crisis, although the recovery still faces plenty of significant risks and challenges. Front-month NYMEX crude is down a dollar or so, trading just above $59. Treasury markets are successfully digesting the recent gains with yields still hovering around the lowest levels in two months. The long bond is below 4.2% and the benchmark is holding at 3.3%.
- The banks were back in headlines as two big stories - Goldman Sachs and CIT - kept analysts and commentators chattering over the weekend. Goldman Sachs, which reports its second-quarter results on Tuesday, was the subject of wildly positive press reports. The New York Times wrote that the company is likely to post "huge profits," given analyst forecasts. The bank holding company's shares climbed in the NY pre-market as Meredith Whitney talked to CNBC about the company. Note that Whitney's firm raised Goldman to a buy with a $186 price target this morning.
Shares of Goldman are up 4%, while other major financials were up 3-4% as well.
- Last Friday CIT apparently hired bankruptcy advisors after failing to win government borrowing guarantees after extended negotiations. CIT has a $1B payment due in mid-August and it remains unclear whether the company will be able to make the payment or not. Executives spent the weekend trying to compile a plan that would convince customers and investors that it can deal with its liquidity crunch, lobbying members of congress, government officials and regulators. Geithner said he is monitoring CIT's situation closely, insisting the US has the authority it requires to resolve CIT if needed. Shares of CIT are down about 25%, compounding the big losses seen on Friday. Many other second-tier financial names and regional banks were making 3-5% gains in the early going.
- In currencies, the risk aversion that characterized the Asian session was put on ice as the European morning wore thanks to constructive comments from China's PBoC and the Japanese cabinet on their respective economic outlooks. A PBoC assistant governor said there were some positive signs in the economy, while the Japanese Cabinet's monthly report raised its view on exports, imports, business spending and private consumption sectors. However, both far east nations noted that uncertainties remained. EUR/USD recovered the majority of its European session losses to trade around the 1.3960 ahead of the US equity open. GBP/USD is also off its worst levels but remains softer across the board against the major pairs. AUD and CAD price action mirrored oil movements, with AUD/USD moving back toward 0.78 after testing 0.77 during Europe. USD/CAD is testing 1.1600 after probing toward the 1.17 neighborhood.
- US equities indices opened lower this morning and are printing fresh lows in mid morning trade in the wake of the worse-than-expected University of Michigan confidence reading. Various bold-face commentators are offering pessimistic assessments, adding to the heavy tone. Permabear Nouriel Roubini said the US economy is not yet recovering and the recession will last six more months, while noted Yale Economist Robert Shiller said the US needs a second fiscal stimulus package. GE CEO Immelt wrote in an FT editorial that the US economy requires a "fundamental transformation," and went on to discuss the failures of an economy based on services and consumption. NYMEX crude shows no signs of letting up on its downward slide, with the front-month contract testing below $59 after Italian PM Berlusconi said the G8 has expressed disapproval of speculation in oil markets and its discussed intervening to block speculators.
- With the Dow falling towards 8100 and crude firmly below $60 risk aversion has put another underlying bid into US Treasuries. The bench mark spread has narrowed back to 240 basis points with 10-year yield nearing 3.25% for the first time in nearly two months. The yield is approaching its 200-day EMA as well.
- GM passed a critical point in its restructuring process this morning, with the formal acquisition of the best assets of "old GM" by "new GM" following yesterday's court approval of the sale. CEO Henderson insisted that "many" of GM's problems are in the rearview mirror and reiterated that he would take the company public again "as soon as is practical." More job cuts and massive cost reductions are still in the future for the automaker, as Henderson said he would reduce salaried staff by 20% by end of 2009. GM is required to pay off its loans from the government by 2015, but Henderson said the goal is to repay them "much sooner."
- Energy giant Chevron offered a mid-quarter update after the close yesterday, warning that its Q2 downstream results are projected to be significantly lower than the first quarter. The company said its Q2 upstream earnings would benefit from increases crude prices, but this would be largely offset by substantial unfavorable foreign currency effects. Shaw Group fell short of the Street's earning expectations and cut its full-year outlook by around 10% in its Q3 report. Shaw's CEO said that underperforming projects impacted its Fossil & Nuclear segment. Shares of CVX were down 3%, while SGP were down 9% in the early going.
- Insurance firm Progressive Corp was more or less in line with earnings estimates, while net premiums were right in line on a y/y basis. Regional banking name Susquehanna Bancshares said its second-quarter results would be below expectations due to a rise in loan loss provisions (from $35M in Q1 to $50M in Q2), while its non-performing loans rose to $230.2M from $156M q/q. Shares of SUSQ fell in the premarket and after the open, bottoming out around -10% before recovering somewhat. In other equity news, Goldman Sachs raised the US software and the US computer hardware sectors to a buy, moving selected names. Hard drive manufacturer STX is up 5% on the move, while IBM and CA are down slightly after being cut to neutral at Goldman.
- In currencies, the USD and JPY maintained most of their European gains thanks to continuing concerns over the sustainability of the global recovery. The Chinese trade data registered its eighth consecutive monthly decline in both imports and exports components, while the US trade balanced improved during the month of May, with exports registering their biggest sequential gain since last July. There was vague chatter that the Russian Central bank (CBR) was a euro seller ahead of the NY morning, but no confirmation of such action. The CBR did cut its refi rate earlier today and the Ruble was broadly softer which could be complementing such speculation. The EUR/USD ending the NY morning around the 1.3940 area and USD/JPY at 92.40. The commodities softness hit the AUD and CAD pairs, preventing CAD from benefiting from an improved employment report (the Canadian June employment report much better than expected at -7.4K, while the part-time component was +40.1K)
- US equities opened in the black this morning, as the weekly initial jobless claims fell below 600K for the first time in 24 weeks (continuing claims remain at all-time highs around 6.8M). Better-than-expected results from earnings season opener Alcoa, as well as initial positive investor reaction to June SSS figures supported sentiment. But like yesterday the gains were short lived and evaporated quickly in trade that continues be characterized as thin and choppy. Front-month NYMEX crude futures strengthened to above $61 before dropping below $60 level this morning for the first time since May 26. Treasury prices opened lower but yields are remain below the levels seen ahead of yesterday's 10-year note auction results.
- Mid-cap financial group CIT is up 10% in today after the FT reported executives at the company are pushing regulators to stop stalling its requests to issue government-backed bonds. CIT is the only major financial group that received TARP but has not been given the go-ahead to FDIC-backed debt. In other financial sector news, Citi shook up its senior management yet again, bumping CFO Ned Kelly to vice chairman and naming John Gerspach CFO in his stead. Former CFO Gary Crittenden is leaving the company. In March Gerspach was moved to be chairman of Citi Holdings, the entity created to manage bad assets the company is looking to sell.
- Alcoa kicked off earnings season yesterday after the close by surprising investors with a smaller-than-expected loss and impressive revenues. On the conference call, executives said the company's liquidity situation is much better and said they were "very close" to being free cash flow positive. Shares of AA gained 5% before the open this morning, but have dropped into negative territory in mid morning trading. A couple of small cap names are also moving on earnings news, with both Scansource and Helen of Troy up 8% or so after much better than expected earnings performances last quarter. Note also that SCSC is down 14% after guiding revenue for next quarter much higher.
- The June same-store numbers were a mixed bag this month, with most companies still well below last year's levels but more than a few outperforming expectations. TJX and ROST blew out estimates, coming in at +4% versus -2.6%e and +1% versus -2.3%e, respectively. ARO continues to stand out from the pack, with sales up 12%, although its worth noting this growth is less than the stronger growth seen in April and May. Department stores reported declines across the board, although they nearly all did better than expected, with high-end names SKS (-4.7% v -10.7%e) and JWN (-10% v -11%e) doing surprisingly better than expected. Higher-end mall retailers continue to suffer. LTD was much worse than expected (-12% v -8.3%e), while AEO and ANF racked up yet another month of big double-digit declines, with both worse than expected. Big box discounters BJ and COST were both a little better than expected, but still showing uncomfortable y/y sales declines, while TGT did worse than expected, at more than -6%.
- In currencies, the dollar once again tried to regain its composure during the New York morning as the G5 made vague comments on the reserve currency issue. A Chinese official reiterated that management of reserve currency system must be improved, with a "more diversified" system a chief goal. World Bank President Zoellick insisted the dollar would remain the primary reserve currency but warned its role cannot be taken for granted by the United States. EUR/USD briefly probed above the 1.40 handle in early NY where it meet some selling pressure (rumored to be the Bank of International Settlements). Risk aversion crept back in after the mixed picture presented by the US claims data. Dealers noted that the initial claims number was likely impacted by seasonal factors as auto layoffs were far less than expected. Note that the German finance minister reiterated calls for the Bundesbank to consider making corporate bond purchases, citing need to improve lending given the looming threat of a credit crunch persists in the second half of 2009. The Bundesbank declined to comment on the remarks. The BoE left both its interest rates and quantitative easing measures unchanged. GBP/USD tested 1.6270 in the aftermath of the decision on relief that the £125B QE was left alone for the time being.
- The IMF helped US equities open higher this morning for the first time since last Wednesday, but all three major indices made their way back to the red around 11amET. Overall markets were hit with a fresh bout of risk aversion late in the NY morning as bids came into the Japanese Yen. Nervous investors seem to be waiting for more robust positive signals to emerge from upcoming earnings reports. The IMF published an update to its World Economic Outlook report, raising its 2010 global growth forecast to +2.5% from +1.9% back in April (and slightly lowering its outlook for 2009 growth to -1.4%). However the IMF also warned that while the global economy may be beginning to pull out of recession, recovery would likely remain sluggish. Front-month crude continues to plumb new monthly lows, down $1.50 to trade around $61.25. In its medium-term outlook this morning, OPEC said it sees 2010 demand up a paltry 0.5%, while it said 2013 demand would remain below 2008 levels. The weekly DoE inventory figures are not helping things either with a larger than expected build in gasoline inventories. Gold is under pressure as well moving back towards the $900 mark for the first time in more than a month.
- US Treasury prices have been the beneficiary of the equity selling. The long bond yield has worked back toward 4.25% while the benchmark is nearing 3.4% once again. These are levels not been seen since late May while the curve has flattened back below 250 basis points in the benchmark spread. Markets are cautiously awaiting today's 10-year reopening as yields have come in more than 50 basis points from the June auction. Investors are anxious to see whether the US Treasury can continue to raise money easily in the face of discounted prices.
- A couple of consumer names have seen big moves in the wake of better-than-expected quarterly results. Discount retailer Family Dollar beat analysts' estimates by a hair last quarter and boosted its 2009 outlook for the third time, while its guidance for next quarter was well ahead of consensus estimates. Shares of FDO are up 10% in early trading. Casual dining name Ruby Tuesday did much better than expected in its Q4 and beat estimates in its guidance for next year, sending its share up 8% in the pre market; those gains vanished in the first half hour of trade, with RT in negative territory presently. Note that Pepsi Bottling beat earnings estimates but missed revenue targets in a big way thanks to FX impact and steady declines in volume world wide. Shares of Tractor Supply Company are up 9% after the agricultural machinery retailer hiked its earnings guidance for the year and crushed estimates for its Q2. Las Vegas Sands jumped 5% in the pre-market on news it was mulling an IPO for its Macau units, but shares are back to even mid morning.
- Currency trading in the New York session absorbed a flurry of reports from government agencies, cartel members and central banks without too much movement this morning. The greenback maintained its trading range from the Asian and European morning, but has broken out late in the morning led by the USD/JPY move below 94. The Green is posting strong moves higher against the Euro, Pound, and Franc on risk aversion flows. The IMF report suggested that economies must remain supportive until economic growth resumed and deflationary risks subsided. Rising unemployment and loss of confidence in financial sector could trigger inflation but deflation risks are seen as small. The ECB published a report on the role of the euro, noting that international use of the currency was relatively stable in 2008 and stating it accounted for 26.5% of global reserves compared to 25.3% at the end of 2007. Dealers noting that ECB report on Euro's international role suggested that the global financial crisis has had no visible effect on the USD and maintained its preeminence in international financial markets. Reports implies that emerging economic including China, Russia and India have had little success in actually reducing the USD's role in global affairs, despite repeatedly stance on such an objective. The OPEC report was followed by comments from El Badri, who said the cartel was still concerned about oil demand and hoping oil demand would bottom in 2009.
- US equities opened lower for the third consecutive session this morning as caution ahead of earnings season keeps things subdued and volume remains very thin. Note that earnings season officially begins with Alcoa's second-quarter report after the close tomorrow. Front-month NYMEX crude has extended its slide, down $1 on the session to around $63. Treasury prices opened marginally lower in Chicago but have rallied back toward unchanged. The US benchmark yield is back at 3.5% while the 3-year offer 1.44% ahead of this afternoon's auction results.
- Healthcare stocks, particularly HMOs and hospitals, have been strong this morning as chatter circulates that Senate Democrats and the White House are moving closer to a deal on healthcare reform. The WSJ reported that the White House Chief of Staff reiterated the Administration is willing to be flexible on reform as long as the deal gets done. Senator Grassley did question the timing of any healthcare bill, cautioning that a Senate vote may not come before the August recess, but he still expect the legislation to pass this year.
- Discover Financial is down more than 10% this morning after announcing yesterday that it would offer $500M in common stock (9.8% of market cap) and reaffirmed that it would report a 8.5-9% managed net charge off rate for Q3. KeyCorp is up 4% after Keefe Bruyette raised the name to Outperform and the bank launched an offer to exchange $1.74B of preferred securities held by its various trusts for up to 158.5M shares of common stock (about 31.5% of shares outstanding). Note also that the American Bankers Association said that Q1 consumer loan delinquency rate hit 3.23%, for the highest reading on record. Late payments on home equity borrowings were 3.52% in Q1. The ABA said the effects of soaring US unemployment and an uncertain economic picture is driving delinquencies on credit card debt to all-time highs as a record number of consumers fell behind on their bills.
- Currency trading exhibited a reversal in price action from European moves during the New York session. The EUR/USD pair probed back above the 1.40 level aided by a comment from German Finance Minister Steinbrueck, who commented that interest rate hikes would be needed to mop up liquidity in Europe. Although he did not mention any timeframe for the moves, EUR/USD tested 1.4050 where it did encounter some decent euro sell orders to quell the upside momentum. The reserve currency issue remains on the front burner ahead of the G8 summit, impacting EUR/USD. Dealers have noted that Middle-Eastern names have been aggressively playing the recent range in the pair. The American Bankers Assoc (ABA) survey data was also a factor.
- As the morning wore on the risk aversion theme resurfaced, helping the USD and JPY off their session lows as the commodity and equities revered thei intial gains. USD/JPY moved back below the 95.00 level as some chatter circulated that the Bank of International Settlements (BIS) was on the offer in the pair. The EUR/CHF cross also getting attention as it drifted lower towards the 1.5150 level as dealers debated if any additional SNB currency intervention would prove effective as the market seems long the pair already. A move back toward 1.5000 could occur as weak market longs have been flushed out.
- US equity indices opened to the downside this morning thanks to lingering caution from Thursday's worse-than-expected non-farm payroll data. Traders bid up equities ahead of the 10amEST June ISM non-manufacturing data, but indices have dropped to session lows despite the ISM beating expectations. Note that the ISM prices paid sub index popped above 50 for the first time since last fall. The front-month NYMEX crude contract continues to make one-month lows, now down $2.50 to trade above $64. There has been little significant equity news to speak of, although it's worth noting that the FTC cleared Net App to acquire Data Domain (for $30/shr in cash and stock), while EMC upped its offer for the firm to $33.50 in cash from its prior offer of $30.
- Treasury prices have seen some selling at the long end of the curve pushing those yields higher. The long bond is back above 4.35% while the benchmark is holding 3.5%. The curve has steepened with the benchmark spread gaining traction above 255 basis points. The Fed is undertaking another coupon purchase while the Treasury is auctioning off $8B in TIPS later this afternoon.
- In currencies, the risk aversion stemming from the payroll data continued to roil FX trading, to the benefit of overall USD and JPY sentiment. During the New York session the EU's Barroso said he was unsure when the recovery might begin and warned Europe's growth potential would not be the same post crisis. Rising doubt on the global growth front has brought the fiscal health of countries and whole regions back into question. The Indian finance minister noted that its goal sustainable 9% GDP growth over the medium term would require continuing efforts to provide fiscal stimulus.
- EUR/USD is hovering around the 1.39 handle during the NY while the USD/JPY tested below the 95 handle for one-month lows. EUR/JPY cross was off 200 pips below the 132 level. Energy and metal commodities remained heavy with the strong dollar against the European pairs. GBP/USD tested below the 1.62 level ahead of the NY morning before retracing back towards 1.62. Sterling's soft tone also buckled as the growing potential for more quantitative easing (QE) from the BoE continues to unsettle traders. The "shadow MPC" called on the BoE to maintain the base rate at 0.5% and called for an extension of its quantitative easing (QE) beyond the £150B it currently has permission to undertake. CAD and AUD were off their worst levels from the European morning. USD/CAD is around 1.1630 while AUD/USD is straddling the 0.79 level.
- With the G8 summit in Italy set to begin later this week, the USD remains vulnerable to comments from various G20 members on its reserve currency status. The Indian Foreign Secretary commented that he was open to idea of replacing USD as global reserve currency. This comment echoed India Gov't Advisor Tendulkar stated last Friday that he would not be surprised if Rupee basket was revised to reduce role of USD. For the moment the risk aversion theme is outweighing the bulk of the reserve currency rhetoric. French President Sarkozy stated that a joint position on oil prices from the UK & France would be published within the next few days and commented that oil prices must target a reasonable price range.
- Stock prices are giving back some ground in New York, but Indices remain near their best levels for the week after yesterday's surge. Investors have been mulling over May personal spending, personal income and savings data while awaiting the much anticipated final House vote on the climate bill. This morning's data exhibited growth across all categories in May, although the savings rate soared to a 15-year high of 6.9 percent, deepening fears about the squeezed consumer and the overall potential for recovery. Front-month crude is trading just above $69, way off its overnight highs that peaked above $71. Note that the annual rebalancing of the Russell indices becomes effective after the close of trading in US markets today temporarily boosting volumes.
- Treasury prices remain firmer as markets continue to view this week's strong note auctions as an all clear sign on the supply front at least temporarily. Prices are also being helped by month and quarter end flows as well as the hiatus in scheduled new supply through the end of the month. The 10-year yield is nearing 3.5% and a close below that level would be a first for June. The curve remains flatter with the benchmark spread narrowing towards 240 basis points.
- It remains unclear whether the cap and trade climate bill will reach the floor of the House for voting today or not. Last night there were reports that the Democrats did not have the votes they need to pass the legislation, which was confirmed this morning by White House advisor Valerie Jarrett. House leaders will likely delay voting if they don't feel they have enough votes.
- The fallout from Boeing's lastest 787 Dreamliner delay is beginning to hit home. Last night Australia's Qantas said it would defer delivery on 15 Dreamliners to 2013 and cancels orders for another 15 787s scheduled for delivery in 2014-15. Qantas used to be Boeing's largest customer for the Dreamliner. Later Air Berlin quashed press rumors that it was planning to cancel its own Dreamliner orders.
- In earnings, KB Home offered tantalizing Q2 results. Although the company's quarterly loss was nearly twice the expected amount (thanks to various non-cash charges), its revenue was much better than analysts' estimates while its new orders grew by nearly 60% over last quarter and its backlog grew appreciably. These hopeful statistic echo Lennar's results yesterday, as did comments from KBH's executives that housing trends seem to be moderating and buyers are taking advantage of bargain prices. Shares of KBH are down 8%, while other homebuilder names make small gains. Micron's Q3 loss was slightly smaller than expected as the company's gross margins turned positive for the first time in a year, providing one more sign the semiconductor industry is healing. Palm's quarterly loss was also shrank as its margins improve markedly, although the firm's phone sales declined more steeply on a y/y basis than last quarter. On the conference call, PALM's CFO said margins would surpass 30% soon, although profitability would not return until late 2010. Shares of PALM are up more than 10% in early trading. Shares of small-cap tech name Gerber Scientific are down 15% after surprising investors with a second big quarterly loss in its Q4.
- Potash Corp cut its Q2 guidance to $0.70 from $1.10-1.50 on lower potash sales volumes due to deferral of purchases by customers around the world. Note that earlier this week German fertilizer name K+S cut its sales forecast by 1/3 and then slashed its global demand outlook. POT is down a few percent this morning, although the name has declined by 20% or so over the last few weeks.
- In currencies, the dollar has consolidated in the lower end of its session trading range this morning, weighed down by a PBoC financial stability report that mentioned the reserve currency issue. EUR/USD tested above 1.4100 as New York traders got their hands on the Chinese report. The dollar managed to stabilize on some risk aversion concerns as a pronounced increase in domestic savings rate highlighted consumer spending declines due to unemployment and fears of more job losses. CAD remained choppy and followed the price action in oil. USD/CAD tested 1.1450 as oil probed $71.30 but moved towards 1.1550 after the Chinese central bank reiterated its cautious outlook on the sustainability of any economic recovery.
- Equity buyers pulled equity indices up from pre-market declines leading to a modest rally in the first hour of trading. Indices have held onto and even built on gains despite weekly initial and continuing jobless claims numbers that were higher than expected, and back month totals being revised higher. Markets are also keeping a leery eye on Congressional grilling of Fed Chairman Bernanke, as representatives strive to dig up dirt on negotiations that preceded the Bank of America/Merrill Lynch merger. Note that PIMCO 's El Erian agreed with Warren Buffet's statements from yesterday that there are no signs of green shoots in the economy. On the bright side, the April RPX Composite housing market report rose by 1.2%, for the first such increase since the composite peaked in June 2007. Home prices increased on a month-over-month basis in 18 of the 25 metropolitan statistical areas (MSAs) covered by the report. Front-month crude continues to edge back toward the $70 handle. Note also that gold is rocking today after advice from a senior Chinese government researcher that China buy gold given expected declines in the USD.
- Treasury prices are moving higher but still remain below levels seen ahead of yesterday's FOMC statement. The 10-year yield is hovering around 3.65% while the benchmark spread is holding above 250 basis points. The curve was a bit flatter heading into yesterdays Fed statement. Focus will again be paid to this afternoon's final auction for the week when the US Treasury sells $27B in 7-year notes.
- Better-than-expected results from homebuilder Lennar and Bed, Bath and Beyond are adding to the positive tone this morning. Lennar's quarterly loss was a fraction of the expected amount (ex write-offs and tax deferrals), thanks to impressive sequential gains in new home orders and deliveries. Executives citied more confident homebuyers, lower home prices, low interest rates and government stimulus programs for their improved business. BBBY beat top- and bottom-line expectations in its Q1. Nike was more or less in line with the Street, although the company's quarterly sales were flat and future orders are headed in the wrong direction.
- Two notable firms updated their guidance for the coming quarter, providing a positive glimpse of their respective sectors. Rental car firm Hertz's earnings outlook for its Q2 is an order of magnitude better than analysts' expectations, while its outlook for rentals is for a slower rate of decline than last quarter. Hertz's CEO said car rental demand in both the US and Europe has stabilized and said there are more summer peak reservations than expected. PC component manufacturer Seagate raised its revenue outlook for next quarter by a modest amount on better-than-expected demand and favorable pricing. Shares of STX are down 2%, while HTZ is up 9%.
- Food manufacturers ConAgra and McCormick are both under pressure this morning after reporting quarterly results and guiding for the year in line with expectations. Apparently commentators feel that brand-name packaged foods are under pressure from private-label, store brand products. Shares of CAG are down 6% in the session.
- In currencies, the greenback faced choppy price action during the New York session, although it did benefit from minor risk aversion flows on another steady weekly jobless claims reading. The Swiss Franc continued to be the main focus as speculation continued about the SNB's intentions in weakening its currency. There was chatter of a large bid in the 1.0980 area, although USD/CHF has struggled to maintain a foothold above the 1.10 handle in the session. The pair was grinding lower during the morning towards 1.0970 to test the resolve of any potential intervention. CAD started the NY morning on a soft tone, hitting a one-month low against the USD at 1.1638 but managed to retrace as Aug crude and spot gold maintained positive readings.
- The May Durables reading has restored some confidence this morning, with the leading US indices opening in positive territory and headed sharply higher in mid morning trading. The Commerce Department said demand for manufactured products rose for a second month in a row in May, with the Durables series sustaining the positive growth seen in April. Note that non-defense capital goods orders (ex-aircraft) rose by +4.8%, for the largest rise since September, 2004. The government's May new home sales data (342K V 360Ke) echoed yesterday's lower-than-expected NAR May existing home sales numbers, although latter seems to have blunted housing's impact today. All eyes are now on the FOMC rate decision later this afternoon, as investors look to see whether the Fed reiterates its commitment to maintain "exceptionally low" rates for an extended period of time. Gold prices rallied early in the pit trading session on reported short covering. The Aug contract is up 1.4% at $937. Crude prices continue to inch back towards $70 while natural gas heads in the other direction.
- US Treasury markets initially saw a burst of selling following May durable goods but prices then recovered. Things generally seem to be on hold ahead of FOMC and the $35B 5-year note auction. The 5-year cash yield remains right around the 2.7% level.
- Shares of Oracle are making strong gains, up 7% after a slightly better than expected Q4 earnings report yesterday that was free of any big surprises. Executives pointed to increasing operating margins and market share taken from SAP as proof of the company's improving outlook. The firm's earnings guidance for next quarter was in line with estimates, although revenue was a bit below estimates. Casual dining name Darden reported in line with expectations and hiked its quarterly dividend, although a dismal full-year forecast is weighing on the name today, with shares of DRI down 2%. Executives warned the industry's weakness over the past six months will continue throughout the rest of the company's fiscal 2010. Monsanto beat bottom-line targets but missed on revenue, and guided toward the lower end of its range for the year. Shares of MON a bit higher today, trading in line with the other major ag stocks. Rite Aid's loss was a bit less than expected, while it guided a slightly larger loss for the year. Investors initially looking past the company's quarterly results and sent shares of RAD up nearly 10% in early trading, although the name traded off mid morning. Shares of Supervalu are down nearly 15% after the supermarket chain guided same-store sales -3% for Q1 and said Q1 earnings would be "substantially below" the market consensus of $0.65e.
- In currencies, the greenback entered the New York session on a soft note with reserve management adjustments allegedly behind the weakness; dealers said Eastern European names were "aggressive" Euro buyers. However, the dollar managed to benefit from another alleged round of SNB indirect currency intervention via the Bank for International Settlements (BIS), which sold CHF against both the euro and dollar pairs (the SNB and BIS declined comment on intervention). EUR/CHF shot from 1.5010 to 1.5287 while USD/CHF soared from 1.0665 to 1.0910 within a half-hour period this morning. Dealers are more confident now that the 1.5000 level in EUR/CHF is the clear "line in the sand" for SNB intervention. Last week, the SNB reiterated that it would continue to counter Swiss Franc strength, especially against the euro, to counter deflationary forces in its economy. The intervention had an additional twist (and more market impact), with dealers suspecting USD/CHF intervention this time around, opposed to only EUR/CHF during the initial March 12th intervention as well as suspected April, May and last week's June moves.
- Across the pond, members of the BoE have testifying in Parliament during the New York morning. The BoE's King noted that declines in sterling would not fully offset the UK's weak economic outlook but would help the country be more competitive. King noted budget deficits have gotten "extraordinarily" large and called on the next parliament to do something about them. He cautioned that the Treasury may face challenges funding the deficit "down the road" and added that the MPC has decided against providing a low interest rate commitment as inflation will likely remain below the bank's 2.0% target. GBP/USD was initial softer as the BoE members spoke but has remained in the middle of the session trading range around 1.6540.
- US equity indices remained down in the premarket as investors brood over yesterday's big slide and more negative macroeconomic forecasts. The 10:00amEST round of economic data didn't provide much to lift spirits, with the April Housing price index a bit better than expected and the NAR's May existing home sales slightly lower than expected. The NAR's chief economist warned that sales were less than expected because poor appraisals were stalling transactions, noting that contracts are falling through from faulty valuations that keep buyers from getting a loan. Front-month NYMEX crude has sustained recent declines, trading down $0.50 or so below $67.
- Value buyers stepped in to buy leading bank holding names this morning after yesterday's sell off, although shares of the banks were pointing back toward even by mid morning. Bank of America priced its 200M depositary share exchange offer at $12.7048 per share as the bank works to complete its extensive capital raising process in the wake of the government stress tests last month. Ratings of regional banks Keycorp and Fith Third Bancorp were cut at Fitch this morning, sending FITB shares down 6% or so in early trading.
- The EU and US filed a joint complaint with the WTO against China over Chinese export curbs on various raw materials, specifically bauxite and phosphorus. Also keep in mind that Boeing has postponed the first flight of the 787 Dreamliner due to the discovery of a weak body joint, although a company played down the fix as being inexpensive and assured the public that the company believes the production schedule will not be affected. Shares of Boeing are down 8%, with key suppliers like HXL also taking hit, trading down almost 10%.
- In earnings, shares of Kroger are under pressure after the grocery giant beat earnings estimates but came in a bit below top line targets. Kroger also reaffirmed its full-year earnings and same-store sales targets. Shares of Smith & Wesson are down 10% after a lackluster quarterly report and in line guidance yesterday. Office furniture name Steelcase was up as much as 15% before trading off to around +4% this morning after breaking even in its Q1 (the Street expected a $0.14 loss) and forecasting breakeven earnings for next quarter as well. Steelcase's CEO said that recent order patterns have reflected modest seasonal improvements, and insisted that the Q1 may prove to be the company's low watermark. Commercial Metals' quarterly loss was slightly smaller than expected, while the company predicted a similar loss next quarter. CMC traded up 4% or so in the early going. CMC's CEO warned that any volume improvement in the quarter was seasonal and not reflective of any stimulus effect, and also said that destocking appears to be in its last stages.
- In currencies, the greenback was on the defensive throughout the New York morning after comments from a US Treasury official failed to convince markets not to fear rising US bond yields. The Treasury's Ramanathan said his department "doesn't read much" into rising yields given that issuance was "completely blind" to quantitative easing that higher yields might not only be due to increased supply. Russia Deputy PM Shuvalov used the opportunity to comment that while US Treasuries may be among his country's top investments, the Russian Central Bank could quickly adjust its reserves policy if necessary. The ECB's Weber reiterated his usual hawkish comments, noting that the ECB has used up its room to lower interest rates and that the bank's exit strategy would not be influenced by politics. He reiterated that Germany needed to keep an eye on state and national budget deficits. There were a slew of comments from various European debt agency heads regarding their comfort with scheduled 2009 and 2010 issuances. In addition, word that Boeing would delay its first flight of the dreamliner added to risk aversion sentiment that took a brief hiatus during the European morning. EUR/USD holding above its prior resistance level of 1.40 ahead of the first leg of the US refunding schedule. JPY price action continued to follow the equity markets on the risk aversion/appetite themes. USD/JPY is holding in the mid-95 neighborhood
- US equity futures were weighed down in the premarket by European declines and pessimistic comments out of the World Bank. In the first hour of trading US indices are well into the red, and are testing last week's lows with the S&P bouncing off of 900. Last night, World Bank Chief Economist Lin said the World Bank expects a deeper global recession in 2009, with the global economy -2.9% (versus the bank's prior -1.7% estimate). Despite a forecast for growth in 2010, Lin said that "recession-like conditions" will not go away next year. The Fed policy decision later this week is adding to the uncertainty; with no change in rates expected, commentators are speculating whether the Fed will expand its purchases of Treasuries or not. Front-month crude is way off last week's highs, down $2.50 to trade around $67, with major metals well off recent highs as well.
- Fixed income futures were higher, with dealers citing duration extension buying as a factor complementing the risk aversion sentiment. There was a revival of demand for safe-haven government debt as European and US equity markets traded lower ECB's Nowotny noted earlier today that the ECB was likely on hold for the remainder of 2009, while Germany's IFO data was mixed in key segments.
- In an opinion piece in the Wall Street Journal, former Fed Governor Fredrick Mishkin wrote that the Fed is facing a serious dilemma regarding the best way to reckon with the rise in long-term interest rates, given their potential to choke off the recovery and hurt the housing market. Mishkin warns that while the expansion of Treasury bond purchases by the Fed would have the benefit of lowering long-term interest rates temporarily to stimulate the economy, in the current economic environment it could be dangerous as it may enable fiscal irresponsibility and stoke inflation.
- In equity news, Shares of Goldman Sachs are holding up better than nearly all the rest of the financials this morning on a report in the New York Observer that Goldman staff have been told to expect large bonuses on estimates of substantial earnings growth in the first half of the year. Walgreens held things together in Q3, with earnings and revenue in line with Street estimates. On the conference call, Walgreen's CEO said the company plans to slow down opening of new locations next quarter and warned that consumers have cut back and are buying affordable essentials only. In its May master trust data, Target said that net charge-offs fell a hair over April levels, while the overall delinquency rate also fell a bit. Marvell Technology raised its revenue guidance for next quarter by a substantial margin. Marvell's CEO said the company is more optimistic based on improved orders in this quarter. And media outlets everywhere are chewing over reports that Apple CEO Steve Jobs had a liver transplant a few months ago in secret.
- In currencies, the euro is weaker across the board as market participants focus on ECB rhetoric regarding fiscal balance and the Maastrict Stability Pact. ECB officials have really begun preaching the gospel of budgetary responsibility now that the outlines of stabilization have begun to take shape in economic data and Euro Zone finances remain under pressure. Over the weekend ECB Chief Trichet said the Euro Zone was at a point where additional debt cannot be accumulated, despite the extraordinary events that had previously justified expansionist budgets. Risk aversion is being driven by lower commodity prices, which suggest the market taking a more realistic look at the green shoots. The reduced forecasts from the World Bank have only added to this sense of caution.
- The absence of any US economic data has cleared the way for an overall subdued trading environment, considering it is a quadruple witching Friday. Equity indices are posting modest gains while commodities generally tick higher and the greenback languishes. US Treasury prices opened lower as yesterday's selling pressure carried through to this morning's open in Chicago, but prices have since recovered today's losses. Yields still remain a good margin away from last week's multi-month highs and are trying to recover from yesterday's mortgage back induced selling. Soothing commentary from Treasury Secretary Geithner as well as the EU after its recent summit are undergirding optimism. In addition, GM is likely to emerge from bankruptcy a month ahead of schedule, by mid July, according to press reports. Front-month NYMEX crude is up a bit, trading just under $72.
- Rochdale's Dick Bove made positive comments on Citigroup this morning, noting that he belives the bank's shares could rally as much as 28% in the near future, to $4.00/share. Shares of Citi remain in positive territory as the rest of the major banks sink into the red. The New York Times writes that private equity firm Kohlberg Kravis Roberts may cancel its plans to list on the NYSE. It was planning to merge its operation with KKR Private Equity Investors, but now it may pursue the merger without the complicated process of listing in New York.
- Research in Motion's Q1 results and Q2 forecast were more or less in line with estimates yesterday afternoon. Analysts have reacted tepidly this morning, with BoA/Merrill Lynch reiterating its prior price target of $100 and lowering its 2010 earnings estimates on the firm, while Thomas Weisel raised their PT ever so slightly. Apple is launching its 3GS iPhone today; AT&T noted that it has sold "hundreds of thousands" of the new model in preorders. Shares of Apple have held steady all week, while PALM has jumped 10% in the early going this morning. Shares of RIMM are down 2%. Carmax zoomed ahead of estimates in its Q1 report today, sending its shares up as much as 15% in early trading. A Carmax executive said that the used car market continues to be less bad than market for new cars. Smith & Wesson reloaded its Q4 revenue guidance thanks to its acquisition of Universal Safety Response, Inc, putting it well above the consensus estimates.
- UBS shined some light on the solar industry in a sector report, raising its 2010 global demand estimates thanks to the emerging recovery in China and the US. However, it lowered its solar module price estimates to near marginal cost. UBS's top global industry picks included First Solar, Wacker Chemie, Yingli & OCI Company. It rated Yingli and SunTech Power at Buy based on favorable cost structures and strong distribution. In addition, it sees SunPower as best positioned to win in the US commercial and residential markets. UBS downgraded SolarWorld, citing lower estimates for gross margin based on ASP pressure
- In currencies, the greenback maintained a tone of consolidation tone during the New York session despite firmer equities, with EUR/USD unable to capitalize on higher gold or oil prices. CAD retraced its earlier strength and moved above the 1.13 level following the weaker than expected Canadian retail sales data. The Mexican Central Bank said its easing cycle was almost over and stated that the second half of 2009 should see improvement in its economic activity. The bank cut its overnight rate by 50bps to 4.75% this morning, as expected.
- US equity indices are generally making the first real advances of the week as the blowout Philly Fed data prompts investors to buy stocks. The tech heavy NASDAQ is the notable laggard in front of tomorrow's quadruple witching and this afternoon's earnings results from RIMM. The initial jobless claims remain above the 600K level, while the continuing claims have fallen on a w/w basis for the first time in months. Some commentators believe the improvement had more to do with benefits running out for long-term unemployed rather than any uptick in hiring, however. The Philadelphia Fed provided a stark contrast to Monday's disappointing June Empire Manufacturing data, with its survey of business conditions dramatically better than expected (-2.2 V -17.0e), for the best reading since last September. Front-month crude is back above $71 in early trading.
- The brighter picture on the data front and the Treasury announcement that they would be auctioning off $104B in new coupon supply next week has brought sellers back into the bond market. The benchmark 10-year has popped back above a 4.75% yield with the long bond rate nearing 4.6% once again.
- Financial stocks are bouncing back a bit after three days of declines now that the broad outlines of the new financial regulation proposals have been made clear. However, commentators are showing some doubts about Citigroup, which many assume will not benefit from the new regulatory regime. GE Capital is also likely to face more regulation under the new system. The WSJ points out that GE's finance arm does not currently fall under the purview of a bank regulator, while under the new regulations GE Capital would likely be classified as a systemically important firm because of its size and be forced to operate under stricter regulatory oversight. Shares of GE fell as much as 5% in early trading, before heading back toward positive territory.
- Major industrial names Caterpillar and Emerson Electric disclosed order data that hardly indicates any recovery is under way for these two companies. Cat's three-month retail sales in North America fell 57%, compared with declines of 51% and 41% in April and March, respectively. Retail sales for the rest of the world fell 35% over the period, also at a faster pace than in the prior two months. Emerson said order trends improved sequentially in May from the month before, but continued to show weakness across its global markets. Emerson's three-month order rate was down 25% in May, compared with declines of 25-30% in March and April.
- In earnings, J.M. Smucker crushed analyst estimates in its Q4 report and also guided full-year earnings above expectations. The company also managed impressive y/y margin and US retail growth. Carnival Cruise Lines came in ahead of expectations in its Q2, despite higher fuel prices and disruptions from H1N1. The firm guided slightly below par for next quarter, and cut its full-year forecast slightly. Discover Financial reported a profitable Q2 thanks to a big payout from its lawsuit victory against Visa and MasterCard. Before this special item, TTN analysis suggests that the firm lost $0.15 per share in the quarter, compared to analysts estimates for a $0.30/shr loss.
- In currencies, rising risk appetite helped EUR/USD and EUR/CHF move higher following the US weekly claims data, which saw the first w/w drop in continuing claims since Jan 2nd and the largest weekly decline since Nov 2001. Overall, risk appetite improved as participants took the data at face value. The better Philly Fed and leading indicators also cemented the view that the worst of the economic crisis has past. EUR/USD tested the alleged "Chinese" 1.4000 option barrier but encountered some stiff selling nonetheless.
- The sharp move in Swiss Franc-related pairs prompted renewed chatter of currency intervention, with the Bank of International Settlements cited as the intermediary. Dealers are noting it remains unclear whether 1.50 is the clear "line in the snow" for SNB intervention. The market has significant long EUR/CHF positions, and the cross was testing the 1.5000 in early New York trading where plenty of option barriers seemed vulnerable. SNB's Jordan commented that the SNB had no fixed FX threshold. Nonetheless, the cross soared to 1.5140 on rumors of intervention, with the BIS, the SNB and the ECB all having "no comment" on whether actual intervention had occurred. Dealers are now focusing on the key resistance level of 1.5230, which corresponds to the downtrend line from the 1.6330 highs made in late July 2008.
- Oil and metals encountered a choppy session and the price movement was reflected in the AUD and CAD pairs that mirrored the commodity price action. USD/CAD tested the 1.1360 area before moving back to 1.1250. The pair was also aided by the higher-than-expected Canadian CPI data. AUD/USD is back above the 0.80 handle as rising risk appetite put oil back in positive territory.
- US equity markets are having trouble finding any real momentum one way or another this morning. European bourses remain heavy while stock prices both here and abroad have been held back by cautious comments from FedEx, a broad slate of bank ratings downgrades from S&P and a CPI reading suggesting an economic recovery is minimal at best. The May Consumer Price Index was barely positive on a m/m basis, while the y/y figure showed the biggest annual drop in the series since 1950. The data provides evidence that the recession is keeping inflation in check or that deflation is around the corner, depending on one's point of view. Front-month NYMEX crude is down again this morning, with the contract under $70 led by a decline in gasoline prices and on the back of increasing supplies.
- The CPI data has enabled bond bulls to remain in charge. Another coupon purchase from the Fed and no new supply coming to market this week has kept yields retreating. The 10-year is backed off some 40 basis points from last week's run towards 4% while the long bond is moving away from the 4.5% level. Fed fund futures continue to rebound from the selling experienced post the jobs report and now price in roughly a 40% the Fed hikes rates by the end of the year.
- The White House is expected to officially present its plan for a total overhaul of the US financial regulatory structure later today, although the broad contours of the plan have been discussed by various officials over recent days. Last night a senior Obama Administration official confirmed earlier reports that the plan would require firms that create various asset-backed securities to retain a 5% stake in their securitizations and would address money market mutual funds. This morning, White House Advisor Goolsbee told CNBC that the Fed would be tapped as a "day-to-day" supervisor of financial institutions. Note also that yesterday afternoon Senator Reed introduced a bill to regulate hedge funds, with legislation that would require hedge funds, private equity funds and venture capital funds to register with SEC.
- Financial names have been loosing ground since the open after S&P downgraded ratings and outlook on 22 US banks. S&P said that it believes operating conditions for the banking industry will become less favorable than they have been in the past, characterized by greater volatility in financial markets during credit cycles and tighter regulatory supervision. It also warned that the loss content of loan portfolios should increase, but recent capital rebuilding will likely help banks defray these losses. Most of the downgrades were for regional banks, although Wells Fargo was a notable national bank that was downgraded as well. Shares of WFC are down 5%. Regionals are getting hit across the board, with ZION and FITB leading the charge, both down around 8%. USB is a an exception, with its repayment of $6.6N in TARP funding buoying its shares. Shares of all the leading banks are in the red, with Citi and BoA down more than 5% in early trading.
- In earnings, FedEx's earnings soundly beat expectations, although revenue was well below par. The firm's guidance for next quarter was notably below analysts' forecasts; FedEx's CFO noted that the recent run-up in fuel prices would have a significant negative impact on its results next quarter. A lack of visibility on fuel prices kept FedEx from offering full-year guidance. On the conference call, the CEO said that if oil stays where it is, FedEx should recoup fiscal Q1 losses related to fuel charges in fiscal Q3 & Q4. Adobe reported in line with expectations, and offered very broad guidance ranges for next quarter. Executives said the firm's North American market has continued to stabilize, while Europe has remained weak. Scotts Miracle Gro fertilized its outlook for the full year, strengthening its earnings forecast on double-digit y/y sales increases year to date. Silicon Labs has joined other semiconductor names in raising guidance thanks to stronger consumer demand.
- Potash names are getting slammed this morning after German fertilizer manufacturer K+S slashed its 2009 sales forecast to 4-4.5M tons from 6M prior due to weak demand. The company said there were no signs of recovery in European demand, and that declining demand was putting pressure on prices. Shares of MOS, POT and AGU are down around 8% on the news mid morning, while the Frankfurt-listed shares of K+S [SDF.GE] are down a whopping 16%. Solar names are weak after Canadian Solar said it would ramp up module production to 800MW this year from its prior forecast of 620MW. CSIQ is down 8%, while solar sector ETF TAN is down 4%. Also note that Star Scientific lost a major case in its ongoing attempts to enforce patents against Reynolds American, sending shares of STSI down 80%. Star has vowed to keep fighting in this case.
- In currencies, the greenback maintained a softer tone against the euro during the New York session but continued to consolidate within a 1.3800-1.3930 range, with price action capped by sovereign names. Overall the dollar's tone weighed down by the largest annual CPI drop since 1950, cautious quarterly guidance by FedEx and the banking jitters from S&P's big move. The soft US CPI number fuelled expectations that the Fed would keep interest rates low. Risk aversion is helping the JPY firm up against most of its major pairs, with USD/JPY probing below the 96 area and GBP/JPY dipping below the 156 handle. China's Premier Wen Jiabao commented earlier that the potential economic recovery was at a critical juncture and this weiged upon equity prices and commodities. The CAD and AUD saw the bulk of their European gains erode on the back of softer oil and metal prices. NYMEX crude back below the $70/barrel while spot gold hugging the lower end of the $930/oz level. USD/CAD tested the 1.14 level for fresh 3-week highs. AUD/USD unable to retake the 0.80 level.
- US equity indices are moving sideways this morning as another round of grim industrial production data clouds out any sunshine from the mildly positive housing data. The May housing starts and buildings permits data came in slightly above estimates, rising by the biggest amount in three months. However, the May industrial production and capacity utilization data provided herbicide for green housing shoots, with both readings still in negative territory. The industrial production data showed its seventh straight month of contraction, while capacity utilization marked its fourth consecutive record low. Bearish comments from various quarters are also weighing on sentiment: Goldman Sachs Chief Economist said he still sees the potential for a market correction over next several weeks, while the American Bankers Association forecasted US unemployment peaking at 10% and above 9.5% throughout 2010. Note also that Morgan Stanley expects to repay its TARP funds sometime today. NYMEX crude has recouped its losses from yesterday on the weaker USD, with the front-month contract back over $72 mid morning.
- US Treasury prices opened to the downside after it was reported Russian President Medvedev would raise the reserve currency issue at today's BRIC meeting. But the official outline of the communiqué failed to really spook investors and another coupon purchase from the NY Fed sent prices into positive territory and yields lower. The 10-year is yield has returned towards 3.7% while the long bond offers 4.53%.
- In earnings, shares of Best Buy are down 5% after the company came in more or less even with analysts' estimates and reaffirmed its 2010 forecast. Smithfield Foods' loss was slightly less than expected, while its revenue was well below estimates. The company believes the A(H1N1) virus only had a short-term effect on US pork demand. As consumers received more accurate information about the virus, Smithfield saw domestic market conditions begin to move back to more normal levels. International markets still face some restrictions, however. La-Z-Boy was in the black in its Q4 crushing estimates for an $0.11 loss. Shares of LZB are up 15% but off their best levels.
- In other equity news, Genzyme temporarily shut down drug production at its Allston Plant after it detected a virus that impairs cell growth in one of six bioreactors at the facility. The company expects the plant to be fully operational by the end of July. Shares of GENZ fell 7% before the open and have recovered somewhat in early trading. Steelmaker Nucor essentially reiterated their earlier qualitative guidance for Q2 with hard numbers before the open. The company said its loss in the quarter would be smaller than expected, sending its shares up 4%. According to Nucor's CEO, order entry has improved in recent weeks, although the economic outlook remains very uncertain in light of the continuing structural economic challenges. Shares of Tyco are up 8% after the firm guided substantially higher than the Street for its Q3, citing additional revenue in consumer markets and undersea telecom segments.
- In currencies, the greenback was softer headed into the New York session on price movement ahead of the BRIC summit in Russia and better German ZEW data. EUR/USD tested the 1.3930 level before meeting solid selling from sovereign names in Asia. Dealer chatter of euro buy-stop orders above the 1.3950 level are safe for the time being. The BRIC draft communiqué came out just before the equity open, calling for a "diversified, stable, predictable currency system," with no mention of the role of the dollar or any supra-national currency. The statement indicates there are conflicting views among Russian and other BRIC finance officials, given that the reserve currency issue was brought up in a general sense but without any specific mention the dollar's role.
- JPY price action has been choppy as dealers continue to debate the situation at Japan's public pension fund, the worlds largest. There was news the fund might sell JGBs to cover payments; dealers were noting that this could mark the beginning of the end for Japan as a capital exporter. In addition, Japanese tax laws could encourage repatriations of funds back home. These raise question about whether you can expect the JPY to be in demand for the foreseeable future. The steady dollar during the mid-NY morning helped the energy and metals consolidate their earlier gains. The CAD and AUD currencies were paring their gains as a result.
- A big disappointment in the June Empire Manufacturing index spooked investors before the open this morning, as the survey of manufacturing conditions in the North East indicated much steeper declines than expected instead of another sign of moderation. Major US indices opened slightly to the downside and have headed steadily downwards in mid morning trading. With things looking shaky, mid-morning comments from Fed Governor Evans that there is a risk US unemployment could get close to 10% added to the downward momentum. The ECB's Papademos, Meredith Whitney, and NYU's Nouriel Roubini have added to the steady chorus of cautious commentary as well. Equity weakness and the stronger dollar have pushed front-month crude to session lows below $70. Bond markets are bid up after TICS data that showed foreign countries have yet moved to substantially cut US Treasury holdings. The US 10-year yield is back below 3.75% while the benchmark spread has narrowed back below 250 basis points.
- Treasury Secretary Geithner and White House advisor Larry Summers filled in more details on the Obama Administration's proposals to regulate derivatives and securitized products in this morning's Washington Post. According to the piece, the administration will propose that all derivatives contracts and dealers be regulated and require originators to retain interests in asset-backed securities. Systemically important firms will face "stringent" supervision by Federal Reserve and a new Council of Regulators with broader responsibility across the system. President Obama is scheduled to announce a major overhaul of financial sector regulations on Wednesday morning.
- Bank of America and Morgan Stanley are notable laggards this morning, with both down 2.5% or so in early trading. Overnight Rochdale's Dick Bove said BoA would suffer "horrific" loan losses, while the bank's May Master Trust data showed net charge offs jumping to 12.50%, versus 10.47% in April. Capital One's May Master Trust charge offs rose nearly 1% over April levels. Master Trust data from the other leading credit card issuers is expected throughout the day.
- Illinois Tool Works revised its Q2 earnings guidance slightly upwards and reaffirms its revenue growth target after deciding to keep a business segment that had been slated for divestiture.. Shares of the company are off nearly 3%, weighing down competitors Snap-On, Stanley Works and Black & Decker as well. Small semi manufacturer O2Micro joined the competition in raising guidance, citing increased demand for LCD TVs. Shares of OIIM rose 10% in the pre-market and have sustained gains in early trading. Struggling retailer Limited Brands reduced the lower end of its 2009 earnings range and predicted same-store sales would down 5% to 10% for the year. Note also that Canaccord Adams has soured on all the smartphone exuberance, downgrading AAPL, NOK and RIMM this morning.
- In currencies, the greenback has firmed up on weekend comments out of Russia to the effect that there were no plans to discuss the reserve currency issue at tomorrow's meeting of BRIC nations (Brazil, Russia, India and China). Note also that French President Sarkozy said the G20 would have to address the currency issue at some point. IMF's Lipsky commented that the USD would remain the world's reserve currency for the foreseeable future. European currencies were hampered by continued concern regarding the Continent's banking sector. EUR/USD remains in the lower quarter of its session range throughout the NY morning. Dealers are discussing the technical importance of 1.3800 in the pair, with chatter circulating of euro sell stops building up below 1.3800 down through the 1.3720 area.
- Not all the news was rosy for dollars, however. The April TIC data showed global demand for US financial assets, with China, Japan, Brazil and Russia trimming treasury holdings in a shift that may reinforce concerns that demand for American debt will wane amid record deficits and the decline of the dollar's reserve status. Risk aversion helped the JPY firm against the majors, with EUR/JPY off 200 pips at 135.50, while GBP/JPY was lower by 150 pips to test below the 160 handle during the New York session. CAD and AUD were softer as the stronger USD weighed upon most energy and metal markets. Additional weight hit USD/CAD, sending the cross below the 1.13 level after the Bank of Canada said significant stresses remain in financial markets and that risks to household balance sheets have increased since December. AUD/USD is moving back below the 0.80 handle.
- Trading is once again subdued and unsettled this morning, with US indices opening to the downside before the DJIA and S&P recovered to just short of breakeven. The Nasdaq is underperforming thanks to weakness in tech names. The preliminary June University of Michigan Confidence survey came in a hair below expectations, with both one- and five-year inflation expectations above the 3% level. Dollar strength and lots of "commodities are overbought" commentary shaved around $1.50 off the price of front-month crude earlier this morning, although some of those losses have vanished as oil heads back over $72. Bond prices remain firm following yesterday's 30-year auction, aided by comments from Japanese Finance Minister Yosano.
- Shares of BlackRock opened down 2% and then dropped to -6% the morning after consummating its purchase of Barclays investment unit for $13.5B and becoming the world's largest money manager. Threats of Congressional subpoenas have benefited Bank of America, whose shares are outperforming those of the leading banks after a top Republican official on US House financial oversight panel threatened to drag Fed Chairman Bernanke and former Treasury Sec Paulson before the committee to testify on the BoA/Merrill Lynch deal.
- Troubled insurer Hartford Financial announced a share secondary yesterday evening. The firm plans to sell $750M in common equity, or about 16.4% of its current market cap. Hartford also commented that it would accept TARP funding, although an executive qualified this statement earlier this morning, saying that the firm was still "evaluating" participation in TARP. The exec also said Hartford might take "significantly less" than the $3.4B initial authorization from May. Shares of HIG are down 8% in early trading. Principal Financial Group said last night that it had decided not to take TARP funds, citing the stabilization of the financial systems and the firm's improved capital position. Shares of PFG are down a few percent in early trading.
- Landmark legislation granting the FDA the power to regulate tobacco passed the Senate yesterday afternoon in a 79-17 vote. A nearly identical version of the bill moves to the House today, with most commentators noting that passage is virtually assured. President Obama has pledged to sign the bill. Shares of tobacco companies have not really responded to the Senate action; most believe the legislation is a net positive for the industry. In other tobacco news, there was vague chatter making the rounds yesterday that Star Scientific had reached a settlement in its long-running patent infringement suit against Reynolds American. Shares of STSI have fallen this morning, trading down as much as 10% on the rumors.
- In other equity news, shares of National Semi are off 8% despite the company reporting a smaller-than-expected Q4 loss and beating revenue targets in its guidance for next quarter. Shares of Savient Pharmaceuticals are up 50% on chatter that FDA staff have released a positive report on drug candidate Krystexxa ahead of an advisory panel meeting next week.
- In currencies, the dollar is extending its rebound from weekly lows thanks to verbal relief from reserve diversification jitters. During the Asian session, Japan said its trust in US Treasuries was "unshakable." Softer Euro Zone Industrial Production data was also cited as behind the shift in sentiment, with the numbers pointing toward continued contraction and prolonged economic weakness. The Spanish Government cut its 2009 and 2010 GDP forecast and raised its 2010 budget deficit estimate to 7.9% of GDP from 4.8% prior, and the two main Spanish unions said the government had approved an additional €17B in unemployment aid. Events like this highlight the fragility of the current incarnation of the Maastrict stability pact, which dictates a 3% debt-to-GDP ratio for most members. Also note that position squaring ahead of the G8 finance ministers conference was also a factor in the USD's firm tone.
- EUR/USD has held below the 1.40 level for the bulk of the New York session while GBP/USD is 200 pips off its Asian highs of 1.6600. USD/CAD is 200+ pips higher, well above the 1.1220 level, while AUD/USD is off 100 pips from its Tokyo open to trade below 0.81. USD/JPY remains within striking distance of breeching its August downtrend line, with a close above 99.00 set to elect some further upside dollar momentum in the pair.
- Equities continued their post-beige book rally before and then after the bell taking heart from the Fed's assertion that the slump is moderating in nearly half its districts. However indices did encounter some early resistance around 950 on the S&P keeping a lid on gains thus far. Before the open May advance retail sales came in even with estimates, at +0.5%, making for the biggest gain in the series in four months. Data was aided by consumers snapping up discounted auto deals and then paying higher prices at the pump. The initial jobless claims were a bit lower than expected, while continuing claims moved out to yet another all-time high. Front month crude continues to rally, trading above $72 after the IEA raised their monthly demand forecast.
- Sellers returned to the US Treasury markets in the early going. Talk still centered on the 4 basis point tail required in yesterday's 10-year reopening which briefly sent the benchmark yield above 4%. But following another loss of 600K jobs for the latest week buyers stepped in and yields have backed off. The long bond is only fractionally lower yielding 4.775% ahead of this afternoon's auction results.
- Ratings upgrades are moving selected financial stocks. Bank of America is up 7% after Keefe Bruyette raised the name to Outperform from Market Perform, noting that the completion of capital raising takes away a level of uncertainty surrounding the bank. Note that BoA CEO Lewis is getting grilled in front of Congress this morning on questions regarding his bank's acquisition of Merrill Lynch. Among the regional banks, Regions Financial rose as much as 9% before trading off while Fifth Third rose 6% after Goldman Sachs boosted the names to Buy from Neutral.
- Another crop of corporations sought to mold expectations by adjusting guidance ahead of earnings season. Qualcomm raised its revenue forecast for Q3 by 10% or so (but refrained from offering earnings guidance), noting that robust demand for chipsets would aid its top line. Clorox reaffirmed its forecast for 2010 and raised its dividend by a bit. Medco Health affirmed its full-year forecast. Railroad Genesee Wyoming cut its earnings outlook for next quarter thanks to declining traffic, sending its shares down 4% on the news.
- Recent comments from Boeing and Yahoo have provided insight to the two companies respective industries. Boeing dropped a bombshell mid morning, trimming its long-term 20-year demand forecast by a small amount as the airline industry continues to reduce capacity in the face of the economic crisis. Last night a Yahoo executive said that the company is seeing lots of advertising activity from mid-level customers, stating that advertising is "coming back."
- In currencies, the greenback continued to consolidate under a barrage of data, bond issues and commentary, providing good two-way price action. Nonetheless, market participants are well aware that green shots could easily be replaced by a George Constanza-style "double-dip" recession. Aiding these fears was White House Advisor (and former Fed Chairman) Volcker, who commented that prospects for a strong recovery were unlikely, despite some growth in late 2009. Volcker also added to the ongoing conversation on global reserve currencies, noting that some sort of special reserve currency would ultimately be logical but there were no practical alternatives to the dollar today or "for many tomorrows." A Goldman Sachs economist chimed in as well, noting that central banks need to hold fewer dollars and forecasted a softer dollar in the medium and long term on the growing risk of reserve diversification.
- Some key levels looking ahead for EUR/USD are in the 1.3950 to 1.4090 area. Dealers are noting that a break below 1.3800 could alter the recently constructive Euro picture. Above the 1.4150 would elect another round of Euro buy stops. The USD/JPY pair faces critical resistance line at the 99.00 area, which represents the August downtrend line.
- The Swedish Kroner (SEK) continues to get whipsawed thanks to the economic meltdown in the Baltic states. EUR/SEK tested above the 10.82 on rumors of political turmoil in Latvia; Sweden has substantial banking exposure to the former Soviet satellite. SEK sentiment was also weighed down by dovish comments from the Riksbank's Svensson, who commented that another interest rate cut (rates are at 0.50%) was possible, while the Riksbank's Wickman-Parak said low interest ratse might be necessary for a relatively long period of time
- Two notable meetings are on the horizon. Firstly, G8 finance ministers are meeting in Rome this weekend. French and German officials have commented that currencies are unlikely to be discussed at the confab. It should be noted that it is the finance ministries meeting in Rome who would provide central banks with any currency intervention orders. Then next week Brazil, Russia, India and China (the so-called BRIC countries) are set to meet in Moscow on June 16. Markets expect further talk about diversification of reserves away from the U.S. dollar. Brazil stated yesterday that it was not attempting to weaken the USD and did not benefit from a weaker USD. Russia has been the most vocal on creating a new reserve currency, while China has remained a large buyer of US treasuries this year despite inaccurate stories to the contrary. China's "diversification" steps have been to purchase many USD based commodities
- US equity indices gained a bit in the premarket, but headed lower and slipped back into the red in another morning of lighter volume and little data. Comments from various high-profile figures are competing to set the tone this morning. Goldman Sachs's CEO Blankfein, who seldom comments publicly on the economy, told reports this morning that he expects a long, protracted recession, and said that the current upturn is not the real recovery. Later in the morning, PIMCO's McCulley responded, saying that he sees green shoots and believes the recovery is for real. In comments to the North Carolina State Senate, Fed Governor Lacker said the labor market may weaken further although he is seeing evidence of consumer resilience, and predicted the recession could end later this year. Note also that Chrysler and Fiat have finalized their alliance now that the US Supreme Court has signed off on Chrysler's bankruptcy process. The company is expected to emerge from Chapter 11 very shortly. Front-month NYMEX crude nearly broke $72 in early trading after the Kuwaiti Oil Minister said OPEC may consider raising output if oil reaches $100/bbl and Gazprom's CEO warned that the oil market has pinpointed $100/bbl as the 2010 benchmark price. Spot gold continues to its inability to retake the $1,000/oz mark and has descended back into negative territory for the session, hovering around the $950.
- Treasury yields have moved out to fresh 2009 highs in the benchmark bringing 4% into view. The 10-year traded above 3.91% after a Russian central bank official was quoted as suggesting Russia is considering moving away from USTs and buying IMF bonds. This rehashed concerns sparked by Chinese comments last week that suggested they were looking at IMF bonds as well. It is worth noting that these comments were released conveniently ahead of today's 10-year note reopening from the US Treasury. At 1pm the results of the $19B sale will be announced followed by the beige book release and later on an announcement from the Fed regarding the schedule of upcoming coupon purchases.
- Shares of Citigroup are outperforming this morning after the bank launched its share exchange operation (which it first proposed back in February), aiming to convert $58B in preferred shares and other preferred securities into common shares in order to pad its capital base. The Treasury will convert about $25B of its $45B preferred investment, giving it a 34% ownership stake. According to press reports, it looks like BlackRock has managed to snatch Barclay's iShares unit out from under the nose of CVC Capital Partners. The WSJ writes that a deal may be near for BlackRock to buy the unit for $12-14B, which is a bit more than the FT targeted on June 5th. Also note that there are reports the Obama Administration has dropped plans to cap compensation at financial firms who take bailout funding, leaving the job of regulating Wall Street pay to Congress.
- Various firms are fine-tuning guidance in an attempt to get out ahead of the unsettled economic situation. Home Depot tinkered with its 2009 forecast, saying that earnings would be -7% to flat y/y (better than its prior -7% view), while revenue is still seen as -9% y/y. HD opened a few percent higher on the news. Aerospace and industrial manufacturer Barnes Group has withdrawn its 2009 guidance, citing increased uncertainty in the transport sector. Barnes shares are down 7%. Real estate giant CB Richard Ellis offered a "highly preliminary" view of its second quarter that was below expectations. Shares of CBG jumped up to 20% on the news, before trading off to +15%. Visa said it sees high single-digit growth in 2009 and believes it will return to 15-20% revenue growth in 2010, depending on the course of the crisis.
- Comments from various sources are buffeting the big chip manufacturers. Industry analyst Isuppli said that Intel's Q1 microprocessor share -2.5% q/q to 79.3% while AMD's share rose 2.3% q/q to 12.8%. The group sees Q1 global microprocessor revenue -21% y/y and sales -16% y/y. AMD's CEO echoed recent comments from the likes of Michael Dell, saying its too early to say PC market has hit bottom. He also predicted that Q4 is the earliest time for on-year revenue and PC demand growth (note just the other day Intel's CEO said he is confident the bottom has been reached in the PC market). Taiwan Semi believes the worst is over for the chip industry and expects industry growth of 5-6% in 2009, with recovery arriving in the second half of the year.
- In currencies, the greenback managed to shake off its earlier vulnerability in the choppy European session price action. Alleged comments from the French Finance Ministry, to the effect that currencies rates would not be discussed at this weekend's G8 summit, helped the pair test 1.4144 ahead of the New York session. The dollar seemed poised for a beating after Russian Central Bank First Deputy Ulyukayev commented that Russia was mulling plans to reduce its share of reserves held in US Treasuries in exchange for IMF bonds. The central banker noted that it would diversify reserves if the Chinese Yuan (CNY) became a new global reserve currency. Note that Russia's $401B of reserves include roughly 30% US Treasuries. EUR/USD retested the 1.4140 level, but failed to make a fresh session high on the Russian comments. Dealer chatter then focused on the pending IMF bond issue and debated whether there really was going to be any central bank portfolio adjustment away from treasuries and into IMF bonds. Keep in mind that the IMF has not disclosed the makeup of its pending bond issue, and it remains an open question whether they will be denominated in USD, EUR or a basket comprised of Special Drawing Rights (SDRs, which are an accounting chit only and not a circulated currency). Risk aversion returned after comments from Goldman CEO Blankfein, sending the EUR/USD probing below the 1.4000 level as oil and energy markets took note of the cautionary outlook from Goldman's chief. AUD and CAD are off their best levels, while USD/CAD is retesting 1.11, 150 pips above its NY morning lows. AUD/USD at 0.8050 after testing 0.8130 overnight.
- US stocks opened higher but have been drifting lower after the expected Treasury announcement on the banks cleared to repay TARP funds. Investors are evidently selling the news, after a buying surge late yesterday afternoon. Other cautious voices on the financial system have been heard, with Fed Governor Fisher warning again that some banks are still too big to fail and a Congressional bailout oversight panel stating that the stress tests might have to be repeated. Yale economist Robert Schiller told Bloomberg TV that "We may have a recovery, but I suspect it will be a disappointing one." Front-month crude is strong again this morning, trading up above $69 while gold is back above $950. The Greenback came under a fresh bout of selling pressure after Goldman Sachs made a technical call by the Euro against the Dollar. Yields continue to give back some of the recent gains with some steepening across the curve. The 2-year has given back more than 10 basis points from the highs yesterday to dip back below 1.3%. Later today the US Treasury is auctioning off $35B in 3-year notes.
- After the close last night, the Fed approved the capital raising plans for the 10 banks that were deemed in need of extra capital in the government's stress tests. The WSJ later reported that the Treasury would approve $50B worth of TARP paybacks this morning, while further press speculation about which institutions would be cleared to repay continued through the US open. In the end, Tresury Secretary Geithner stated just after the open of trading that 10 banks holding a total of $68B in TARP had been approved for repayment (without naming any individual firms); confirmation from the banks themselves has been hitting the wires since that time. For the record, Geithner noted that more than 600 banks have taken $199B in TARP funding.
- Since the announcement, Morgan Stanley, JP Morgan, American Express, Capital One, Bank of New York, US Bancorp, State Street BB&T Corp and Northern Trust have confirmed TARP repayments. AXP and COF are about the only names to make significant gains on the news, with the two credit card companies up as much as 4% on the news, although AXP is off its best levels. Most of the rest of these names are trading around even or in negative territory.
- Apple is trading around even in the wake of its big iPhone news yesterday. Multiple analysts raised price targets and made positive comments on the name overnight. BoA/Merrill Lynch believes the new iPhone are likely to put some near-term pressure on Research In Motion to move faster on user interface innovation, although indicated that RIMM isn't that threatened by the development. Shares of RIMM are up 2% today, while shares of PALM, which released its competing Pre smartphone last weekend, are back around even after rising as much as 5% after the open. Nuance and especially TomTom are riding Apples coattails on the iPhone news, as software from both firms are integral to the phone's speech recognition and GPS capabilities. Share of NUAN are up more than 3% today, while the Netherlands-listed shares of TomTom have shot up 15% today.
- In other equity news, Texas Instruments offered an upbeat mid-quarter update yesterday, guiding Q2 results well above expectations and saying that the semiconductor industry is making incremental improvements. Shares of TXN are up 6%, while the SMH is up 3% on the good news. Truck maker Navistar missed earnings and revenue targets by quite a bit, and slashed its 2009 forecast nearly in half. Navistar's CEO was not sunny on the economy, noting that the recovery will likely take longer than expected, leading to the worst market conditions for the firm in nearly half a century. NAV opened down 5% but has risen back into positive territory in early trading. Apparel retailers Men's Warehouse and Talbots both did markedly better than expected in Q1. MW was solidly profitable (versus expectations for a small loss), while Talbot's quarterly loss was half the expected amount. Talbot's CEO said the company saw a substantial rebound in merchandise margin from the fourth quarter and is seeing strength in key categories. Shares of MW are up 15%, while TLB is off opening highs around even.
- The greenback and commodity prices were back in sync during the New York session, reinforced by a research note from Goldman Sachs that discussed five reasons for a weak dollar, including rising risk appetite, the continued climb in commodity prices and lingering doubts about the reserve currency issue. EUR/USD moved above the 1.3900 handle as New York traders took the helm and proceeded to test above the 1.420 level before consolidating. The reserve currency question is likely to have continued momentum as the BRIC meeting later this month is expected to discuss the issue. There has been more talk about an SDR as a new synthetic reserve currency, which has in turn undermined confidence in the currently dominant reserve currency over the last six weeks. The current IMF SDR basket contains about 40% USD and 37% for the EUR, compared to the current share of about 60% USD and 30% for the EUR in central bank reserves globally.
- Equity trading is sluggish and downbeat this morning, with the three major US indices opening in the red and heading lower in the early going. With no major data releases to set the trend, investors are fretting ahead of the disclosure of which banks have been cleared to repay TARP funds. In addition, there is some tension from the Chrysler bankruptcy, as a decision is also expected soon from the US Supreme Court on whether the body will hear a challenge from a group of Indiana pension funds over the auto manufacturer's deal with Fiat or not. Front-month NYMEX crude is back above $68 after dropping as low as $67 overnight. The US Treasury curve continues to flatten with the benchmark spread moving below 250 basis points. Short term yields are ticking up with the 2-year approaching 1.38% while long term yields are lower.
- Investors are waiting for official news from federal officials on which banks will be allowed to repay TARP funds, with an announcement expected as soon as today. Various reports have indicated Goldman, American Express and JP Morgan would be among the first banks granted approval to repay government funds, while Morgan Stanley is also reportedly pressing hard to cleared as well. Shares of JP Morgan are outperforming this morning, up 1% or so while nearly all the other big bank names are in the red. Over the weekend Bank of America Chairman Massey said the board is taking a "fresh look" at the company's succession plan for CEO Lewis. This comment comes after there were press reports on Friday that the FDIC was leaning on Citigroup to oust CEO Pandit. In other financials news, Barclays said it might take a 20% stake in BlackRock as part of the latter's purchase of Barclays Global Investors.
- Apple is holding its software developers' conference today, where many analysts expect the company to roll out new, less expensive iPhone models. Any news is expected after the keynote begins around 1pmEST. Shares of AAPL are down 10% or so in early trading, while competitors RIMM and PALM are down about 2% or so. Note that Palm's Pre smartphone was launched this weekend, exclusively with Sprint.
- In other equity news, Cardinal Health fine tuned its 2009 forecast at an investor presentation this morning, guiding to the low end of its prior $3.50-3.60 range. Talbots said it would sell its J.Jill unit to private capital group Golden Gate Capital for $75M. Rambus withdrew some patents from the ITC proceedings against NVIDIA.
- In currencies, the greenback remained steady against the European pairs and consolidated its earlier gains thanks to rising shorter-term interest rates and lingering concerns over the health of European government fiscal and commercial banking sectors. The earlier S&P downgrade of Irish corporate debt is also a factor. Dealers are noting that German state-controlled bank WestLB AG reportedly came close to being shut down at crisis talks over the weekend. EUR/USD was probing the lower end of the 1.38 handle during New York trading. IMF Chief Strauss-Kahn noted that an recovery was not possible until banks are cleansed of their toxic assets and warned that a large portion of losses currently carried on banks balance sheet have not yet been disclosed. Both the AUD and CAD currency pairs were weaker and lower third portion of the session range.
- Markets are very active this morning as rumors and macroeconomic jitters roil markets. Futures ran up respectably in the premarket after the May nonfarm payrolls data came in much, much lower than expected (-345K V -520Ke), making for the smallest decline in the series since last September, coupled with the first upward revision of the back month data in nine months. But equity indices immediately gave back gains after the NY open, dropping straight into negative territory in the first hour of trade as rumors circulated that the nonfarm payrolls number had been significantly miscalculated (with speculation centering on a fishy birth/death adjustment). Labor Secretary Solis denied the rumors in a statement around 10:30amEST. By 10:45amEST indices had bounced back into positive territory. Rumors aside, the May annualized unemployment rate hit 9.4%, a bit higher than expected and now over the psychologically-important 9% level. PIMCO's Bill Gross chimed in right after the data, noting that he believes things are now worse than the government's "more adverse" scenario for unemployment used in the stress tests. Front-month NYMEX crude peeked above $70 this morning before trading back down to around $68 as strenght in the Dollar weighed on commodities.
- Trading in US Treasury markets was wild this morning as the jobs data and comments from the Fed's Lockhart sent yields flying. All eyes were on the jobs figures, but about 15 minutes before the nonfarm payrolls release Lockhart reiterated his belief that it was imperative the Fed doesn't wait too long to begin tightening and that he is neutral on the notion of increasing long term Treasury purchases at this time because it could imply "purposeful monetization." Yields were at six-month highs heading into the jobs report and surged on the much better than expected non-farm payrolls figure. Interestingly the curve flattened noticeably as 2-year rates moved up a staggering 25 basis points. The benchmark 10-year yield approached 3.9% on the spike but has since backed off to 3.8% while short term rates continue to push higher. The benchmark spread was trading at another all time high of 280bp pre data, but is now dipped back below 260bp. The Dec Fed fund future has sold off and now prices in roughly a 70% chance the Fed hikes rates at the end of the year, although Bill Gross said he doesn't see the Fed raising rates anytime soon because unemployment likely won't peak until the end of the year.
- The ADRs of Rio Tino and BHP opened up +9% and +7%, respectively, after the announcement of their game-changing iron ore JV overnight. BHP has been the big winner of the breakdown in Rio Tinto-Chinalco negations, which has Rio walked away from. Rio shareholders had been vehemently opposed to the deal with Chinalco, voicing concerns that the deal would have been a fire sale of valuable assets during a period of unprecedented market turmoil, not to mention the uneasiness over a loss-making arm of the company's biggest client (China) having access to the company's board and pricing agreements. Analysts have noted that BHP appears to have now achieved its main objective of last year's failed takeover of Rio Tinto, namely synergies at Pilbara. For an equity investment of $5.8B, BHP expects to generate $10B in savings in the near term.
- Press reports this morning discussed Apple's plans to launch a cheaper version of the iPhone at its developers conference next Monday. In addition, the WSJ writes that Steve Jobs is likely to return to work this month. Chip giants Applied Materials and Intel have been commenting on the state of the market. AMAT's CEO told the Commercial Times that there are no signs of a stable recovery in demand in the global chip market. More specifically, he said that while the decline in demand has bottomed, orders are coming only from China, not the US and Europe. Intel's EMEA Chief concurred, noting that the slump may have hit bottom, noting that he expects to see demand growth in the second half of 2009.
- In other equity news, Merck is down 2% on news that a Phase III study of its Rolofylline drug did not meet the primary or secondary efficacy endpoints for acute heart failure. Guess? is up a respectable 6% after beating revenue and earnings estimates in its first quarter earnings report. Midcap retail services firm ABM Industries is up 10%% after missing estimates slightly but reaffirming its 2009 guidance. IT services Agilysys is off 5% after a disastrous Q4 report.
- In currencies, the greenback was steady heading into the payroll data. The deceleration in job losses indicated by the data, combined with recent signs of stabilization in housing and manufacturing, may signal the economic slump is easing. Still, dealers are keeping in mind that US consumers are spending less and saving more than in quite some time. USD and JPY were initially weaker on the rise in risk appetite from the positive data; EUR/USD tested 1.4265 in the initial knee-jerk market reaction. However, the miscalculation rumors and Lockhart's comments quickly reversed USD sentiment. All in all, the USD has maintained a firm tone for most of the New York session, with the EUR/USD testing below the 1.40 handle and GBP/USD dipping below the 1.60 level.
- Investors seem indecisive this morning as US equity indices initially traded lower before lifting into positive territory. Gains are marginal at this point as stocks seem unable to build momentum in either direction ahead of tomorrow's important jobs figures. Constructive news like notable consolidation in tech is being offset by weakness in retailers post May SSS results. Initial and continuing jobless claims held little in the way of surprises, while decisions out of the BoE and ECB to hold rates steady were as expected. Front-month crude has bounced back toward the six-month highs well above $68 on plenty of comments from OPEC Secretary General El-Badri. Other commodity markets are recovering as well as sellers return in the Greenback. Grains are up 2-3%, copper +2.75%, and gold up more than 1% nearing $980. Treasury prices are slipping once again after the US Treasury announced another $65B in coupon supply for next week. The US benchmark spread at 273 basis points remains close to all time highs.
- The leading national banks are outperforming markets this morning on incremental news from the Treasury on various bailout programs. Herb Allison, who has been nominated to oversee the TARP program and replace Neil Kashkari, told Congress in his confirmation testimony that more TARP repayments were likely next week, raising hopes a big move could come out of the likes of JP Morgan, Morgan Stanley or Goldman Sachs. In addition, there's been news from PPIP. Last night the FDIC confirmed that it would not proceed with test sales of toxic assets, although the Treasury stated this morning that it would be pre-qualifying managers shortly for the Legacy Loans component of the PPIP, indicating that the program will indeed be getting underway soon. Also note that regional bank Fifth Third has been up as much as 7% in the early going after successfully wrapping up its $1B capital raise.
- In other equity news, Intel said it would acquire Wind River Systems for $11.50/shr in cash, in a deal valued around $884M. The deal is expected to close this summer, with Wind River being integrated into Intel's Software and Services Group. Commentators not that this transaction is a game changer with broad implications for the tech sector. Wind River makes software for mobile phones and in-car entertainment systems, a growth area Intel covets given the stagnation in PC and server markets. Shares of WIND are up 50% in early trading. Axsys entered a definitive agreement to be acquired by General Dynamics at $54/share, in a deal valued at $643M. Shares of AXYS are up 6%. Boeing and EADS are both up a bit after United Airlines asked from bids from the two manufacturers for up to 150 new airliners. Also note that the IATA said overnight that orders for the two firms could fall by as much as 30% in 2010.
- May same-store sales were not pretty, with many retailers reporting steeper declines than expected as consumers continue to hold back on spending. The usual suspects did manage to sustain positive gains, with discount chains FRED and ROST offering low single-digit gains, while teen-oriented mall chain ARO notably outperformed estimates by a wide margin. Discount apparel retailer TJX also managed to outperform expectations. Warehouse retailer COST slipped back into negative comps after April's unchanged reading, while BJ continued its slide into negative single-digit SSS. TGT also slipped back into negative single digits, after April's strong positive comp. All the major apparel and luxury retailers reported yet another month of abysmal negative sales. Note that WMT has discontinued monthly same-store sales reports.
- In currencies, a flurry of rumors, data and central bank decisions made for a highly volatile New York session so far. Sterling was knocked around by was the forefront of the rumors that Prime Minsiter Brown had resigned his post due the growing expense account scandals. GBP/USD fell 300 pips to 1.6100 within 10 minutes of the emergence of the rumor around 8amEST; a government spokesperson quickly squelched the rumor, prompting a mild GBP retracement to 1.6275. At about the same time as the UK PM rumors, dealers also noted that several large banks executed lots of G10 currency trades at the same time, with sources attributing the volatility to rumors that China's Chinalco would walk away from a $19.5B investment deal with Rio Tinto, unwinding related hedges. The BoE rate decision was not a big factor, with the bank leaving rates unchanged, as expected. Note as well that the Bank of Canada left its rate unchanged at 0.25%.
- The ECB also left their key interest rates unchanged, as expected. ECB Chief Jean-Claude Trichet delivered the usual comments about staff projections, reiterated that current interest rate level of 1% was appropriate although not necessarily the lowest possible rate, and also noted that prior rate cuts were still passing through to the economy. But what markets were really waiting for were details about the ECB's covered bond purchase program. Trichet said the ECB did not consider the cover bond program "quantitative easing" and reiterated that the maximum amount would remain at €60B, disappointing hopes for larger purchases. Interestingly, the ECB commented that it appreciated comments from US officials on their desire to maintain a strong dollar policy. The EUR/USD price action did encounter some swift changes within a 100 corridor of 1.41 to 1.42 handle as Trichet explained the economic, inflationary outlook and the cover-bond program. EUR/USD ended the NY morning little changed from its opening levels from Asia. It seems that dealers' overall assessment remains that the ECB is unwilling to extend themselves as a source of economic aid should the green shoots turn brown. Currency dealers continue to see key hourly support around the 1.4050/70 area.
- US equity indices opened lower this morning as the morning's ADP job data spooked investors into taking profits after two days of strength. The May ADP employment change registered a slightly bigger decline than expected, while an extra 50K in job losses was added to the prior month's data. Nevertheless, the data is still showing big improvements over the 600K+ declines seen in the first three months of the year. Fed Chairman Bernanke is testifying before Congress this morning, telling legislators that the US cannot keep borrowing indefinitely to meet spending needs and warning that tax rates must ultimately be "set at a level sufficient to achieve an appropriate balance of spending and revenues." Front-month crude is well off recent highs, down nearly $2 around $66.75.
- Last night more details emerged concerning the Fed's tweaking rules under which banks may repay TARP funds. Among other things, JP Morgan, American Express and Morgan Stanley were all specifically told to raise more capital in order to pay back TARP, less than four weeks after they were told they had enough to deal with a deeper economic slump. Goldman Sachs was not asked to raise more capital since it had raised funds in April. There have been reports that Citigroup is looking to amend common share authorization up to 60B. Back in March there were various press comments speculating that Citi would look to boost its share authorization up to 40B to fulfill an exchange of preferred stock into common stock.
- Negative guidance calls from Aetna and Valero have dragged down both names and their respective sectors in early trading. Aetna cut its 2009 forecast to $3.55-3.70 from $3.85-3.95 thanks to rising medical costs and falling Medicare revenue. Wachovia and Credit Suisse cut their ratings on the name overnight. AET is off its worst levels in early trading, but still down 8%. Other managed care names were down on the news, with CVH, CI and HUM down 3% or so today. Valero offered Q2 earnings guidance of -$0.50, which compared very unfavorably with analysts' expectations for $0.74. Valero's Q2 has been adversely affected by extended downtime at its Delaware City and McKee refineries and by the continuation of weak sour crude oil discounts and lower diesel margins. Shares VLO are down 16%.
- Homebuilders Toll Brothers and Hovnanian are both heading in the same direction in early trading despite their divergent second-quarter results. TOL cut its quarterly loss to a bare minimum (ex write downs), beating analysts' estimates by a wide margins. The firms new contracts have nearly doubled, offering homes that some of the upswing seen in certain housing data is aiding the company. Toll's CEO said it appears some buyers are beginning to re-enter the new home market. Hovnanian's loss was bigger than expected, and its metrics did not quite show the improvements seen at Toll brothers. TOL is down 6% in the early going, while HOV is -10%.
- Tech journal Digitimes reported this morning that solar cell spot prices have fallen to $1.4/watt. According to the article, Chinese and Taiwan polycrystalline manufacturers were offering spot quotes of $1.4/W at last week's Intersolar 2009 trade fair. Recent research suggests the average industry manufacturing cost is around $1.8/watt. Solar names are giving up the gains of recent days on the news, with leading solar ETF TAN -5% on the news.
- In currencies, the greenback hit choppy trading in the New York session but held its firmer position as the ADP employment report prompted risk aversion and profit-taking ahead of the ECB decision tomorrow and Friday's US non-farms payroll report. The USD was wobbly as dealers debated the authenticity of a "joint statement" issued by several Asian monetary authorities; some have noted that reporters may have compiled the statement comments that were in fact made separately. Later in the New York session the back-month revision of the ADP numbers and the failed Latvia bond auctions prompted renewed USD buying against the major European pairs, with the Swedish Kroner especially weak given Swedish lending exposure to Latvia. This was tempered by comments from Bernanke that Treasury yields are rising on both deficit concerns as well as an improving economic prospects. The inability of the USD/RUB pair to sustain any downward momentum below the 30.50 level also aided the dollar, as the move cut the aggressive appetite for euros at the Russian Central Bank in its quest to smooth out its currency basket. The commodity currencies also retraced from their recent trend helped by weaker energy and metal weakness.
- GM's bankruptcy filing, which arrived just before 8amET, is captivating the media this morning, with front pages, home pages and talking heads discussing little else. So far equities are responding well to the long-expected news, with all three leading indices opening higher and pushing out to around 2.5% gains by mid morning, extending Friday's solid gains. The DJIA was adjusted this morning, with CSCO replacing GM, and Travelers replacing Govt capital infused Citigroup; shares of CSCO and TRV are up 4% or so on the move. On the data front, April Construction Spending was much better than expected, posting its biggest monthly gain since last August, coming a hair to the positive side at 0.8% versus expectations of -1.5%. The May ISM Manufacturing reading was in line, although traders are focusing on the much better than expected prices paid and new orders component, with the latter hitting its highest level since November 2007. Commodities continue to rally, with front-month crude pushing out yet again to six-month highs around $67.50, although gold is off earlier highs, at $977.
- Little new has emerged in the flurry of GM news this morning, with most of the details disclosed previously through waves of sources, press releases, and official comments over the course of the last few weeks. To recap, GM is still expected to emerge from Chapter 11 protection (the largest industrial bankruptcy in US history) in 60 to 90 days stripped of most debt, with ownership of 60.8% by the U.S. Treasury, 11.7% by the Canadian and Ontario governments, 17.5% by the New VEBA, and 10% by unsecured bondholders. Over in Europe, Germany brokered a deal to sell GM's Opel unit to a consortium of buyers that includes Russia's state-owned Sberbank (35% stake), Magna International (20% stake) and Opel employees (10% stake). GM will retain a 35% stake in the unit. Germany is extending €1.5B in funding for the deal, although German Chancellor Merkel was keen to mention that the Opel situation is putting US-German relationship under strain. Note that there have also been multiple reports over the weekend that fellow bankrupt automaker Chrysler is expected to emerge from bankruptcy as soon as today. And also note that the CEO of auto retailers AutoNation told CNBC this morning that he believes annual auto sales will be back over 14M units in five years, up from the dismal forecasts for 9M in overall sales in 2009.
- Morgan Stanley and Citigroup have closed early on the launch of their joint venture, which combines Morgan Stanley's wealth management unit with Citi's Smith Barney division in a new unit called Morgan Stanley Smith Barney. The JV was originally scheduled to launch in Q3. Morgan holds a 51% stake in the venture, which generates about $14B in net revenue a year. Goldman Sachs has sold $1.9B worth of shares in Industrial and Commercial Bank of China, representing nearly 20% of Goldman's 4.93% stake in the Chinese bank, which is the world's biggest lender by market value. Regional bank Zions Bancorp popped 7% before the open after announcing debt and stock sales to shore up its balance sheet, although shares were down to +3% by mid morning. SunTrust also launched a $1.4B common stock sale, although shares of the regional bank are down 2% on the dilutive news.
- In currencies, the strong risk appetite sparked by China and India's PMI data continued to build in the New York session, finally weakening JPY against its major pairs. EUR/JPY and GBP/JPY exhibited several hundred pip moves in the session on the returning risk appetite. Commodity currencies held onto most of their earlier gains despite some retrenchment in the energy and metals. Canadian GDP data was a bit better than expectations, but a slight back-month downward revision prompted a modest bout of profit-taking in CAD. There has been a degree of verbal intervention from some G20 central bankers. The South African Reserve Bank's Mboweni noted that the current level in the rand could mitigate inflation, but its strength was unwelcome for balance in the economy. The Russian Central Bank's Ignatiev said there has been excessive strengthening of the ruble from the real economy's point of view. However, he vowed to maintain volatility as the ruble moved toward a free-float regime. EUR/USD ended the NY morning around the 1.42 area. Dealers are pondering whether the "threshold of pain" around the 1.50 area discussed by the German Exporter Association back in the days prior to the global recession remains intact.
- US equity indices are trading sideways this morning as investors contemplate mixed economic data and an imminent bankruptcy filing by GM. The GDP numbers are offering some support for the "getting worse more slowly" theme, while the U of Michigan confidence data is all green shoots. The preliminary Q1 GDP reading was a hair worse than expected at -5.7%, versus expectations for -5.5%, although it was better than the advanced reading of 6.1% back on April 29th. The third and final reading is expected in late June. The second and final University of Michigan May consumer confidence reading was a bit above expectations and a whole percentage point above the preliminary reading two weeks ago, sending the index to levels from last September. However, the May Chicago Purchasing Managers Index indicated no positive trends, coming in significantly below expectations at 34.9 (v 42e) and well below the April's surprisingly strong reading. Front-month NYMEX crude is extending its streak this morning, hitting another six-month high above $66 while gold also makes new multi-month highs nearing $980 as the Greenback remains on the defensive.
- US Treasury prices are experiencing a late-week rally after yesterday afternoon's 7-year auction results seem to have calmed the markets. After the sharp move up in rates mid-week, the benchmark 10-year yield has drifted back below the 3.55% level it was trading at ahead of the 5-year auction. The curve has flattened substantially as well with the benchmark spread narrowing more than 15 basis points from the all time highs made Wednesday afternoon. Markets seem be taking some solace in reports the Fed was not nearly as concerned about this week's rate spike as many other were. The WSJ reported that Fed officials saw the move up in rates as more a factor of an improving economy and that they remain comfortable with the currently historically low level of interest rates.
- Morgan Stanley and Citi are outperforming the other tier-1 financials this morning as investors react favorably to recent bond sales. BoA/Merrill Lynch commented on Goldman Sachs overnight, saying they believe Goldman is headed for a strong Q2 as the firm benefits from weaker competitors. The analysts also said that only JP Morgan has improved competitive position relative to Goldman in the quarter. In a development that would affect the financials across the board, the FT reported there are growing concerns that triple-A-rated mortgage backed securities could face a "cascade" of rating downgrades following remarks from S&P that it may downgrade tens of billions of dollars in triple-A-rated securities backed by real estate loans.
- In earnings, PC powerhouse Dell reported Q1 results that were largely in line with expectations. CEO Michael Dell said indicators of global IT demand remain mixed, and the broader environment is still challenging, while the CFO said he does not believe IT spending has seen a bottom. Luxury retailer Tiffany's also met estimates, and also reaffirmed its 2009 forecast in line with analysts. On the conference call, Tiffany executives said they are seeing cautious consumer spending across sales units across the board, with high-end jewelry encountering largest declines. Elsewhere in retail J. Crew blew out analyst estimates for the quarter and said it sees a modest profit next quarter (versus an expectations for a loss).
- In currencies, traders continued to see the long-term dollar outlook at a critical technical level in the New York session, with the greenback showing more weakness against the major pairs, emerging market pairs and commodity-related pairs. Concerns that major central banks and large government-backed agencies might diversify away from the dollar weighed on sentiment. Overnight comments earlier from South Korea's Pension Fund that it was looking to diversify away from the dollar and more fallout from Thursday utterance from a Brazilian minister fueled the sentiment in today's session. Attempts by US officials to downplay USD depreciation have not calmed feelings. The Fed's Fisher commented during the Asian session that the AAA sovereign rating of the United States was not at risk. Dealers are noting that USD/RUB broke below 31.00 level, triggering fresh buying in the EUR/USD pair. The EUR/USD was moving toward the 1.4150 level as the NY morning ended.
- Pre-market buying lifted US indices before the open this morning after yesterday afternoon's late selloff, but more negative housing data knocked things into the red within the first hour of trade. Equities have recouped a bit, after GM's bondholders accepting the sweetened debt-for-equity deal. The third set of housing data this week showing nothing but yellow weeds dropped this morning, with April new home sales a bit below expectations, and supply in line with the NAR's data yesterday at more than 10 months. Mortgage delinquencies surged in Q1 to 9.12%, marking the fifth consecutive month of record highs. One ominous component of the delinquencies data indicated that nearly half of rise in foreclosure starts in Q1 were accounted for by prime, fixed-rate mortgages. Front-month NYMEX crude is pushing out to fresh six-month highs towards $65 after OPEC confirmed it was on hold and weekly gasoline and crude inventories declined.
- Treasury are attempting to consolidate the large move that occurred after yesterday's 5-year auction results. Early in the floor trading session yields looked to give back some gains from yesterday's surge but the buying as been tepid. The 10-year yield is down less than 10 basis points from yesterday's high remaining above 3.65%. The benchmark spread after widening out to an all time high of 275 basis points has narrowed to 268 basis points. BAC and MS both announced bond offerings today as they look to continue to sure up their balance sheet under the watchful eye of the government, while Citigroup was forced into another FDIC backed offering.
- GM's new offer for bondholders includes a 10% equity stake in "New GM," plus warrants to buy a further 15% stake in the reorganized company. The bondholder's committee has reportedly approved the plan, calling the proposal their best option, and also noting that bankruptcy litigation would be "costly and uncertain." The US Treasury is backing the sale of toxic GM assets with $50B in DiP support, up from the $30B figure that was making the rounds yesterday.
- Various macro stories are adding weight to financials. Overnight the WSJ reported that the Fed has quietly informed banks that they will have to rely less on future earnings when determining capital raising plans, with projected revenue permitted for covering no more than 5% of their capital shortfall. According to the Journal, some banks had been planning for improved revenues to cover as much as 20% of their shortfalls. Watch out for more capital raises out of the 10 banks the Fed said needed bigger cushions after the stress tests - Wells Fargo and Bank of America topped that list, with shares of both under performing peers this morning. Moody's said the April credit card industry charge-off rate was 9.97%, for its fifth consecutive all-time high, while the credit card delinquency rate of credit card delinquency rate of 6.34% was a hair lower m/m. Moody's said these trajectories are both consistent with its revised expectations for the charge-off rate index to peak in the second quarter of 2010 at about 12%.
- Consumer-facing names are front and center this morning, including plenty of earnings and conference comments. Procter & Gamble offered widely anticipated commentary on global pricing at an investor conference, saying that it would take a "highly surgical" approach to adjusting its prices. More specifically, PG said it would lower prices on fabrics and tissues, while leaving beauty and grooming alone. In addition, it said it would use cash to maintain its credit rating and pledged to maintain a healthy dividend, while curtailing buybacks. Competitor Colgate-Palmolive also said it would use its cash to maintain its credit rating.
- In earnings, Sanderson Farms is up more than 8% after blowing out earnings and revenue estimates. The company said much of the improvement is due to production cuts and resulting reduced supply of chicken in the market. Tyson was up 4% early on these comments, but is off its best levels. Heinz is around even after reporting Q4 results in line with expectations. Wholesale warehouse Costco missed earnings estimates for a second quarter, with same-store sales markedly worse over last quarter. Shares of COST are down 4%. Discount retailers Fred's and Big Lots met or exceeded analysts estimates. FRED reaffirmed its full-year guidance, while BIG upped its slightly, although shares of both names fell into negative territory after the open before recovering to around -3%. Trina Solar is up 6% after reporting a slim profit versus expectations for a loss.
- In currencies, yen weakness continued into the New York session, with the USD/JPY pair hitting its highest levels in eight weeks at 97.24. Other JPY-related cross pulled off even stronger rallies, with EUR/JPY testing above the 135 handle and GBP/JPY probing the 155 neighborhood. Dealers are noting that demand for overseas assets among Japanese investors has been growing. The GBP price action was choppy as rumors circulated that the GKF confidence data might be weaker than the expected -27 reading expected. GBP/USD was little changed as the New York morning ended at the 1.5950 level while EUR/GBP was 40 pips higher than its opening levels in Tokyo at 0.8735. Commodity currencies remained firm, with USD/CAD at the 1.1155 level and AUD/USD holding above the 0.78 handle following the OPEC's decision to maintain its current output production with the series of 4.5M bpd of cuts that were enacted back in the Sept to Dec period. New Zealand's dollar gained was also aided by an earlier comment from S&P, which raised its outlook on the countries sovereign debt rating to stable from negative.
- US equities are trading sideways this morning as another mixed batch of housing data and plenty of caution around the financials keeps things subdued. This morning's April existing home sales data offered a different take on housing to yesterday's cloudy S&P/CS home price index. According to the National Association of Realtors, sales of existing homes were up 2.9% m/m, although there is grist for pessimistic mills in the data as well, with unsold homes up 9% from March levels, with 10.9 months of supply in the pipeline. NAR's Chief Economist said most sales are in lower price ranges, with activity just beginning to pick up in the mid-price range and high-end sales still sluggish. Front-month NYMEX crude is off its overnight highs above $63, trading mid morning around $62.50.
- Treasury prices remain lower ahead of this afternoon's 5-year note auction. Yesterday's 2-year results were quite strong but yields still pushed higher as trepidation remains ahead of the longer dated paper set for auction the rest of this week and next. The 10-year yield has moved above 3.5% sending the benchmark spread above 260 basis points. Equity, bond and even currency traders are noting that spread is rapidly approaching the all time highs above 274 basis points made back in 2003.
- At a Sanford Bernstein conference this morning, JP Morgan CEO Jamie Dimon addressed emerging concerns about commercial real estate losses, calling commercial real estate "a shoe that's dropped" and warning that losses from this area are increasing. He also said JPM was done building credit card loan loss reserves and said the firms investment banking business is doing well. Bank of America has updated investors on its capital raising program, noting that it has placed $26B under its $33.9B plan, including the conversion of $5.9B of preferred shares into around 436M shares of common stock.
- The FDIC discussed the performance of US banks in the first quarter of 2009. Profits in the quarter were buoyed by revenues at a few larger firms, but overall the credit picture remained grim as the number of banks on the brink continued to rise and consumers and businesses increasingly fell behind on their loans. Net profit at US banks was $7.6B for the quarter was down y/y but much improved from the $36.9B loss in the final quarter of 2008. FDIC's Bair said that asset quality remains a major concern, troubled tier-1 loans continue to accumulate and costs associated with these impaired assets are weighing heavily on banks.
- GM confirmed that its exchange offers to bondholders for $27.2B debt have fallen flat. Yesterday there were reports that a paltry low single-digit percentage of bond holders accepted the auto maker's to convert the debt to a total 10% ownership stake in a reorganized GM. The company needed a 90% exchange rate to consummate the deal. Overnight the WSJ reported that secured lenders may get full recovery on their $6B in loans under a proposed bankruptcy plan, with the Treasury likely injecting $50B in financing to back a GM workout. Across the pond, the German government has paused the process of selling Opel, calling offers from Fiat and Magna insufficient while also saying that a bid for Opel from China's Beijing Automotive Industry Holdings was under consideration.
- In earnings, shares of Take-Two are on a tear, up 12% in early trading after the company reported in line with Q2 expectations and reaffirmed its full-year EPS outlook. Note that TTWO guided a huge loss next quarter and also trimmed its 2009 revenue forecast. Retail names in a broad range of businesses have reported this morning. Office supplies retailer Staples met estimates, and warned that it would not provide specific sales and earnings guidance for 2009 due to the ongoing slump. Car parts name AutoZone outperformed top and bottom line estimates and increased its quarterly same-store sales. Bookseller Borders Group reported half the expected loss. Apparel names American Eagle and Ralph Lauren did notably well, with shares of both names up 5% or so. AEO met Q1 estimates and guided in line, while RL reported twice the expected earnings and beat revenue targets as well. Executives from both firms were upbeat on conference calls, with AEO's CEO saying the slump from last fall has leveled off, while RL's CEO said that sales in the second half of the year would be dominated by promotional activities. Jewelry retailer Zales offered dismal results, missing estimates across the board, with shares of ZLC down 18%.
- In currencies, various cross currents were in play during the New York session, as central banker trend, economic data and bond auctions results battled it out to dictate the overall momentum. The USD price action was mixed by the end of the New York morning ended. Earlier the USD had fallen off its best levels on dealer chatter that the US might pursue a weak dollar policy to support manufacturing. EUR/USD probed the 1.40 area before retreating back below 1.3900. ECB member Provopoulos warned that the financial crisis was still unfolding and the US existing home sales failed to provide hard data that the worst was over, given that total supply rose to 10.2 months from 9.6 last month. Other players had a lot to say about the dollar as well: PIMCO's El-Erian said no other currency could replace the USD as world reserve currency but warned that various holders might diversify their basket of holdings, while the Russian Central Bank deputy chairman reiterated the bank had not discussed plans to change the compositions of the dollar/euro basket (currently 55% USD and 45% EUR). The GBP maintained its firm tone it garnered in both the Asian and European sessions. The EUR/GBP cross moved below the 0.87 level for the first time in three months.
- US equities are seeing something of a post-memorial day rally this morning, with investors pushing the three leading indices out to impressive gains on the back of strong consumer confidence data (ignoring another grim look at housing). The March S&P/CS Home Price index was in line with expectations, although the index has fallen more than 19% in Q1, its biggest y/y decline on a quarterly basis in its 21-year history. Home prices in the 20 cities tracked by the composite index fell by 18.7% y/y in March, which is a slight improvement over the February data, marking another faint sign that things are getting worse more slowly. Still, there are no signs home prices have hit bottom in the data. Consumer confidence is showing strong improvements, with the May reading soaring to 54.9 from April's 40.8 reading. Consensus estimates were for 42.6. Front-month NYMEX crude is back above $61 after dropping below $60 early in the session. Various OPEC figures have indicated no changes to production levels will be forthcoming at the organization's May meeting later this week.
- Treasury prices opened marginally higher before moving lower in tandem with rallying stock prices. The 10-year yield is back above 3.45% while the 2-year has regained 0.9%. Later this afternoon Treasury auctions off $40B in 2-year notes in the first of three notes auctions scheduled this week. This weeks auctions are likely to see some increased attention of a two week hiatus of new supply from the US government. Traders will also be focusing on the reverse action results of the Fed's TIPS purchase due shortly. The results could shed some light on any change in inflation expectations.
- News on individual equities has been rather thin, with good news for tech and pharma names helping the Nasdaq outperform, raising its price target to $180 from $105. Canadian Solar reported a smaller than expected quarterly loss, while its revenue was disappointing. In addition, the firm cut its 2009 shipments guidance for the third time. MAP Pharmaceuticals is up more than 170% today after the company said its Phase III trial of LEVADEX migraine product candidate met all four of its primary endpoints. The NASDAQ has been the leading index today after shares of Apple were raised to Overweight at Morgan Stanley. Analysts at the firm wrote that they expect demand for iPhone sales to beat expectations in the second half of 2009.
- In currencies, the greenback consolidated its session gains during the New York morning, benefiting initially from its safe-haven status as US traders returned from the extended holiday weekend. EUR/USD tested 1.3860 before retreating to 1.3920. The euro's overall tone was soft amongst the major pairs, with EUR/GBP tested below the 0.8760 level and EUR/JPY tested 131.45. But risk appetite found traction after the May consumer confidence index beat expectations, with the survey suggesting that consumers believe the worst of the recession is over, forcing the dollar to give up its earlier gains but hold below the 1.40 handle. Commodity currencies also regain some composure as oil firmed following the US confidence data, with USD/CAD around 1.1260 after testing 1.1355 earlier today and AUD/USD looking to retest the 0.78 cent level.
- US equity indices have see-sawed this morning as skittish investors continue talk about S&P's shot across the bow of Britain's AAA sovereign rating. In the premarket investors kept up the buying seen late in yesterday's session, with trade yo-yoing into and then out of negative territory in the first hour. PIMCO's El-Erian summed up the mood on CNBC, noting that market participants are concerned about the long-term sustainability of the Federal government's balance sheet, in the light of the government's short term goals. Front-month NYMEX crude is hovering around even for the session, at $61. Front month natural gas tested $3.50, off more than $1 from the multi-month highs made less than two weeks ago.
- The downside momentum in Treasury prices resumed following the open of pit trade in Chicago. The sell off that started yesterday just before noon sent the 10-year yield above 3.4% for the first time since last November. The benchmark spread continues to trade at the widest levels in more than 7 months moving above 250 basis points.
- Investors have been eying the credit card reform bill working it way through Congress over the last few weeks. Last night the Senate passed the legislation, with its associated credit card "Bill of Rights"; the next step is a conference committee to reconcile the bills, followed by the president's virtually guaranteed signature. The WSJ's Heard on the Street wrote today that the days of easy profits for credit card names are over, thanks to the legislation and accounting rule changes that will force companies to bring large amounts of off balance sheet loans back on the books. BofA/Merrill Lynch are not so downbeat, as analysts at the firm raised their price targets on AXP, COF and DFS (although they left the Underperform ratings on all three untouched). In a related story, JP Morgan shifted a portion of its debt card users to Visa from MasterCard, affecting more than half of MA's $59B portfolio of debit card users. A MasterCard spokesperson insisted the move would not have any material impact on revenue.
- Florida bank BankUnited was shut down by the OTS and handed over to the FDIC last night, making for the largest bank failure of 2009 and the biggest hit to the FDIC since IndyMac collapsed last fall. It has reopened as a newly chartered savings bank, owned by an investor group including the Blackstone Group, the Carlyle Group, Centerbridge Partners and WL Ross & Co.
- In earnings, apparel retailers Gap and Aeropostale reported in line with estimates. Guidance from Aeropostale, which continues to dramatically outperform other mall chains with positive double-digit same-store sales, was well ahead of estimates for next quarter. Foot Locker had an impressive first quarter, beating analyst estimates by a wide margin. FL and ARO rose 5% before the open and rapidly gave up their gains after the bell, with FL plunging as much as -10% before cutting its losses. Solar names LDK and Yingli both reported much larger than expected losses, and Yingli missed revenue targets significantly. Both firms have been hit hard by the crisis and the withdrawal of various government subsidies for buying solar panels. Shares of YGE were up 5% at the open but rapidly sunk to -5% early on. LDK opened down 5% and is presently around -15%. Shares of Salesforce.com are 10% despite a strong quarterly performance, with investors evidently unhappy about weak guidance for the coming quarter.
- In currencies, concern about the implications of a potential US sovereign rating downgrade continued to weigh on dollar sentiment. Dealers are saying that the size of next week's Treasury auction as well as the ratings fears are putting any prospect of a near-term dollar recovery on ice. One dealer noted that the recent equity-dollar correlation trend might drift toward a stronger bond/dollar correlation. EUR/USD tested above 1.4000 level during the session, a level last tested back on Jan 2nd.
- The sell-off that got started yesterday afternoon following the release of the April 29th FOMC minutes has carried over to NY morning trade, with US equity indices opening down and heading lower. The downbeat message of the Fed minutes, with its outlook for a steeper GDP decline and greater unemployment in 2009, has been compounded by yet another all-time high in weekly jobless claims. The May Philly Fed Index was slightly lower than expected (although employment and inventory subcomponents were markedly better than in April). The Congressional Budget Office added its two cents, noting that its March economic forecast was too optimistic and would be revised lower. On the brighter side, Radar Logic said in March home prices rose on a m/m basis in 11 of the 25 metropolitan areas it monitors in the RPX 25-MSA, while in six more areas prices decreased less in March than in February, marking at least a less bad if not better trend in home values. Last night, former Fed Chairman Alan Greenspan said things have unquestionably improved globally, with "extraordinary improvement" in the Libor-OIS spread. The US 3-month TED spread drifted below 50 basis points.
- Front-month NYMEX crude is come off the highs of recent days, falling nearly $2 to trade around $60 eyeing the weak stock action. June natural Gas is swooning 7% to trade at $3.66 down almost a full dollar from the May high made a little more than a week ago. Weekly inventories rose by a robust 103 BCF in the latest week. Other commodities are generally lower across the board as the selling the Dollar takes a breather. Copper -4% while Corn and Wheat give back 1.5%.
- US Treasuries were the early beneficiary of weak stocks and continued momentum from yesterday's FOMC minutes. Prices have moved lower though, since the Treasury said they would be selling another $101B in notes next week. The 10-year yield is just below 3.2%.
- In tech, strong earnings reports from Tech Data, Intuit and Brocade are helping these three firms buck the trend this morning, with shares of all three up around 10% in early trading, while shares of Suntech power are getting bogged down by the firm's 20M secondary offering (12.8% of shares outstanding) despite better than expected Q1 results. Suntech managed a $0.01 per share profit and guided moderate revenue growth next quarter, outperforming results from fellow solar names JASO and SOLF earlier this week. STP's CEO said that Europe continued to be the biggest source of solar demand in the first quarter, although it expect further market diversification due to recently introduced stimulus initiatives in high potential markets.
- Another round of retailers released varying first quarter results yesterday and today. Department store retailer Stein Mart is the standout, doubling its profit on a y/y basis and blowing out consensus estimates for the quarter, despite an 8% decline in same-store sales. Note that the firm's gross margins in the quarter doubled on a q/q basis, while its effective tax rate was down significantly thanks to the deployment of various deferred tax assets. Shares of SMRT are up around 50%. On the other hand, GameStop and New York & Co. are both down more than 18% after more or less in line results. GME's guidance for the next quarter was below consensus estimates, while NWY forecasted another big quarterly loss in Q2 (versus expectations of a small profit. Shares of Buckle, Ross Stores and Barnes & Noble are up 5-8% after strong quarterly results. Note that BKS managed to cut it loss to a much smaller figure, and expects to be profitable next quarter.
- In currencies, the economic data weighed on risk appetite with some retracement of earlier sharp moves during the New York session. Sterling managed to claw its way back to only small losses sustained against the major pairs after S&P's big call as UK officials and rating agencies did their best to reassure markets about Britain's budget situation. The euro saw some of its strength whittled away as dealers focused on press speculation that Spanish regional bank Caja Madrid might skip interest payments on two bonds due to rising defaults on mortgages backing the debt, the first halt in such payments by a Spanish bank during the financial crisis. EUR/USD moved off overnight highs of 1.3839 to test the 1.3730 area during the New York morning. EUR/GBP moved off its 0.8870 highs to drift back towards the 0.8865 area. CHF was softer on chatter the Bank of International Settlements (BIS) was "checking prices" in EUR/CHF. Commodity currencies moved off their best levels as oil retreated from its six-month highs on concerns over the 'shape' of any economic recovery. USD/CAD retesting its pivotal hourly level of 1.1480.
- US equities made up for yesterday afternoon's sell off in the pre-market this morning, with all three major indices opening stronger and extending gains in the early going. Equities turned over in the wake of a National Association of Realtors report, which indicated Q1 real estate activity was -12.9% y/y and -4.88% q/q, and forecasted a continued reduction in commercial real estate activity for next 6-9 months. Front-month NYMEX crude tested above $62 to hit six-month highs before trading off a bit with equities, while gold breeched $940/oz. Commodities are getting a boost from real weakness in the greenback, with the euro, pound, loonie and Swiss Franc all making fresh multi-month highs against the dollar.
- Treasury Secretary Geithner is testifying before the Senate this morning on the financial sector. This comes after the Treasury said the vaunted Public-Private Investment Program (PPIP) would commence within the next six weeks, in line with recent comments on timing out of the White House and the FDIC. Note that yesterday the FDIC had said it might go ahead with plans to float a "pilot sale" of toxic "legacy" assets without any government financing, implying that there could be a part of the program lacking a "public" component, although the Treasury has said nothing regarding this proposal today. Geither has also noted that there is $124B of funding left in TARP. In addition, the Wall Street Journal reports that the Obama Administration is working out plans to give a Federal agency authority to police mortgages and other consumer-oriented financial products as part of the broader overhaul of financial regulation.
- Shares of Bank of America are up 8% in the early going after the company confirmed that it has sold 1.25B shares since May 8th, or just short of 20% of its market cap, worth $13.5B, in its quest to satisfy government capital requirements that emerged from the stress test. The bank also said it is considering a conversion of preferred shares to common equity as the means to raise the rest. Citi has also risen somewhat in the early going, while the rest of the leading banks have dropped into negative territory.
- In earnings, Target outperformed in the first quarter, beating earnings expectations and meeting revenue targets. Executives displayed confidence on the conference call, noting that the credit card business is improving, economic conditions seem to be stabilizing a bit. Warehouse retailer BJ's came in more or less even with expectations and guided in line. TGT is up 6%, while BJ has steadily sunk into the red after making modest gains before the open. Manufacturing giant Deere was a bit ahead of the Street, although its sales guidance for the next quarter and the rest of the year still projects big double-digit declines. HP reported in line yesterday after the close. Shares of the tech giant are headed lower in early trading, down 5% as investors focus on the firm's weaker revenue forecasts. Troubled homebuilder Toll Brothers reported preliminary second-quarter revenue results, noting that revenue was running ahead of expectations. The CFO warned, however, that numerous other aspects of the overall economy are keeping the outlook unclear at this point.
- In currencies, higher commodity prices in both energy and metals fed into broad USD weakness during the New York session. The dollar was lower against its major European, Asian and North American counterparts as several critical levels were breeched. Market participants continue to believe that the worst of the financial and global crisis is over and risk appetite continues to rise. The Portugal Finance Minister shook things up this morning, stating that the EU has no concerns over stronger a euro, also forecasting that the EU economy would hit bottom in current quarter, helping to propel EUR/USD above the 1.3650 level to test just below 1.38, its highest level since the first week of the year. Dealers are now eyeing the 1.3740 as the key short-term pivot point for insight on the directional momentum in the pair.
- The GBP/USD hit fresh 6-months highs and broke above the 200-day moving average of for the first time last July as it tested 1.5625. USD/CHF dipped below the 1.0980 level during the course of the NY morning to also retest its lowest level since Jan 5th. The loony hit fresh seven-month highs against the USD as the USD/CAD pair kissed 1.1400. Looking ahead, the focus will turn towards the BoJ policy meeting later this week and to see whether it decides to accept foreign debt as collateral for its funding operations. The BoJ is expected to upgrade its economic assessment in the upcoming monthly report. USD/JPY was at 95.30 as the New York morning wound down.
- US equity indices have seen both positive and negative territory before noontime. Headwinds remain in place, as April housing starts and building permits were both weaker than expected, hitting lows not seen since the series began in 1959. Commentators are making the best of the news, noting that slowing multi-family building starts were the culprits behind the declines, while single-family starts rose slightly on a sequential basis. However, the figures are hardly the sort of green shoots anyone is hoping for. Investors should likely take note of comments from PIMCO's El-Erian, who called slower growth the "new normal." In any case, the flood of debt and equity secondary offerings continues, with companies from across the spectrum rushing to market to raise capital. Front-month NYMEX crude nosed above $60 briefly overnight, before trading off after the open of pit trading in NY. The June contract comes off the board after the close today.
- Treasury prices have been trading lower through the morning pushing the US benchmark yield back towards 3.25%. Interbank lending rates continue to come down with the US 3-month LIBOR fixing down at 0.75%.
- Stocks of the largest US banks are behaving variably after various press reports that the US will let five or six big banks pay back TARP funds. Bank of America and Citigroup have both made 4-5% gains early on, while most of the rest of the tier-1 financials muddled around in the red before heading higher. Goldman, JP Morgan and American Express are reportedly first in line to repay, according to the FT, followed possibly by Morgan Stanley, State Street and US Bankcorp. At the JP Morgan AGM this morning, CEO Dimon also said that the government would authorize "some" TARP repayments within weeks. Note that yesterday STT priced its equity offering and raised the total deal to $2B from $1.5B (to repay TARP) at $39, and shares of the bank are still trading between $41-42 this morning. The New York Times took a look at the effect of early TARP repayments and warrant repurchases on banks and taxpayers, noting that the government holds warrants in 579 banks that could be worth $5 to $10B, depending on market conditions. On a related note, FASB approved two rules yesterday (FAS 140 and FIN 146) that could force financial firms to bring more off balance sheet assets onto their books.
- Investors are digesting another cluster of retail earnings this morning. Home Depot followed up on Lowe's earnings performance from yesterday, beating earnings and revenue estimates by healthy margins, although its full-year forecast was decidedly weaker than Lowe's, with its numbers below analysts' estimates. On the conference call, an HD executive said there has been improvement in comp transactions despite soft February sales. Shares of HD fell before and after the open, to around -6% mid morning, while LOW was down 2%, near yesterday's lows. Discount retailer TJX reported in line and reported mildly positive quarterly same-store sales, while luxury retailer Saks trimmed its quarterly loss to a figure that was much smaller than expected, although its quarterly SSS remain dismal. American Apparel's loss was higher than expected. Shares of SKS+23% are rocking this morning, while APP-19% are not. TJX is up a modest 4%.
- In tech, solar names Solarfun and JA Solar continue to be hit hard by the recession, reporting quarterly losses. SOLF's loss was slightly better than expected, while JASO lost three times the expected amount. Both firms expressed nevousness about their outlook, noting that visibility is limited. JASO withdrew its full-year earnings guidance, while JASO said its previously planned capacity expansion is still on hold. Also note that Sprint said it would launch sales of the Palm Pre smartphone on June 6th, at a price of $199 with a two-year contract. Shares of Sprint are around even, while PALM is off its worst levels after losing nearly 10%.
- Currency trading hit some turbulence following the euphoric sentiment from the European session. USD and JPY moved off their worst levels, with EUR/USD back below the 1.36 level and USD/JPY back around 96.00 after testing 96.60 overnight. Several officials uttered cautious remarks despite the recent signs of stabilization in the global economy, with the IMF's Berger noted that emerging Europe growth would not return to pre-crisis levels. Commodities took different paths during the New York session, with energy related and basic metals retreating while the precious metals retained its luster. AUD and CAD currencies held on to most of their session gains.
- Strength from the Asian and European sessions prompted by the Indian elections carried over into pre-market trading in New York this morning. All three leading US indices made strong gains before the bell after three days of relative weakness, led by the DJIA and Lowe's strong quarterly earnings. Front-month NYMEX crude is making strong gains up nearly $2 while copper prices are up more than 2%. Treasury prices are a little lower following another coupon purchase from the Fed. The 10-year yield is hovering above 3.1%.
- Various analyst moves are helping the tier-1 financials outperform this morning, lead by impressive gains at Bank of America. Shares of BoA are on fire, up more than 10% after analysts at Goldman Sachs raised the name to a Buy. Goldman said that the bank's capital raise is about half over, noting that the impact on its shares should start to abate moving forward. Note that Fitch cut its ratings on BoA's preferred stock just before the open, warning the bank could face more mortgage and credit card losses over the medium term. Wells Fargo is off its best levels this morning, after opening up 5% on news that Warren Buffet's Berkshire Hathaway had raised its stake in the bank by 16M shares (to 6.4% from 6% prior). Golman Sachs is up 3% after ratings and earnings estimate upgrades by analysts at Citigroup and JMP Securities. Analysts at JMP Securities also raised their ratings and earnings estimates for Morgan Stanley, sending its share up 3% or so in early trading. Note that Regions Financial jumped nearly 14% on takeover chatter, before trading off somewhat.
- Over the weekend GM Vice Chairman Bob Lutz told German newspaper Sonnntag that the company will not meet the Obama Administration's June 1st deadline for completing its restructuring plan. Negotiations with the UAW continue apace, however. The union is not feeling cooperative, noting earlier this morning that it strongly objects to GM plans to close US plants and increase its imports of vehicles produced overseas.
- Lowe's reported first-quarter earnings that were ahead of consensus earnings and revenue estimates, and the home improvement giant also offered guidance for the year and the coming quarter that was well above targets. On the conference call, Lowe's CEO said there are encouraging signs that the worst may be over, although the macro headwinds facing the firm remain strong for the rest of the year. Shares of LOW jumped 10% before the bell, before trading off substantially by mid morning. Shares of HD were up 6% on the news. Textron cut its full-year forecast due to dilution from its recently announced public offering, although shares of the conglomerate are still up 2%. Carnival Cruise Lines said the impact of the Swine flu panic would trim its second quarter earnings by $0.05/shr, although share of CCL are steaming higher, up 5% in the early going. Shares of Dillard's are up 18% on an impressive Q1 showing, although the retailer's outperformance was buttressed by a one-time tax gain.
- In currencies, risk appetite kept USD and JPY pairs on the defensive. EUR/USD tested above the 1.35 level while USD/JPY probed the 96.00 neighborhood. IMF Official Morsink noted that it had agreed that Hungary could tap its second loan tranche of €1.4B to sooth over fears over the Eastern European region. GBP/USD led the way higher aided by the May Rightmove house price survey which registered its largest month/month gain since Feb 2008. GBP/USD tested the 1.53 level against the USD and probed the 0.8800 level against the euro. EUR/CHF cross was steady but unable to climb higher following the SNB intervention last friday after the European close. The pair ends the NY session at 1.5120 level. Higher energy prices aided the CAD and AUD related pairs.
- US equity trading got off to an inauspicious start by focusing on weakness in Europe following a slew of disappointing GDP readings. But a preliminary May University of Michigan Confidence reading picked things up mid morning. The Michigan reading came in higher than expected, and Fed Gov Stern appeared just after the data to say that the economy is near a bottom. Note that this morning's April CPI was flat on a m/m basis, although the y/y figure fell deeper into negative territory on the heels of March's watershed negative y/y reading. But overall the sentiment following the data seems to be positive, as hopes that a small amount of inflation is a good sign for growth recovery while the highest empire manufacturing reading since Oct 2007 could be yet another green shoot. Trading definitely feels a bit tentative heading towards equity options expiration this afternoon.
- Treasury prices are lower giving back some of the risk aversion gains seen early in the week. The benchmark 10-year yield has drifted back towards 3.15%, but is still close to 25 basis points below where it entered the week. Citigroup is just the latest major financial institution looking to flex some healthiness in front of the US government following reports of a sale of 10-year non FDIC backed debt. Front-month gold is back above $930, at levels not seen since late March.
- With only two weeks to go to the government's deadline for a restructuring plan, GM looks to be close to a key deal with the UAW to slash labor costs. The Wall Street Journal is reporting that a potential deal with the union would cut hourly labor costs by more than $1B/year and reduce its $20B pledge to the UAW to cover health-care obligations in exchange for a 39% equity stake in the reorganized company. Reportedly the plan is still in flux, but the two parties could finalize terms as early as next week. In addition, the Treasury hopes to short-circuit protests from creditors by lining up deals before GM enters bankruptcy proceedings; the company is expected to begin negotiating with secured lenders soon to restructure about $6B in debt. Also note that AutoNation's CEO told CNBC this morning that Chrysler's bankruptcy process is on track to finish up quickly.
- The Treasury has extended TARP funding to the insurance industry at long last. The industry had been left out of the program at first, but last night the Treasury confirmed that four names, including Hartford, Prudential, Lincoln National and Principal Financial have been granted access to TARP. So far Lincoln is the only insurer to have confirmed its participation in the program, noting that it has be granted $2.5B in funding. Overnight Keefe Bruyette raised Harford and Lincoln to Outperform. All four names opened higher this morning but have traded off in the early going, with HIG+8%, LNC+6%, PFG+2% and PRU-2%
- Another crop of retailers reported quarterly results this morning. JC Penny and Nordstrom offered solid results meeting or exceeding analysts earnings and revenue expectations. JCP's guidance for the coming quarter and the full year remained weak, however, well below estimates, while JWN raised its 2009 earnings guidance range. JCP noted that consumer spending and mall traffic would remain weak for the rest of 2009. Apparel laggard Abercrombie & Fitch also reported this morning, offering twice the quarterly loss expected. On the conference call, ANF's CEO called 2009 a "transitional year," and finally admitted that the company would undertake price cuts, which they have resisted throughout the crisis. Shares of JWN are up 6% in early trading, while JCP and ANF are both in negative territory mid morning.
- In currency trading, the USD and JPY have retreated from their best levels after the light risk aversion resulting from European data wore off. The better-than-expected US Empire Manufacturing data and Fed Gov Stern's comment that patches of green shoots were appearing everywhere helped tamp down risk aversion. Oil and metal commodities have managed to hold steady to positive during the NY morning while European and US equities markets climbed back from earlier lows. EUR/USD is hovering around the 1.36 level while USD/JPY is drifting back above its 100-day moving average of 95.15.
- Equity indices opened a bit higher this morning despite the absence of improvement in weekly jobless claims. Analysts estimate that auto layoffs (some temporary) were a big factor in higher-than-expected initial claims number, accounting for 27K of the 637K initial claims figure, which was in line when auto-related dismissals were factored out. Note that the continuing claims data hit their highest level on record once again. The Labor Department's PPI reading said prices rose at a brisk pace in April after March's decline, driven by a surge in food costs. Front-month NYMEX crude is well below $58 after the IEA cut its world oil demand forecast for the ninth consecutive month in its monthly report today.
- Treasury prices were higher again ahead of the open of pit trade in Chicago, but have since slipped into the red. Yields are only marginally higher ahead of the third and final NY Fed coupon purchase of the week. The benchmark yield is back above 3.1% while the long bond is approaching 4.1%. There was a noticeable jump in interbank lending rates overnight with the US 3-month LIBOR surging 5 basis points to 0.85% to match the yield of the 2-year Treasury note. It is worth noting though, that it did not translate into an upward move in the TED spread.
- Yesterday afternoon the Treasury and CFTC outlined their plan to regulate over-the-counter derivative trading. The plan would set capital, reporting and margin requirements, as well as position limits on certain instruments, with the Treasury handing most oversight to the CFTC. Under the plan, the CFTC would establish an "audit trail" for the derivatives and have "clear unimpeded authority to police fraud, market manipulation and other market abuses" involving derivatives. Shares of CME have run up 20% over recent days on speculation the company would be a direct beneficiary of the move, with CME+5% after the bell today, while ICE is up 4%.
- Wal-Mart's first-quarter results are apparently not having a big impact today, with shares of WMT down a hair in early trading. The worlds biggest retailer met earnings expectations and came in a bit under revenue estimates, and guided in line for next quarter. The company noted that the stronger USD reduced reported revenue by a considerable amount. Same-store sales grew by a healthy 3%. On the conference call, WMT's CEO said he is optimistic about the long term and realistic about the short term. Kohl's reported more or less in line with expectations and upped its full-year forecast a touch. Whole Foods' earnings outperformed analysts expectations, but same-store sales are still falling.
- Power transmission engineering name URS is up 8% after beating earnings expectations by a wide margin. Oil and gas services firm WSP jumped 20% before the bell before losing ground in early trading, to around +14%, after the firm significantly outperformed Wall Street's expectations. Shares of autoparts giant Lear have been all over the map, dropping 14% before the open, climbing quickly to +10% after the bell and then diving back deep into negative territory. The company's loss was much bigger than expected, thanks to restructuring costs and big sales declines. The tone of the conference call was grim, with the CEO insisting that Lear wants to restructure outside of bankruptcy.
- In currency trading, risk appetite reappeared following the weekly claims data. The USD saw its earlier gains against the European pairs erode, but maintained its recent overall weekly range for the most part. EUR/USD was holding around the 1.36 area and GBP/USD hugging the 1.51 neighborhood. The USD/JPY pair continues to gather some technical momentum below the 96.30/50 head & shoulders neckline on the charts that has developed since early Feb. Currently the 100-day moving average providing support at the 95.10 level. The Japanese press reported that the government would likely upgrade its economic assessment in May. If true, this would be the first upgrade in three years. Dealers are noting that any upgrade would be attributed to signs exports and production are bottoming out. Overall trading has been quiet, but some rumors of bank defaults did circulate. Dealers noting that a small Russian bank did in fact default but it had few repercussions on price action.
- The weak April retail sales data is weighing down US equity trading this morning as the rally continues to flatten out in the wake of earnings season and the stress tests. The Commerce Department reported that April retail sales declined 0.4%, while economists had been expecting them to be flat. Also note that the March figure was revised downward slightly. Front-month crude has been below yesterday's highs, around $59 after OPEC noted in its monthly report that members' compliance with output cuts has slipped to the 77% from above 82%. Energy products briefly rallied following weekly inventory data from both the API and DOE which showed surprising draw downs in both crude and gasoline inventories, but any gains have been muted thus far by the weakness in stocks.
- Treasury prices are rallying for the second straight session as traders unwind a portion of the recent rotation we have seen from bonds to stocks. With no Treasury auctions scheduled this week and a third Fed coupon purchase on tap for tomorrow yields have moved decidedly lower over the past two sessions. The benchmark yield is nearing 3.1% while the long bond is sub 4.1%. Corporate debt issuance continues to explode. JPM and AXP announced non FDIC backed offerings this morning in hopes that the door to pay back TARP money will be opening up soon. We have also seen a slew of lower quality higher yielding offerings come to market over the past few sessions.
- Shares of the tier-1 US banks slipped before the open this morning as the realities of the current market have begun sinking in on investors, now that earnings and stress tests are behind us. RealtyTrac offered a dose of dismal April data, noting that US foreclosures were +32% y/y and up one percent from the prior month, hitting their highest level since the data series began in 2005. More ominously, the organization said foreclosures should only grow given that temporary freezes on the practice ended in March. Citi expanded its program to convert preferred stock to common equity, adding another 1.6B shares to the effort. Citi now plans to exchange $33B in preferred shares, up from $27.5B. The WSJ reported that the US government is looking at ways to alter compensation across the financial industry, including legislation, SEC regulation or moral persuasion. And last but not least, Freddie Mac reported a $9.8B loss and said it will need another $6B in capital from the Treasury.
- The flood of secondary offerings continues, prompting many commentators to see in the offers more evidence of some kind of temporary top in equities. BB&T priced 75M shares at $20 last night; shares of BBT opened about -10%, right above the offering price, and have gained a little ground in mid morning trading. Ford's 300M secondary priced at $4.75, with shares opening -4%, dropping briefly below $4.75 before heading up toward the $5 handle.
- Chip maker Applied Materials met analysts' diminished earning expectations, and managed to outperform revenue targets. But the company's Q2 results were weak, with gross margin retreating to 15% versus 44% y/y and its forecast for next quarter's earnings well below expectations. Intel confirmed that it is being fined $1.5B by the EU Commission. Representatives of the company took strong exception to the move, noting that the ruling ignores the reality of a highly competitive industry. Clearwire formed an alliance with Cisco to develop 4G mobile internet services. And Verizon reached a deal to sell wireline phone service areas outside its main Northeastern and Californian territories to Frontier Communications for $5.3B in Frontier stock and $3.3B in other payouts. Shares of DPS and ANN are up 5%, while M is down 5%. LIZ is down -20%.
- In earnings, Doctor Pepper Snapple beat the Street and raised its full-year forecast. Macy's quarterly loss was smaller than expected, and the company said it could beat its fairly weak 2009 forecast if the economy picks up in the second half. Ann Taylor also offered some upbeat news, guiding its Q1 loss as smaller than analysts are predicting. Liz Claiborne is not doing so well, missing across the board as sales among all its major brands continue to decline at a double-digit pace.
- The news flow from both Europe and North American popped into high gear on Wednesday, with the USD recovering some of its recent losses against the European pairs aided by a renewed sense of risk aversion. Mixed Chinese economic data, soft Euro Zone Industrial Production data and weak US retail sales data help the USD and JPY firm up in early New York trading. Dealers said the shortfall in April retail sales coupled with the downward revision in prior month was a factor, noting that the data suggested rising unemployment was prompting consumers to save more.
- EUR/USD tested the 1.3570 level but was unable to garner enough strength to make fresh weekly lows. The 1.3550 level is proving to be formidable support in the pair. JPY was broadly firmer among the majors with USD/JPY hugging the 96.00 level for the bulk of the morning. The JPY's advance against its European counterparts was even more impressive, with EUR/JPY off 80 pips at 130.80 while GBP/JPY tested below 145 level before retracing. Sterling recovered from its losses earlier in the trading day after the BoE said any economic recovery would be weaker and slower than previously suggested. GBP/USD re-approached the 1.51 area after testing the 1.5090 level. Like the euro, GBP did not make any fresh weekly low in today's sell off against the USD.
- US equity indices opened higher this morning after yesterdays sell off, but rapidly headed into the red. The National Association of Realtors disclosed sale prices of existing homes declined in 134 out of 152 metropolitan areas in the first quarter of 2009 on a y/y basis (prices rose in the other 18 cities) and the Commerce Department reporting that the US trade deficit widened for the first time in eight months. Front-month NYMEX crude spiked to hit $60 earlier in the session for the first time since last fall before trading down to around $58.70.
- The financial sector continues to react to the stress test results and the recent flood of offerings over the course of the last few days. Last night Fed Chairman Bernanke complimented the banks, saying that he was impressed by their ability to raise funds so quickly and that many tested banks are well ahead of schedule on raising private capital. Bank of America has sold a portion of its 17.4% stake in China Construction bank to a group of buyers in its ongoing quest to satisfy the US Treasury. The Bank of New York became the latest of the "all clear" stress test candidates to announce its intention to sell shares ($1.2B worth, or 3.7% of shares outstanding) in order to pay back TARP funds. US Bancorp has priced its offering of $2.5B in common stock (7% of market cap) to pay back government funding.
- Ford has launched its own share offering, including 300M shares (about 10.7% of shares outstanding) to fund payments it is required to make to the UAW's Voluntary Employee Beneficiary Association (VEBA) retiree health care trust. Over at GM, a day after the bondholder's committee said GM's latest offer, of 10% equity, must be improved materially and CEO Henderson said bankruptcy is looking more probable, the FT highlights that holders of GM's CDS could make billions if the company does file for Chapter 11, giving certain bondholders owning CDS even less incentive to negotiate in restructuring talks.
- Alpha Natural Resources said it would buy Foundation Coal in an all-stock deal valued at $2B that would create the third-largest coal producer in the United States. The board of both companies have approved the deal, after which Alpha's current shareholders would hold 59% of the combined company. Shares of FCL jumped more than 30% before the bell, to just short of the $32.73/shr consideration offered to shareholders by Alpha. Shares of ANR are in the red.
- In earnings, engineering firms Fluor Corp and McDermott topped analysts' estimates and more or less met revenue targets, although Fluor trimmed its 2009 forecast somewhat. Full-year backlogs at both firms fell slightly from last year's levels. Shares of FLR+5% and MDR+3% were up slightly in early trading. Supermarket giant Winn Dixie came in above estimates, sending shares of WINN up 20%. Shares of Fossil were up 15% on a strong quarterly report. Foreign language teaching firm Rosetta Stone reported its first quarterly reports following its mid-April IPO, with shares down 5% on the news.
- In currency trading, the greenback extended its soft tone against all majors pairs in the New York session, as lingering concerns over the revised US deficit projections issued by the budget office on Monday weighed on sentiment. Dealers are noting that Bernanke's optimistic take on the USD during the Asian session was presumably to aid funding of the even more massive budget deficits projected by the budget office revisions. The USD rebounded from its worst level as traders unwound day positions and equity markets moved into negative territory. EUR/USD tested above the 1.3700 level to void any option barriers that might have lingered there. Dealers are noting that USD/CHF might hold the key to the overall trend in the dollar, eyeing the 1.1000 area as a key pivot level.
- Sterling has maintained its positive tone, with GBP/USD managing to pop up to test 1.5350. UK claimant data was rescheduled to come out during the New York morning after a reported leak. ILO unemployment came in at 7.1% and marked largest rise in that series since 1981 while the average earning (including bonus) registered its lowest reading on record with its -0.4% performance for March. GBP/USD retraced from its best levels to end the NY morning around the 1.5250 area. Note that sovereign ratings began to resurface as a potential issue after Moody's cut Ukraine's sovereign ratings by one notch to "B2" and Fitch placed Greece's "A" rating on watch negative due to the country's deteriorating fiscal situation
- Investors have begun the week selling equities, with US stock indices opening in the red and the DJIA and S&P500 staying there through mid morning. The Nasdaq has popped into positive territory as buyers step in looking for deals after three days of relative underperformance. Front-month NYMEX crude has regained the $1 it lost overnight to trade around $58. US Treasury prices are rallying with the first of three coupon purchases by the NY Fed scheduled for this week adding to the upside momentum.
- Capital One, US Bancorp and BBT Corp launched significant share offerings (COF 13% of market cap, USB 7% market cap, BBT 10% of market cap) this morning in order to pay back their TARP borrowing. All three banks had been declared "adequately capitalized" under the government's stress testing program. Morgan Stanley arranged another $600M in support via a common equity investment by Mitsubishi UFJ, after pricing around $3.5B worth of stock on Friday. MUFG is reportedly swapping some of the preferred stock it acquired earlier for common shares. This orgy of dilution comes after Richmond Fed President Lacker said over the weekend that the Federal government should limit its aid to financial companies, as the aid could prompt excessive risk taking. Warren Buffett's Berkshire Hathaway reported a $1.5B loss after the close on Friday, thanks to a write down of its ConocoPhillips investment and unrealized derivative losses. This was the company's first loss since 2001. Buffett had already acknowledged the mistake of buying COP stock when oil and gas prices were near their peak.
- Over the weekend the NY Times published a very cautious survey of the US credit card market. According to the recent stress test results, the 19 largest US banks could see more than $82B in credit card losses by the end of 2010 under what was classified as a "worst case" scenario. If unemployment moves above 10%, losses at some banks could far exceed that level. AXP and DFS were down 5%, while MA and V were down 2% on the news.
- In earnings, satellite TV names Dish Network and close partner Echostar offered diverging quarterly results. DISH is up 15% this morning after outperforming analysts' estimates, although it also said it lost 94K subscribers (with total subscribers of 13.6M at the end of the quarter). SATS reported a small loss, sending its shares down 4% in early trading. Shares of Virgin mobile are on fire, rising more than 25% before the bell and sustaining those gains in the early going, after the firm blew out earnings estimates. In other news, Agrium raised its offer for CF Industries by 14% to $40/shr, plus stock; CF said it is considering the offer.
- In currencies, the firmer USD and JPY pairs have maintained strength against their European counterparts in New York trading. After testing above the 1.3650 level, EUR/USD hovered below 1.3590 for the bulk of the New York morning. Dealers noted that the revised US deficit projections from the White House Budget Office curbed some of the dollar's upside momentum. Several factors were cited for the stronger JPY, including press articles from the weekend insisting that the crisis in financial markets was not over. In addition, there was continued chatter that Japan's FSA might amend the FX margin requirement to curb currency speculation. EUR/JPY tested 132.05 before consolidating its gains, while GBP/JPY lost around 350 pips at one point to test 146.75 area. EUR/GBP moved back above the 0.90 level in a trend that ensued following last Thursday's BoE and ECB monetary policy decisions on quantitative easing.
- Stress test closure and better than expected unemployment data energized early trading this morning, with the leading US equity indices opening higher and leading strong gains in early trading. But some of the optimism has evaporated, as indices have rolled over and given up most of their gains in mid morning trade, with the Nasdaq dipping into negative territory. The pace of job losses slowed in April, with the non-farm payrolls reading coming in below 600K for the first time in five months. The unemployment rate fell just short of 9%, still its highest level since late 1983. Front-month NYMEX crude continues to rise, just shy of the $58 handle in morning trading.
- Now that the results of the stress tests are out and digested investors are grappling with the multitude of offerings unloaded on the market. Nine of the 19 test candidate banks are said to have enough capital to withstand a deeper recession. The other ten need to raise a total of $75B in funds to withstand potential future losses under the 'adverse scenario'. Bank of America, Wells Fargo and Citi have been told to raise a total of more than $53B, with BoA alone requiring $33.9B. BoA CEO Lewis told CNBC this morning that his bank hopes to raise $17B in common equity over the course of next week, while also insisting that BoA's ability to raise capital is better than the US government thinks, further disputing the results (last night in its official statement, the bank said the Fed's income estimates for BoA were too low). Wells Fargo announced a $6B common stock offering before the test results were even released, expanding this amount to $7.5B this morning. WFC's CEO said the offering should satisfy the government's demands (note that yesterday regulators said WFC needs $13.7B). Citi said it would expand its previously disclosed public exchange offers by $5.5B, to $33B, fully satisfying government demands. Morgan Stanley also announced a $2B stock offering ahead of the test results, expanding the offering to $3.5B this morning. In addition, MS is selling $4B in non-government supported bonds, presumably to repay TARP funds and its obligations to the Citi brokerage transaction. Shares of the major tier-1 banks are performing well this morning, with the exception of MS, which is -4%.
- There have also been several notable quarterly earnings reports out of the financials, including another round of massive losses from wards of the state AIG and Fannie Mae. AIG managed to trim its loss down to the smallest seen in the last six quarters, to a mere $4.4B. Fannie posted a loss of $23.2B and requested $19B in additional government aid. Insurance firms Allstate and Genworth Financial reported operating profits that were well below estimates and big losses after accounting for investment losses and impairments. Revenues at both companies were also disappointing.
- In other earnings, CBS surprised investors with a quarterly loss, which it said was driven by lower operating income. CBS's CEO said that beyond the downturn unusual factors impacted the comparability of its results (including various special items in prior quarters) and insisted that its Q1 report is not indicative of its full-year performance. Chipmaker NVIDIA lost a bit less than expected and beat revenue targets, although its margins are still down on a y/y basis. Video game firm Activision beat estimates and raised its full-year forecast to meet analysts' improved outlook. Auto retailer Sonic blew out the Street's EPS view (but missed revenue target). Chemical manufacturer Huntsman (-9.5%) lost twice the expected figure and missed revenue estimates by a wide margin.
- In currencies, the greenback was weaker during the New York morning in the aftermath of the payroll report. Although the headline number was better than the consensus, currency dealers were focusing on the birth/death adjustment of the data (+226K), noting that it kept the data from hitting a -700K reading. EUR/USD tested above its 200-day moving average of 1.3456 for the first time since Aug 8th. The question remains whether the pair can close above this level by the end of trading today. EUR/USD tested 1.3520 at one point this morning. CAD was firmer following the Canadian employment report, which saw almost 36K jobs created in April; in addition to stronger crude prices. Canadian PM Harper commented that there were signs that the economy might be near a "plateau" but was unsure whether additional stimulus spending was necessary. USD/CAD retested the 1.1555 level, up over 120 pips in the session
- Much like yesterday, equity indices made strong gains before the bell this morning and then traded off from the open before finding a floor. This afternoon will see the official public disclosure of the stress test results, although at this point most of the results have already leaked out in one form or another. Last night, Treasury Secretary Geithner told PBS that none of the banks being tested are at risk of insolvency, and insisted that the results to be "reassuring." Same-store sales showed some improvement among selected retailers, although commentators debate whether these count as green shoots or not. The weekly initial jobless claims were a bit lower than expected; together with Wednesday's ADP surprise, the claims data may indicate positive news in tomorrow's April payrolls reading. However, investors may be looking for "much better" rather than "less bad" from data at this point. Front-month NYMEX crude is extending the strong gains of the week, up another $1.20 in the $57 handle.
- US Treasuries continue to be at the mercy of the unwinding of previous flight to safety trades. Yesterday's strong 10-year note auction results on the back a Tuesday's decent auction have not sparked much enthusiasm surrounding demand's ability to absorb oncoming supply. Instead the benchmark yield has moved out to new 2009 highs at 3.25% as investors scramble to add risk to their portfolios. T-bill yields have also been inching higher while interbank lending rates steadily improve. The long bond is down nearly a full point yielding 4.14% ahead of this afternoon's $14B auction. Bund and Gilt futures are also lower despite the ECB's announced rate cut/new repo operations, and the BOE announcement that would be purchasing another £50B worth of assets under their QE mandate.
- General Motor coughed up a $6B quarterly loss this morning, which is at least a bit better than its $9B+ loss last quarter. But that is about the only good news for the crippled automaker, which burned through $10.2B in cash in the quarter and saw revenue fall 47% y/y. Keep in mind that the firm has already been given $15.4B in federal loans and recently asked for another $11.6B more. Bankruptcy is looking more and more likely, with the June 1st restructuring deadline around the corner, although on the conference call one exec insisted the company had to get "bankruptcy speculation behind it." GM's sorry results contrasts markedly with Ford, where CEO Mulally, who launched a major electric car initiative yesterday and said his company has sufficient resources to fund its own restructuring.
- Network hardware giant Cisco offered a solid quarterly report yesterday afternoon, with earnings and revenue slightly ahead of analysts' estimates. CEO Chambers noted that Cisco's customers are seeing stabilization in their businesses for the first time in many quarters, but also called the level of stabilization disappointing. Investors are not impressed with the results, with CSCO opening in the red and falling further in early trading. Symantec reported solid results, ex a $413M goodwill write down. The latter prompted a round of analyst ratings cuts, sending shares of SYMC down 16%, which with CSCO are dragging down the overall tech sector. Like competitor Time Warner Cable last week, Cablevision and DirectTV missed Q1 EPS estimates. But CVC opened higher and extended its gains in mid-morning trading after the company said it was mulling a spin-off of its Madison Square Garden business, with shares of CVC up 16%. Shares of DTV are in the red mid morning.
- In line with many other economic indicators, April same-store sales are showing a few green shoots of their own, with some retailers outperforming analysts estimates thanks to the warmer weather and glimmers of economic improvement. Wal-Mart led the pack, reporting April SSS of +5%, nearly twice estimates, with Costco reporting flat comps versus -6.5% estimates. Several mall chain apparel retailers also exceeded estimates (GPS -4% v -7.2%, AEO -5.0% v -7.6%e, ANF -22% v -26.5%e). However, commentators are noting that estimates were badly beaten down in the wake of all the pessimism in the first quarter, making it easy for some retailers to outperform. Luxury retailers still struggled with sharp sales drops. Shares of many retailers made gains before the open (ANF was up 12% at one point), but are generally loosing ground mid morning. Note that WMT will no longer report monthly same-store sales figures from now on; the firm plans to offer quarterly comps with earnings.
- Currency trading has hinged on European central bank decisions this morning, with dealers highly focused on more information about quantitative easing. The Bank of England left its key interest rate unchanged at 0.50%, as expected, and increased its quantitative easing spend to £100B from the £75B prior. The GBP saw significant weakness in the aftermath of the announcement, with GBP/USD falling from the 1.5170 level to test 1.5030 and EUR/GBP moving back above the 0.8800 key intra-day chart level. Over on the Continent the ECB lowered its refi rate by 25bps to 1.00%, as expected, and said it would begin purchases of euro-denominated covered bonds. EUR/USD tested lower toward the 1.3280 level following this initial round of QE, but bearish euro sentiment quickly eroded gains when the bank admitted the operation would only be €60B for now. This compares to the Fed's $300B QE spending and the BoE's £125B operation. On the press conference, ECB President Trichet stressed that the bank is "not embarking on a quantitative easing policy." After these comments the EUR/USD proceeded to test its 200-day moving average of 1.3466 before consolidated and EUR/GBP moved above the 0.8930 level. Also note that today's rotation into equities and out of bonds helped to weaken the JPY against its major pairs. The unexpected drop in US new jobless claims ahead of tomorrow's key non-farm payroll report helped increase in risk appetite.
- Equity indices opened sharply higher this morning as investors shrugged off widespread reports that the government would ask Bank of America to raise billions in additional capital and concentrated on the much better-than-expected April ADP employment reading. With the ADP small and medium-sized business sub-indices showing less weakness than expected, commentators are fixing on the report as just one more sign that the sharp declines of Q1 are moderating. However, equities traded off from the open, with some caution in the wind ahead of the expected release of stress test results as well as the government's conditions for banks to repay TARP funds. Note that tech stocks have been hit especially hard in early trading, forcing the Nasdaq into negative territory led by declines in Amazon. Front-month NYMEX crude continues to gain ground, up more than $2 to trade near the 2009 highs of $56 a barrel.
- Treasury markets remain fairly quiet with prices and yields settling into the new trading range. The 10-year note if marginally lower with yields just a few basis points from 2009 highs ahead of a $22B 10-year auction this afternoon. Both the BOE and Fed continued to buy up government bonds in two more reverse auctions this morning. Lots of trader talk is focused on the $10.6B TALF loans requested in last night's third round of auctions. That was more than the first two TALF auctions combined. Credit markets are also focusing on the increased issuance of junk paper and continued improvements in interbank lending rates as hope the government policies are continue to have the desired effects.
- Earnings season is slowly winding down, with the bulk of the most watched large- and mid-cap firms having already disclosed their quarterly results. Oil services leader Transocean missed earnings targets thanks to the overall weakness in the energy sector, although utilization and day rates held up on a q/q basis. Engineering firm Foster Wheeler came in below analysts estimates, hurt in part by FX impact. Cooper Tire's loss was smaller than expected, although tire revenues still not growing, demand remains weak and overcapacity still an issue. Canadian fertilizer maker Agrium is still getting hit by the overall collapse in demand for its products. AGU reported a small profit ex hedging losses, write downs and compensation expenses, significantly below expectations. Agrium said it remains committed to the CF Industries acquisition.
- Gaming names Las Vegas Sands and Boyd both beat earnings expectations. LVS eked out a $0.01 per share profit on an adjusted basis (-$0.14 unadjusted), and said it was still looking to sell assets to shore up liquidity. BYD reported twice the expected amount, before a big write off for acquisitions. Disney offered solid quarterly results, a bit ahead on the bottom line and a bit behind on revenue. The CEO did admit results have been impacted by the weak economy. Tech darlings Garmin and Electronic arts offered lackluster earnings; GRMN missed estimates, while ERTS's quarterly loss was smaller than expected. Revenue lagged at both firms. Shares of GRMN are down a whopping 16%, while ERTS is down 3%. Also note that Amazon's is launching its new large-screen Kindle device in New York this morning.
- In currency trading, risk appetite returned in the New York session following the better-than-expected ADP employment report. EUR/USD rebounded to move to 1.3370 before consolidating. Scandinavian currencies were firmer in the NY morning after the Norwegian Central Bank cut their deposit rate by 50bps to 1.50%, as expected. EUR/NOK was lower in the aftermath of the rate decision. Sweden's Riksbank commented that it could stimulate the economy further without cutting the repo rate to zero and noted that it would not intervene to weaken its currency.
- Equity markets are giving up a small portion of yesterday's gains as doubt creeps in ahead of Thursday's stress test disclosures. Rhetorical hedging out of Fed Chairman Bernanke also seems to be a factor; Bernanke noted that he sees a recovery coming in late 2009, but warned that even then growth would remain below potential. Spot gold tested above the $915 level for one-week highs, with dealers calling for more upside momentum if gains above the $930/oz level are sustained. Front-month NYMEX crude is struggling to maintain the $54 handle but still well within reach of 2009 highs. Treasury markets are quiet ahead of this afternoon's 3-year not auction, with prices and yields little changed.
- Financial stocks are all over the map this morning in the wake of the Wall Street Journal's front-page assertion that 10 out of 19 banks undergoing government stress tests may need to raise capital. This news comes two days before the results of the testing are due. Topping the WSJ's list of banks in need of a bigger cushion are Bank of America, Citi, Wells Fargo and a handful of regional banks. After the open this morning CNBC reported that banks would have one month to come up with a plan for raising the needed capital (which officials have said needs to come from private sources). Note that yesterday afternoon S&P put BoA, Citi and Wells Fargo on Watch Negative, along with ratings from a raft of other tier-1 and regional banks. S&P also warned that Citi and BoA would likely need more capital. Oppenheimer is damming the torpedoes this morning, choosing to upgrade Wells Fargo to outperform.
- In earnings, consumer-facing names continue to either meet or beat expectations. Retail powerhouse CVS reported Q1 results more or less in line with the Street, and said it was firm quarterly same-store sales growth as well. CVS's 2009 forecast was up a hair over last quarter's outlook. On the conference call, CVS's CEO said its retail business continues to perform at the top of the industry, but warned it is "not entirely recession-proof." Kraft Foods beat earnings estimates and miss a bit on the top line, but reaffirmed its solid full-year outlook. Executives at KFT said they are starting to see some signs of economic recovery but expect to continue seeing weakness in Central and Eastern Europe. Molson Coors destroyed earnings estimates, doubling its quarterly profit y/y, before the JV arrangement with SABMiller.
- Two of the gaming world's biggest names, Wynn Resorts and MGM, are both up substantially despite fairly weak earnings reports. Wynn slipped to a quarterly loss due to softness in its big Macau play. MGM's travails in the quarter are well known, although it chalked its quarterly loss up to double digit declines in slots and table games, with total casino revenue -16%. Occupancy was also "unusually soft" in the quarter. On the conference call, MGM's CEO said the quarter was "quite brutal" in Vegas, noting that he expects the convention business to be down 25% in 2009.
- Unlike its larger brethren last week, mid-cap healthcare are companies are outperforming. Managed-care name Health Net beat analysts' expectations and reaffirmed a 2009 forecast that was well above target. HealthSouth also beat earnings expectations and guided to the high end of its 2009 range. Two big pharma names were mixed, however. Drug distributor McKesson exceeded earnings estimates (ex a $0.22 investment write down) although revenue was a bit behind. Guidance for the full year also fell short of expectations. Generic drug power Teva's earning were in line, while revenues fell short of expectations.
- In currencies, EUR/USD moved back to retest highs from Asia around 1.3420, with risk appetite was behind the support for weaker USD and JPY, not to mention strength in energy and metals. Sterling continued to maintain a firm tone throughout the New York session, initially helped by the better-than-expected PMI contraction data for April. Additional GBP strength was attributed to a rumor circulating that UK consumer confidence would hit 50 (the consensus expectation is for 43); the data is scheduled to be released later today at 7pmET. GBP/USD tested above the 1.5160 level for the first time since early January, while EUR/GBP probed closer towards the key technical level of 0.8800 as it printed 0.8846 in the session. Take note also that the ECB's Nowotny cited "clear signs of improvement" in Eastern Europe, saying that the region would benefit from continued support from the IMF. CAD and AUD-related pairs were firmer on steady to higher energy and metal prices.
- Economic data will really pick steam up as the week progresses, especially with rate decisions on tap from the BoE and ECB on Thursday and key US employment figures coming out in the Wednesday through Friday period. The banking sector stress test results are expected to be made public on Thursday.
- Equity prices are surging higher to begin the week, with the three leading US indices making strong gains in the wake of much stronger than expected homes sales and construction spending data. The March Pending Homes Sales index rose 3.2%, making for two straight months of advances after it hit a record low in January. March Construction Spending grew slightly after five straight months of decline. Front-month NYMEX crude has sustained the big run-up seen on Friday, with prices just shy of $54. Treasury prices are slightly lower as yields begin the week finding traction above key levels for both 10 and 30-year paper. The calendar is full with 3 auctions scheduled this week as well as continued coupon purchases from the NY Fed.
- More stress test related rumors made the rounds this weekend, with the financial press reporting that Bank of America and Citigroup will raise around $10B a piece in response to the test results. Bank of America denied the reports this morning, although its denial seemed somewhat revealing, as it noted that it has not "been given a final number by the Federal Reserve." In a certain light that could mean the bank will need to raise some amount of capital. Not a word has been heard from Citi in response to the reports. Warren Buffet has been making comments about selected banks this morning, complementing BoA for its "very good" deposit collection system and saying that he expects to own Wells Fargo in five or ten years. Share of the tier-1 banks are strong, led by WFC+9%.
- In earnings, Sprint surprised investors with a small quarterly profit, against expectations for a slight loss, although the company also announced its biggest ever quarterly net loss of wireless customers. Sprint warned that an increasing number of customers may choose pre-paid services like the company's Boost Mobile product, rather than post-paid monthly wireless bills. Sprint lost a net 1.25M postpaid customers in the quarter, with executives blaming the economic pressure in its business segment for some of these losses. Cosmetics maker Estee Lauder also surprised markets, earning nearly three times the expected amount in its Q3, although its guidance was a bit more pessimistic. While executives note they are beginning to see economic improvements in the US, they expect current trends to hold through the rest of 2009. Earnings from foodservice giant Sysco and Tyson Foods were more or less in line, while the companies' revenue performance lagged expectations.
- In M&A action, Liberty Media is planning to split off its Liberty Entertainment unit and combine it with DirectTV. The unit controls assets such as the Game Show Network, FUN Technologies and three regional sports networks; the new company will be called DirecTV Group. Existing DTV holders will receive one share of DirecTV Class A stock for each share they already own. Holders of Liberty Entertainment shares will receive 1.1111 shares of DirecTV Class A for each share Liberty Entertainment. Pepsi Bottling Group rejected PepsiCo's $29.50/share acquisition proposal, calling deal "grossly inadequate."
- Currency price action was whippy in the New York session as thin conditions, lots of data and various speakers prompted a certain amount of volatility. Initially, the dollar started the New York morning on a firm footing after the ECB's Weber commented that any recovery in Germany would not arrive until the second half of 2010. These remarks followed the EU Commission's downward revisions of 2009 & 2010 GDP forecasts for the entire union as well as the smaller Euro Zone. However, continued improvements in economic data from emerging market countries helped risk appetite take the upper hand, with improving PMI data in Europe and Asia aiding the cause of risk (China and India PMI data moved above 50, suggesting growth). In addition, Brazil's April trade balance beat expectations with exports rising more than expected. Commodities were firmer across the board in both metals and energy and the CAD and AUD pairs reflected this strength. EUR/USD tested the 1.3211 level in early New York trading before moving back towards its Asian session highs of 1.3347. USD/CAD was set for its first daily close below its 200-day moving average in almost 12 months, around 1.1770.
- US equity trading was mixed this morning after a notably lower session in the early going. Things picked up more or less where they left off yesterday afternoon, continuing the post-Chrysler bankruptcy slide to the downside. More green shoots seen in data momentarily took things higher, with better-than-expected final University of Michigan Confidence and April ISM Manufacturing numbers. Traders are paying attention to the much improved new orders component of the ISM data. Note that the U of Michigan Confidence index registered its largest one-month increase since October 2006. Then mid morning CNBC announced that the Treasury had pushed the release of the stress tests back to May 7th, noting that the publicly available information will include capital needs for each bank and estimated losses for certain loan categories, which has helped the DJIA nearly recoup its losses for the day. Front-month NYMEX crude is pushing out to its highest level of the week, gaining a $1.50 to test over $52. Yesterday closed out a very strong month of trading, with the DJIA up 685 points (+9%) in April, the Nasdaq up 212 points (+14%) and the S&P500 up 79 points (+9.9%).
- Citigroup has finally chosen a buyer for its Japanese retail brokerage operation, Nikko Cordial Securities, ending its attempts to build a full-service operation in Japan. Sumitomo Mitsui will buy the unit for ¥774.5B ($7.9B) and also tie up with Citi in a wholesale and investment banking alliance. The deal is expected to close at the beginning of October.
- Earnings from insurance giants MetLife and Hartford Financial fell short of expectations, with both names missing estimates on the bottom line as weaker markets cut into their businesses across the board. Hartford has been much harder hit than Met, with the firm reporting its third consecutive quarterly loss and slashing its full-year forecast to a broad range that's just above breakeven at its lower end. The company is severely limiting its overseas activities, suspending writing new business in Japan and the UK, and putting on ice plans to launch sales in Germany. Note that MasterCard's earnings were better than expected, although on the conference call an executive did warn that the firm's 2009 revenue growth would fall short of its annual long-term growth target of 12%.
- Dow component and second-largest US oil company Chevron beat the Street this morning, with revenues well ahead of estimates. Quarterly profit was down 64% y/y, making for an even steeper drop than Exxon's 58% y/y profit drop yesterday. Like the rest of the energy sector, the firms are dealing with what various OPEC officials refer to as the reality of $50 crude. Note that Reliant Energy is down more than 15% after completing the sale of its Texas retail business to NRG.
- In other earnings, consumer names Dean Foods, Fortune Brands and Chiquita offered strong quarterly earnings, with all three firms beating analysts' EPS expectations. Full-year guidance at the three was firm and without surprises. Shares of DryShips are up 14% after the firm exceeded expectations and provided insight into their operations. Shares of Manitowoc have been hoisted up 20% on a very mixed earnings report, with the firm beating on an adjusted basis (and in the red thanks to hefty impairment charges).
- International data is aiding the climate of risk appetite: China's April PMI Manufacturing came in at 53.5, compared to the prior reading of 52.4, for its highest level in a year and the second consecutive month of expansion. European PMI readings in Ireland, UK and Denmark also improved on prior readings. Note that the US PMI manufacturing continued this trend as well, with a 65.1 reading above the 61.9 estimate. But these hopeful figures are being balanced by chatter that the EU Commission will forecast a 6.0% deficit-to-GDP for EU bloc for 2009, with a forecast of 3.9% for Germany and 8.6% for Spain. The Maastricht Treaty binds most EU member states to maintain debt-to-GDP ratios of 3.0%. EUR/USD ending the NY morning at 1.3250 area and little changed from opening levels in Tokyo. USD/CAD is again testing its 200-day moving average at 1.1855, failing to sustain any momentum below that level. That specific moving avg has not been breached since late May 2008.
- Equities are advancing in part thanks to positive data and a flood of earnings reports to decipher. The Labor Department said initial jobless claims fell to 631K last week, down from the prior week's 645K, providing more evidence that declines are at least pausing. Note that continuing claims surged to their highest level since 1982. The Chicago purchasing data was also much higher than expected, with big gains in both the new orders and employment components.
- While the any official announcement on Chrysler is is not yet out, President Obama is expected to speak on the auto sector at noonET, with hardly anyone doubting that Chrysler will enter bankruptcy today. Chrysler executives struggled to extract an agreement with its lenders until the very last minute, trying late yesterday to get its lenders to accept around 30 cents on the dollar for their collective $6.9B in debt, but apparently the bondholders see better chances in court. White House aides have indicated that the bankruptcy would be a brief affair, lasting only one or two months. There were also reports circulating yesterday that Fiat would sign its alliance deal with Chrysler today, with an Italian newspaper reporting earlier this morning that the deal had already been signed. Fiat has denied these reports, however. Negotiations with the UAW and bondholders continue over at GM. This morning the bondholders countered GM's latest offer (involving a debt for equity swap and the UAW owning 39% of the company), calling for an allocation of new GM equity equally across the board to union VEBA and GM bondholders, pro rata to the level of financial obligation owed to each by GM, with no cash component and no government equity stake.
- Shares of the leading financials made modest gains but have been losing ground early on. Bank of America's Ken Lewis has managed to keep his position of CEO, although shareholders stripped him of his title of chairman. Note also that the FBI is probing possible accounting violations at Freddie Mac, examining whether the firm delayed the recognition of billions of dollars of losses. Visa is up 5% after coming in ahead of analyst estimates and reaffirming its 2009 forecast.
- Major health insurance name Cigna missed on earnings and revenue this morning, sending its shares down 4% in early trading. General insurer Travelers' revenue came in below par, and the firm's full-year forecast was disappointing, sending its shares down 5%. Cardinal Health is trading around even after reporting in line with expectations.
- Dow Chemical is up nearly 20% after surprising investors with a quarterly profit of $0.20/shr (ex items), against analysts projections for a $0.21 loss, although revenue was well below estimates. The CEO noted that there are some signs that the pace of global economic decline is moderating, but still expects the global economy to remain in recession all year. Energy titan Exxon is down a few percentage points after reporting a 58% y/y decline in net income and missing earnings estimates, thanks to the global slowdown and sharply lower commodity prices.
- A handful of major consumer-facing names reported yesterday and this morning, including Kellogg, Colgate-Palmolive, Procter & Gamble, Safeway and Starbucks. Dow component PG is under pressure this morning despite a more-or-less in line earnings report, including a much improved revenue outlook for the year. On the conference call, executives said destocking has been a factor and should continue to be for another quarter. Competitor Colgate is also down slightly after an unremarkable quarterly report. Kellogg and Starbucks are both up around 10% after outperforming the Street by slight margins. Shares of supermarket giant Safeway are down nearly 10% after the company missed estimates and cut its guidance. Also note that Revlon was up as much as 25% before the open before it fell to around +10%, thanks to an unexpectedly large quarterly profit (versus a projected loss).
- In currencies, dealers noted a change in sentiment as the New York session commenced, with the euro turning softer in the wake of the April Euro-Zone unemployment data, which hit its highest level in 2-1/2 years, at 8.9%. EUR/USD retested the 1.3200 level after probing near 1.34 earlier today. Employment should remain the Achilles heel of the euro, given that it is considered a lagging indicator. Some of the Euro retracement was also attributed to rumors of discord inside the ECB ahead of its May 7th policy meeting. Dealers were discussing word of bickering over which non-standard measures should be implemented. Trichet has reportedly imposed a vow of silence on Governing Council members ahead of the meeting. Around the globe the rhetoric from both government and central bank officials has been more upbeat, with plenty of assertions that the worst of the global recession is over and that green shoots are appearing. The GBP/USD fell short of retesting the 1.50 handle, where some considerable GBP selling emerged earlier this month.The USD/CAD bounced off support seen around its 200-day moving average of 1.1847 (last violated back in early Jun of 2008). Currently the pair is seen consolidating with resistance pegged at 1.1970/90 level. Weaker energy and metal price action did little to derail the recent positive momentum for the commodity-related currencies.
- Investors are looking beyond today's GDP reading, with all three leading US equity indices opening higher for the first time this week and pushing out to two-week highs in early trading. Risk appetite seems to be building ahead of this afternoon's FOMC decision as well. The advance Q1 GDP reading was worse than expected, at -6.1% versus -4.7%, though notably it is only the first and least complete of three GDP readings for Q1. Investors are apparently taking the good news where they can find it, focusing on data from the reported showing 2.2% growth in customer spending and a 3.4% decline in inventories. Note that front-month NYMEX remains around $50.80, well above yesterday's lows.
- Executives from Bank of America and Morgan Stanley are facing off with investors at annual general meetings this morning. Both Morgan Stanley CEO John Mack and BoA CEO John Lewis have been under fire from various quarters for their performance during the crisis; the media has widely speculated that shareholders will try to strip Lewis of his chairmanship or even his place as CEO. So far this morning, Lewis has defended the Merrill Lynch and Countrywide acquisitions, reiterating that they were not missteps. At Morgan Stanley, CEO Mack said the firm had reduced leverage to 11.4x from 32.6x and reduced balance sheet by close to $350B. Note that Wells Fargo's AGM was yesterday evening, during which shareholders rejected proposal in to require an independent chairman. WFC's CEO insisted the firm is not a "zombie bank." In other finance sector news, analysts at Fox-Pitt Kelton raised US banking sector to neutral from sell, citing improving valuations, better loan loss reserves and fewer non-performing assets. And Moody's reported better-than-expected earnings and revenue, and reaffirmed its 2009 earnings guidance.
- Health insurance giant Aetna and pharmacy benefits manager Medco Health reported solid quarterly results this morning. Both firms met earnings estimates and reaffirmed their 2009 forecasts, while Aetna beat revenue targets. But Medco warned that rising job cuts among its employer customers is still a concern, while Aetna said layoffs and increased Cobra membership were a threat. Shares of MHS are down 4%, while AET was making fresh lows around -9%. Pfizer takeover target Wyeth had a good quarter, with Q1 earnings better than expected and revenue just a hair below targets. Wyeth noted that integration with Pfizer is on track.
- Consumer-facing names Burger King and tobacco firm Reynolds American offered quarterly results in line with expectations. However BKC missed estimates in its guidance for next quarter and trimmed its full-year forecast a bit, noting that worldwide sales rapidly decelerated in the month of March. Reynolds discussed the impact of new excise taxes, noting the big increases that took effect April 1 disrupted shipments in the quarter, leading to significant reductions in wholesale and retail inventories and higher-than-usual industry volume declines. BKC is up 4% mid morning, while RAI is up 2%.
- The recession is taking its toll on big media, as seen in results from IAC/Interactive and the Time Warner companies. IACI swung to a loss in Q1 after Q4's solidly profitable results. The firm's media and advertising revenue fell 22% y/y, in line with the broader industry. Time Warner was firmly ahead of the Street on the bottom line in Q1, despite big declines at AOL and overall weakness in the sector, noting that better results at its cable properties offset other losses. Time Warner Cable missed on earnings but met revenue targets, and affirmed it would earn $3.00/shr this year, firmly in line with expectations. The company is still evaluating its options for AOL, noting it will most likely spin off parts of the unit over time.
- In currency trading, the price action seen in the European session extended into the New York morning. One dealer observed that the yield on the US 10-year bond and GDP price index are morphing together at 3%. The EUR/USD continues to be attracted toward its key resistance level of 1.33. For the time being the market is discounting the cautious growth comments out of the Euro-Zone. ECB's Weber reiterated the view that Q1 GDP for the region was likely to be worse than the -1.5% reading seen back in Q4. He did note that the pace of economic deterioration was likely to slow. Germany officially cut its GDP estimate for 2009 and now sees growth contracting by 6% from it prior forecast of a 2.25% contraction. Germany also commented that it saw its economy stabilizing later this year. UK's Chancellor Darling said the UK economy seen growing by end of year and complemented with modest growth in 2010. Commodity currencies are maintaining a firm tone, with USD/CAD moving back towards the 1.20 handle and AUD/USD back above the 0.72 cent level.
- Equities began the morning with a touch of Swine Flu, as nervousness over a potential global pandemic spread from trading in Asia and Europe to the United States. The major US indices opened lower on the flu news but quickly managed to move back into positive territory as investors focused on the morning's decent corporate earnings. The World Health Organization (WHO) moved forward an emergency meeting about the flu to today from Tuesday. Note that travel and tourism stocks have been hit especially hard in early trading, with the major US airline stocks down around 15%, hotel names Marriot and Starwood down 6% and 10%, respectively, and Royal Caribbean is down 16%. Front-month NYMEX crude has erased Friday's gains to trade around $49. Treasury prices opened firmer on the equity weakness and concerns surrounding the Flu breakout, but yields have been trending higher following the open of pit trade. The benchmark is moving back towards 3% post the latest reverse auction results from the NY Fed and ahead of this afternoon's $40B 2-year note auction.
- GM announced yet another round of restructuring plans this morning, including more plant closures and a renewed offer for the company's bondholders. This is apparently the last stop for bondholders, with GM offering 225 shares for every $1,000 in notes and warning that if 90% of bonds are not tendered by June 1, it will file for bankruptcy. Note that at GM's current share price of $1.80, the offering would make for a haircut of approximately $0.60 on the dollar for bondholders. The plan includes closing at least six plants, reduce U.S. hourly employment to 40,000 in 2010 and Canadian hourly workers to 4,400 by 2014. But even then, GM would still need another $9B in Federal funding after June 1.
- Earnings from Verizon, Humana and Corning have been better than expected. Verizon came in a bit ahead of analyst estimates, and reported strong gains in wireless and FiOS subscriber additions on a q/q basis. On the conference call, Verizion's CFO expressed strong optimism regarding future performance. There had been reports overnight that Apple was talking with Verizon about launching iPhone service as soon as 2010, but executives refused to confirm or deny the reports. Humana also beat earnings and revenue targets slightly, and also raised its 2009 forecast. Corning reported very strong earnings, and said volumes would increase with strength next quarter. Qualcomm reported a loss due to litigation and various other charges. But the tech firm's guidance for the coming quarter and the full year was very strong, helping the name rise 7% in early trading.
- In currency trading, the USD and JPY consolidated earlier gains during the NY morning in an environment of risk aversion thanks to the Swine Flu. Dealers took noting of some EUR/JPY charting opportunities and saw a potential H&S top formation developing. Dealers are eyeing the key support and neckline at the 126.00 level with measured move objective of some 800 pips. CAD is firmer in the session despite lower energy and commodity prices, making it way back toward the lower end of the 1.20 handle.
- Investors seem to be shrugging off the indecision seen through most of the week and bidding up equity markets with strength this morning. With more clarity on the bank stress tests due later this afternoon and higher-than-expected March New Home Sales, there are some reasons for optimism. And while home sales returned to a sequential downtrend after February's uptick, investors are focusing on the data showing falling inventory levels in the report. Crude moved through the $51 barrier for the first time all week earlier in the session. Note that overnight OPEC Secretary General El-Badri said he is not expecting new production cuts in May, stating that OPEC needs full compliance with past cuts before new ones are instituted. In addition, the Kuwaiti Oil Minister affirmed his preference for oil in the $50-$70/bbl range.
- Ford surprised everybody this morning, reporting higher than expected revenues and a much smaller loss than projected, and nearly cut its cash burn in half in the quarter. Shares of Ford jumped 20% before the bell, trading off to around +15% by mid morning. The company reiterated that it won't need US government aid to get through the year, and said it is on track with its plan to break even in 2011. Ford also optimistically insisted that it does not expect to be hurt by potential GM or Chrysler bankruptcy, but also warned that the health of the supply base is critical. Bankruptcy is looking increasingly unavoidable for Chrysler, whether the company manages a deal with Fiat or not. Overnight the WSJ reported that Chrysler could file for bankruptcy as early as next week, while this morning the Canadian finance minister said liquidation is a possibility. And as GM's negotiations with bondholders and labor drag on, there have been press reports that a new debt-for-equity offer (composed almost entirely of equity) could come on Monday.
- The Treasury is due to disclose its assumptions for stress testing to the 19 banks undergoing testing this afternoon at 2pmEST. FDIC Chairwoman Bair said that some banks will need to encourage preferred shareholders to switch to common shares/equity, and reiterated that the administration won't likely have to ask for more TARP funding. Most of the leading US banks opened marginally higher this morning. AmEx offered stellar first-quarter results although revenues were light. The company cautioned that while it did see some recent improvement in early delinquency rates, overall credit indicators reflected rising unemployment levels and the broad-scale weakness in the economy with card members across most units reducing spending y/y.
- Mid-cap industrials Honeywell, 3M and Xerox reported at or a bit below expectations and cut full-year forecasts, offering quarterly performance that trailed large-cap competitors. Honeywell noted on the conference call that it is not counting on any big macro improvements in 2009 although it does see the rate of economic decline stabilizing. 3M was a bit light on the top and bottom lines, noting that it expects two more quarters of economic decline and warned it would not return to 2007 levels of business until 2011. Oil services giant Schlumberger exceeded estimates by a hair, noting that the company does not see any significant recovery in North American gas drilling before 2010
- Shares of Microsoft are up 8% after lackluster quarterly results yesterday evening. Note that on the conference call, Microsoft's CFO said that the economy is the most challenging in the company's 30-year history, saying there were no signs of a bottom in the quarter and that next quarter would remain difficult, with shipments of PCs (ex netbooks) expected to be weak. These comments echo the pessimism heard from the likes of TXN and IBM earlier in the week. Consumer-facing Nasdaq components Amazon and Netflix offered positive quarterly results, beating earnings expectations. Both companies offer cautious forecasts for the next quarter, however. AMZN was up 6% and NFLX was off its worst levels around -4% mid day.
- In currencies, the greenback maintained a soft tone ahead of the G7 finance minister meeting this weekend in Washington DC, with concerns of Chinese FX reserve diversification weighing on the USD sentiment. ECB's Nowotny commented that the US economic measures were starting to take effect, maybe faster than European efforts. EUR/USD rose toward 1.33 in New York trading, while GBP/USD rebounded after Moody's said the UK's AAA sovereign were stable and not under review. Dealers are noting good continental European names (particularly German banks) buying GBP aggressively from 1.4630 to 1.4680. The pair proceeded to test 1.4750 by mid-NY morning. The CAD continued its firm tone that emerged yesterday, with USD/CAD moved towards the 1.2100 after gaining technical momentum below the 1.2230 level seen in the aftermath of the BoC monetary report on Thursday.
- Corporate earnings and housing data continue to buoy equity volatility in the early going. The major US indices are bouncing in and out of negative territory as selling pressures seem to be mounting and investors look for a theme to hold on to. The NAR's Existing Home Sales index fell 3% over last month's levels, below expectations. NAR's President indicated that first-time buyers are driving the market. Front-month NYMEX crude made a run for $50 earlier this morning, but is a bit off its highs around $48.50 in mid day trading.
- The US benchmark 10-year yield continues to bump its head just below 3%, trading at the highest level in more than a month. The US Treasury announced $101B in new 2-, 5-, and 7-year supply to be auctioned of next week, exceeding many analyst forecasts.
- FDIC's Bair hopes to have an initial plan for selling legacy assets in place by June, noting that her agency has the potential to become the "resolution authority" for systemically risky companies. Wells Fargo is strong this morning +8% despite warnings from "Heard on the Street" that it may need more capital than competitors, given the conspicuous absence of any statement of intent to repay $25B in TARP loans in its Q1 report. The article highlighted the bank's lower-grade loan portfolios eroding its "relatively thin capital base." And there has been a flurry of gossipy commentary over BoA's Ken Lewis, who told the WSJ that Ben Bernanke pressured him to "keep quiet" on loan losses at Merril Lynch, a claim that was predictably denied by the Fed.
- Another batch of tier-2 and regional banks have reported earnings yesterday and today. Quarterly losses at major regionals SunTrust Banks and Fifth Third Bancorp were smaller than expected, but neither bank is out of the woods as of yet, with ROE and ROA still weak and non-performing loans still rising. STI was up as much as 6% early on, but has dropped to around even mid morning. Share of FITB are up 10%. PNC Financial did very well, crushing analyst estimates. But like the former two firms, PNC is still facing rising non-performing loans and credit deterioration. PNC is up 8%. The situation at deeply troubled CIT looks to be worsening, with a quarterly loss three times the expected amount. CIT also suspended it dividend, sending shares of CIT down 6%.
- Shares of tech darlings Apple and eBay are up 10% and 4%, respectively, after the firms offered strong quarterly results yesterday evening, with both firms beating Wall Street's targets by healthy margins. Apple's guidance for next quarter fell notably short of expectations, however, and the CFO warned that investors shouldn't count on the high gross margins seen in the past. iPhone shipments were up 123% y/y, but were only just in line with analyst estimates, disappointing some commentators. AAPL benefited from plenty of price target and analyst ratings hikes overnight, with the exception of Collins Stewart, which cut the name to neutral from a buy. EMC reported in line with the Street. EMC's CEO said global IT spending is at or near a bottom and expects things to improve in the second half of the year. Chip maker Xilinx came in ahead of estimates and guided strongly for next quarter.
- Shipping giant UPS offered lots of pessimism this morning after missing expectations and guiding lower for next quarter. Considered a major bellwether, the company believes the recovery in the US might begin late this year, but more likely not until 2010. Other consumer-facing names have had a better Q1, with fast-food king YUM! Brands ahead on the bottom line and in line on the top, with same-store sales remaining just in positive territory. The company forecasts Q2 to be its most challenging quarter and the low point of its year, but still plans to expand in China with over $1B new capital investment over three years. Hotelier Marriot and cruise line Royal Caribbean did substantially better than expected, and managed to at least not cut guidance.
- Mid-cap steel makers Nucor and Reliance Steel reported weaker-than-expected earnings and revenue in the first quarter. Reliance's CEO said that business remains difficult across all products, with no geographic region that is significantly better or worse than any other. Nucor's mill utilization rate fell to 45%. Steel Dynamics did better, cutting its expected loss in half. The company expects Q2 results to improve, with a "small profit" possible in Q2.
- In currency trading, EUR/USD has consolidated earlier gains but failed to advance above the 1.3070 pivot point. Note that the Belgium Business Confidence index fell more than expected this morning; the data is usually seen as an good indicator of German IFO data, which is expected to be released on Friday. The Bank of Canada failed to make any specific commitments on quantitative easing (QE) after cutting its interest rates to 0.25% earlier this week. However, the BoE did set up a framework in which QE could be implemented. The CAD was broadly firmer following the remarks, with USD/CAD at 1.2250, down 150 pips in the aftermath of the BoC comments.
- Equity indices opened lower for the third morning in a row after Morgan Stanley spooked investors with its Q1 results. But the focus swung quickly to stronger results from Wells Fargo, AT&T and McDonalds, helping the DJIA and S&P500 test Monday's opening levels. The Nasdaq is relatively strong this morning thanks to Yahoo's results and bidders in Apple ahead of this afternoon's Q1 results. Money also flowed to the financials in the early going sparking the broad rebound following reports that stress tests will penalize troubled loans more than asset backed debt securities. Energy prices are holding near unchanged consolidating recent losses despite weekly DOE inventory builds across all products.
- US Treasury prices have slipped as stocks gained traction. The 10-year yield has climbed back toward 2.95%. US yields also moved higher while eyeing the GILT market across the pond. UK's Darling announced the DMO intends to issue £220B in GILT debt this year sending prices lower and the curve steeper. GILT futures are down 145 ticks pushing the 10-year back above 3.45%.
- Wells Fargo and Morgan Stanley were the last of the most highly anticipated financials to report their Q1 results. Morgan Stanley has fallen far behind the other leading US banks, offering dire Q1 results that included a much larger-than-expected loss and revenues well behind analyst targets. The firm cut its dividend steeply to $0.05 from $0.27. The CEO said the firm would have been profitable if not for the dramatic improvement in credit spreads, which is a positive development but one that had a negative impact on revenues. In a press interview ahead of the conference call, Morgan's CFO said real estate is the firm's "single biggest worry" and noted that it may issue non-guaranteed debt. Wells Fargo followed in the footsteps of Citi, BoA and Goldman, beating earnings and revenue estimates, although by narrower amounts than other big banks. Nearly all of the bank's key metrics saw substantial improvement, and on the conference call executives said the integration of Wachovia is going well and should not lead to further losses. Elsewhere among the financials, Capital One bombed in quarterly earnings, reporting a huge loss and missing revenue estimates by almost half. Shares of the tier-1 banks are making steady gains mid morning, with shares of WFC up 8% and MS well off its opening levels around -2%. COF has been volatile, opening down 7%, rising to +6% and continuing to pivot in and out of the red.
- Major Dow components AT&T and McDonalds reported strong earnings, although both missed a bit on revenue. Both companies reported healthy growth in sales metrics and emphasized that they are working to prepare themselves for strong growth upon the arrival of economic recovery. AT&T's iPhone business was especially strong, with more than 1.6M activations in the quarter, boding well for Apple's results today after the close. Dow component Boeing missed the Street's estimates slightly and lowered its EPS forecast for 2009. The aerospace giant's order backlog and operating margin both fell on a q/q basis. Shares of BA and T are up around 3.5%.
- Yahoo is helping prop up the Nasdaq this morning after a big earnings win in the first quarter, with profits twice the estimated figure. But Yahoo's CFO warned that "dark clouds" remain on the horizon, noting that the difficult economy impacted "all aspects" of business. Also note that various press reports are claiming that talks over some kind of search/ad partnership between the two keep rolling on and on and on, prompting a denial from Microsoft's CEO this morning. Quarterly losses at chip maker AMD and memory manufacturer SanDisk were smaller than expected. SanDisk cited improving demand and lower operating expenses, while AMD benefited from a big jump in margins. On the conference call, AMD's CEO said that the inventory contraction should end in Q2, but warned that consumers are now only paying for what they need. Hard disk maker Seagate had a larger-than-expected loss, and expects losses to be worse than estimates next quarter. Shares of SNDK and STX are up 12% and 8%, respectively. AMD is around even.
- Sterling has been the focus of currency trading this morning, following the unveiling of the UK budget by Chancellor of the Exchequer Darling. The proposed UK deficits would total £703B during the five fiscal years through April 2014 compared with £434B forecasted back in November. For the 2009 year, the £175B deficit would equate to 12.4% of GDP, which would be the biggest in the G20 nations. The pound exhibited weakness after Darling announced a 50% tax bracket for incomes greater than £150K, effective April 2010. The UK is also raising tobacco duties by 2%, effective immediately. The Department of Debt management (DMO) stated that the UK Government would now issue £220B in Gilts during 2009 period, above £200B the market had expected. GBP/USD fell 250 pips to test below the 1.44 level before rebounding back above the 1.45 handle. EUR/GBP drifting back toward the 0.90 neighborhood.
- The USD price action saw some earlier risk aversion flows evaporate despite cautious GDP remarks from the IMF, which has once again revised its 2009 global growth outlook lower, to -1.3% compared to the -0.5% forecast back in January. The IMF also noted that financial stabilization would take longer than expected and that interest rates would likely stay around 0%. EUR/USD moved back above the 1.30 area with euro strength attributed to buying in the EUR/GBP cross coupled with interbank stop hunts above 1.3000 level. The 1.3070 area was cited as a key hourly resistance level in the pair. Note that both the USD and JPY seemed back in sync with equity price action as US indices managed to reverse earlier weakness to probe into positive territory in the mid-NY morning.
- Investors seem to have halted yesterday's big slide and are working hard to push US equity indices higher in mid-day trading after opening lower. Mixed earnings from regional banks and plenty of caution in the face of decent Q1 results from the likes of Caterpillar and United Technologies had things lower early on, however. Fed's Kohn offered some hope last night, noting that he expects a modest recovery, with chance of a strong one, and sees GDP stabilizing later this year. Treasury Secretary Geithner is testifying before Congress, defending the TARP and his department's handling of the financial bailout, indicating that the health of individual banks will not be the sole criterion for whether firms can repay TARP funds. This comes the morning after the TARP Watchdog called for better oversight of the program. Meanwhile, Fed Governor Hoenig repeated that firms that are too big to fail must be allowed to fail.
- US Treasury prices have moved lower as stocks have rebounded. The benchmark yield rallied some 8+ basis points from session lows back to 2.88%. Selling only intensified after the NY Fed bought $7B in 2016-19 coupons. In a reversal from yesterday's trade, GILT futures sold off following the latest reverse auction results from the BOE.
- Many of the leading second-tier financial firms and regional banks have reported earnings. State Street and BlackRock reported solid first quarter results, although State Street missed revenue targets by around 10%. Note that assets under management at both firms fell on a q/q basis. State Street's CEO said he would like to pay back TARP funding, and noted that funds are flowing from prime brokers to independent carriers. BlackRock's CEO stated that more firms will be getting involved with the PPIP program than is currently anticipated. US Bankcorp reported a bit ahead of targets, with its ROE and ROA up strongly on a y/y basis, in line with the tier-1 firms. USB's CEO also said he hopes to arrange a TARP repayment deal with the government soon. Zions Bancorp's quarterly loss was much smaller than expected, while KeyCorp's loss was considerably larger than anticipated. KEY also steeply cut its dividend. Regions Financial was in the black (ex items) and revenue was strong, although returns on equity and assets were down sharply. Bank of New York missed earnings and revenue expectations, and cut its dividend. All of these names deep in the red in early trading, with the exception of USB, which is up around 8%. ZION is down 25%.
- Tech titans IBM and Texas Instruments earned more than expected in Q1, although IBM's top line lagged the Street by a bit. TXN's buidance for next quarter is bullish, with earnings seen as much as ten times estimates at the top end of its range, while IBM simply reiterated its 2009 forecast, although Big Blue's CFO did note that the firm is more confident on outlook than it was a quarter ago. Interestingly, TXN's CEO does not believe sales will really grow in 2009 but believes that the firm can expand its market share. IBM is around even, while TXN has plummeted from +5% at the open to -4% mid morning. Healthcare giant UnitedHealth had excellent earnings and reaffirmed its 2009 outlook. Dow component Merck & Co. came in below par, thanks to FX losses and Fosamax going off patent. Merck merger partner Schering-Plough said the tie-up is on track, and reported solid first quarter results. All three of these healthcare/pharma names are down around 3-5%. -
-Several leading industrial names reported, including Dow majors United Technologies and Caterpillar. UTX's Q1 earnings exceeded expectations, while revenue was just a hair short of targets. The conglomerate also narrowed its 2009 EPS forecast. Cat blew out estimates but issue extremely cautious guidance for the year, reducing its outlook and noting that the US "missed an opportunity" with its "disappointing" stimulus plan. Lockheed Martin reported more or less in line with expectations and reiterated its full year guidance. LMT's CFO said the 2010 Pentagon budget would have no affect on its guidance. Dow member DuPont met EPS targets, although it missed on the top line by nearly $1B. Autoparts suppliers Autoliv and Johnson Controls both met their dismal loss expectations and missed revenue expectations somewhat. ALV's guidance was catastrophic, projecting sales next quarter that were up to 45% below expectations, while JCI optimistically projected plenty of earnings accretion from restructuring plans.
- In currencies, dealers continue to see consolidation continuing after some big moves. The greenback remains a softer against the European pairs, with a better-than-expected ZEW survey helping the EUR/USD to move back toward the 1.30 area. But the 1.2950 option expiration point continues to act like a magnet ahead of numerous expirations due this week, while weak Irish bond auction results tempered the euro's upside momentum. Dealers are noting that Ireland's 2018 auction had a bid-to-cover of only 1.1x. Some risk aversion seeping back into the sentiment following US earnings this morning, many of which suggested that stiff headwinds remain when it comes to escaping the recession. Vague chatter circulated of a European retail bank in trouble, helping spot gold move to session highs; dealers were noting that there was a German meeting today about that country's good bank/bad bank program.
- Observers are wondering whether the financials-driven rally has hit a wall this morning as equity markets sink despite Bank of America's impressive Q1 earnings performance. Various commentators have offered cautious comments this morning, with Fed Chairman Bernanke noting that the global economy is still facing usual turbulence and the Obama Administration's Larry Summers saying that "substantial risks" remain in the economic recovery process. In a sign of extreme skittishness, dodgy dealer chatter circulating before the bell saying that an unknown blog had obtained published results of the stress tests actually prompted a rebuttal from the Treasury. A Treasury spokesperson said the results of the testing aren't in yet, even though the integrity of this blog source was severely doubtful. Concern over the global outlook weighed on NYMEX crude, with the front-month contract down nearly $4/barrel, around $46.
- Treasury prices are rallying on risk aversion bids pushing the 10-year yield back below 2.85%. GILT prices surged following the BOE's latest reverse auction results which showed a paltry bid-to-cover ratio of 1.83 times. Two-year swap spreads in the US moved out to their widest level in a month while EuroDollar futures were also under some pressure early as concerns swirled ahead of the stress test details scheduled for release on Friday.
- Bank of America improved on the performances from competitors JP Morgan, Goldman Sachs and Citi last week, reporting Q1 earnings that were an order of magnitude better than expected and blowing out revenue targets by nearly $9B. But analysts are focusing on other aspects of the bank's performance, such as its hefty $13.4B provision for credit losses, rising net charge offs and a big gain in non-performing assets. And on the conference call CEO Lewis was hardly positive, noting that credit is bad and credit conditions are expected to get worse. Lewis warned the bank's reserves will keep building over next few quarters, an expensive choice in the short term that will pay long term results. Note that overnight Citi confirmed it is closing bidding for its Nikko Cordial unit today, with bids in from Mitsubishi, Mizuhi and SMFG. Teh sale of Nikko Cordial includes part of Nikko Citigroup, but Nikko Asset Management is not part of the transaction. Overnight the WSJ reported that lending from top US banks has continued to decline, with February loan and refinancing activity from the largest TARP recipients down around 23% from October levels. Shares of Citi and BoA are down 14% in early trading.
It's been a big morning for M&A, with a couple of headline deals moving markets. Oracle surprised observers (and likely blindsided IBM) by offering $9.50/shr in cash for Sun Microsystems in a deal valued at $7.4B. Oracle expects the acquisition to be accretive in the first full year after closing; both boards have unanimously approved the transaction and the deal is anticipated to close this summer. The pharma tie-up dance continued, with GlaxoSmithKline buying the privately-held Stiefel Labs for $3.6B in cash, debt and other payouts. Siefel, which is partially owned by the Blackstone Group, had been reportedly pursued by several other major drug companies such as Johnson & Johnson and Novartis. The biggest deal of the day is a family affair, with PepsiCo offering to buy up its bottling partners Pepsi Bottling Group and PepsiAmericas, for $29.50/shr and $23.27/shr, respectively. The two deals, which would give PepsiCo control of 80% of its North American distribution volume, are worth a total of around $9B. Also note that Chesapeake Utilities signed an all-stock deal to pick up Florida Public Utilities for $12.20/shr.
- In other earnings news, PepsiCo beat Q1 earnings estimates and reaffirmed its full-year forecast. The company noted that carbonated drink sales improved on a sequential basis and expects operating profits to improve in the second half of 2009. Oil services major Halliburton offer solid Q1 performance, a bit ahead on the bottom line and a bit behind the Street on revenue. Executives warned it remains unclear when the continuing decline in industry activity will bottom out. Toymaker Hasbro was also in line with EPS estimates and a bit behind on revenue, but noted that it is on track to grow both in the rest of the year.
- In currency trading, risk aversion came on strong in the New York session as the USD and JPY firmed against their respective majors, with the EUR/USD finally breaking through the 1.2950 support level seen earlier today to test below 1.29. The EUR/JPY cross was off over two big figures at 127.00, while GBP/JPY was off 400 pips at 142.80 by the mid-New York morning. The risk aversion theme was set in motion by a interview with IMF Director Strauss-Kahn published in German newspaper Handelsblatt. Strauss-Kahn said the global growth forecast due from the IMF later this week would be worse than the 0.5% contraction seen in the prior report. The dealer chatter regarding the spurious bank stress test blog posting didn't help either. USD/CAD was around 1.2360 as a result of lower energy prices. AUD/USD is hovering above the 0.70 area. Note that GBP continued to be hampered by its upcoming budget release on Wednesday; GBP/USD is around 1.45.
- Equity trading is struggling to latch on to a theme this morning as equity indices bounce in and out of negative territory. Investors are mulling over the Q1 results from Citigroup, General Electric and Google. Similar to other large-cap reports over the last week or so, the companies offered plenty of positive news laced with darker notes. With no firm resolution of Detroit's woes in hand, the automakers continue to weigh on many minds. Comments from NYSE Euronext CEO Niederauer that trading volumes indicate that the current rally won't last are not helping either. NYMEX crude regained the $51 handle this morning but is losing ground in mid-day trading.
- General Electric beat Q1 earnings estimates while missing revenue targets, reporting net income that was down more than 30% over last quarter's results. In line with quarterly results from other leading financial firms, GE Capital made a profit in the quarter, and GE executives affirmed expectation that the division would be profitable for the full year. Order backlogs held steady, while revenue at most units fell slightly over last quarter. CEO Immelt estimates that in-house stress tests indicate GE doesn't need more capital, and also said he does not see GE Capital being subjected to government stress testing. After a 4% drop after the bell, shares of GE are around even.
- Citigroup's quarterly loss was nearly half the expected amount and the firm outpaced expectations on the top line by around $3B. The results certainly color CEO Pandit's rally-sparking comments back in early March that Citi was “profitable” in the first two months of the year, but on the conference call Citi's CFO still insisted that the quarter was the bank's strongest in over a year, calling the trading environment "unusually favorable." Citi said its consumer banking unit saw unusually strong activity driven by increases in volume and demand but continues to see economic headwinds in the market. In a spot of good news for markets overall, the CFO also noted that Citi has begun to see moderations in 30+day delinquencies in North American credit cards, with losses apparently breaking their prior correlation with unemployment. Shares of Citi fell as much as 10% early on, before recovering to -6%.
- Google reported its first q/q revenue decline in revenue since the company went public five years ago, coming in a hair below estimates. Earnings were better than expected. Paid clicks continued to rise, although there was a decline in advertising revenue on q/q basis on Google-owned web sites. Google's CEO said that the company is feeling the impact of the tough economic environment, but optimistically insisted that Google is well-placed to take advantage of the eventual economic recovery when it comes. Shares of GOOG are up 2%.
- In other news, two regional banks, BBT and Regions Financial, followed in the footsteps of the big financials by offering solid Q1 earnings news. BBT exceeded earnings and revenue estimates, while RF's CEO said the bank would be profitable in the quarter (analysts expected a $0.42 loss) and said he wants to pay back Federal TARP funds ASAP. Takeover rumor favorite BIIB offered solid earnings and reaffirmed its full-year forecast. Toy maker Mattel missed targets slightly on slumping sales. Also note that Japanese newspaper Nikkei reported overnight that the US government is planning to classify the 19 banks undergoing stress testing into four categories (A, B, C and D), with “D” indicating the institution is unable to stay in business.
- The currency market is digesting a slew of central banker speak from the last 12 hours. Dealers are focusing their analysis on ECB Governor Trichet's comment that the ECB wants a weaker euro. One dealer noted that the EUR/USD was around 2% below its 200 week (or four-year) average and noted that the currency could hardly be seen as weak these days. Fed Governor Fisher commented in Asia that the challenges faced by the Euro Zone exceeded those in US. Moody's placing of Ireland's AAA sovereign ratings on review for possible downgrade also weighed on euro sentiment. Dealers are suggesting that the market would likely see selling of euros to continue on any rallies. EUR/USD did manage to break below the 1.3070, to its lowest level since its March 18th, pre-Fed quantitative easing position. The EUR/JPY pair retested below 130 as chatter again circulated regarding €45B in eurobond redemptions today. CHF was softer after the SNB's Roth reiterated that "currency intervention has become necessary as the rise in the CHF threatens to offset rate cuts.” Sterling was softer following comments from the UK trade minister that he was not concerned over further declines in GBP.
- Equity indices opened higher this morning for the f
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U.S Market Update
Fri, Aug 28 2009, 16:01 GMT
Trade The News
Real-time 24hr global markets news in both audio & text formats. Free Trial.- Dell beat top- and bottom-line expectations in its Q2 earnings report yesterday after the close, and while the company offered no concrete forward-looking numbers, it did say revenue in the second half of 2009 would be higher than first-half results. CEO Michael Dell sees a "powerful" corporate restocking cycle that should last well into 2010, although pricing remains difficult. Intel hiked its revenue guidance for the current quarter by approx 10% before the open today, although it also warned that margins in the quarter would be somewhat lower than estimates provided back in mid July. The company said stronger-than-expected demand for microprocessors and chipsets is driving higher revenue. DELL surged to +9% in the early going, before trading down to +5%. INTC is steady at nearly +5%.
- The last of the big second quarter retail earnings included Tiffany & Co. and J. Crew Group, both of which did notably better than expected. Tiffany beat earnings and revenue targets, and hiked its earnings range for the year on very modest sales growth in certain quarters. On the conference call, executives said the declines in y/y comps have bottomed out. J. Crew crushed bottom-line estimates, earning multiple analyst upgrades overnight. TIF is around +9%. JCG surged to +9% before the open, but has traded down to +6% in early trading. In other equity news, the fallout from Boeing's latest 787 Dreamliner delays got started this morning, as All Nippon, which would have been the launch carrier for the model, said it would seek some aspect of compensation from Boeing due to delays.
- In currency trading, earnings guidance from Intel sharpened risk appetite, which aided the USD price action. Note that equity market correlation continues to drive inverse price action among the USD-related pairs. On the macro front, the greenback is maintaining a broad trading range but probing its extreme deviation points. EUR/USD was probing the 1.4400 area as metals maintained a strong bid, while USD/CHF continued to probe the key daily pivot point of 1.0570. JPY failed to respond as usual to the risk appetite theme and firmed against the major pairs ahead of the Japanese election this weekend. USD/JPY is around 93.50.
Published on Fri, Aug 28 2009, 16:01 GMT
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U.S Market Update
Thu, Aug 27 2009, 15:51 GMT
- US equity indices pushed out to weekly lows in the first half hour of trading this morning, before retracing some of their losses. The second reading of the US Q2 GDP data echoed the initial reading back at the end of July, coming in slightly better than expected but still in negative territory. Initial claims were a hair greater than expected, but continuing claims showed some slight improvement. Fed hawk Lacker discussed the exit strategy in a speech this morning, noting that the Fed may not need to raise rates until the economic growth is "vigorous." In the aftermath of his comments, the yield on the 10y Note rose almost 8 basis points to test the psychological 3.50% level, but was unable to sustain any move above that mark and swiftly retreated. The stronger USD and JPY helped push both energy and metal commodities into negative territory for the session with NYMEX Oct crude futures move below $70/barrel, off by $1.50.
- The FDIC has reminded investors that the financial sector is a long way from normality with two widely anticipated moves over the last 24 hours or so. Yesterday afternoon, the board of the FDIC voted to lower capital ratio standards for the private equity firm's investments in failed institutions to 10% from the 15% prior recommendation. Then this morning the FDIC released its Q2 quarterly report on the banking sector, increasing the number of 'troubled' institutions on the list by about 25%, to 416 in Q2 from 305 in Q1. The FDIC fund for insuring deposits is now just above $10B, its lowest level since the S&L crisis in the early 1990s. Top tier US financial names are mostly in negative territory, although Citi is up 2% after the NY Post reported that John Paulson had acquired a 2% stake in the group and called its shares "undervalued."
- Toll Brothers offered mixed results in its Q3 report, losing far more than expected in the quarter after various tax allowances and non-cash charges were included in earnings. Minus charges, the company would have turned a modest $3.7M profit. The company saw another uptick in new contracts, although the growth was less than last quarter's big jump. For the first time in three years, the number of homes in the backlog grew compared to the prior quarter, reversing a twelve-quarter trend. Shares of TOL fell 3% or so in early trading, before bouncing back somewhat; other homebuilders fell even further in the wake of gains from two consecutive days of positive housing data, with DHI and PHM down 6% before rebounding.
- In other news, Boeing rolled out a new delivery schedule for its troubled new 787 Dreamliner jet. The company now expects first flight by end of 2009 and first deliveries by Q4 2010. Boeing also said it would log an estimated Q3 non-cash charge of $2.21/share for continued delays in the program. Canadian banks Toronto Dominion and Royal Bank of Canada both beat earnings and revenue expectations in quarterly reports this morning, once again confirming the relative health of the Canadian financial sector. TD is up 3% but off its best levels, while RY is sustaining a 6% gain.
- The greenback has shrugged off a mixed session to firm up against its European counterparts in currency trading this morning. Although the revised US Q2 GDP data beat expectations, some risk aversion has made its appearance given the initial claims data remains a thorn in the side of the recovery. Initial claims saw only a moderate net improvement; the August average is 570K, higher than the 558K July average. Fed Governor Lacker's interest rate comments also provided some support for the greenback, after he said the Fed might have waited too long to raise rates in the 2003-04 period. Lacker insisted the FOMC would take these issues into consideration when looking at future rate moves. However the timing of any rate hikes were subject to GDP growth achieving "sufficient magnitude." EUR/USD is holding to its 24-hour trading range, with continued chatter of sovereign bids on the approach of 1.4200. AUD and CAD are off their best levels thanks to the weakness in commodities.
Published on Thu, Aug 27 2009, 15:51 GMT
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U.S Market Update
Wed, Aug 26 2009, 15:33 GMT
- Equity trading has been unsettled this morning as the leading US indices bounce in and out of negative territory. The July New Homes Sales figure rose nearly 10% on a sequential basis, for their biggest m/m gain since early 2005. Some analysts cited a surge of first-time homebuyers cutting deals as the Federal tax credits for such first-time buyers are scheduled to expire in November. In another sign of housing normalization, the supply of new homes fell to 7.5 months from 8.5 months in June. The homebuilder ETF XHB is up 3% on the news. Front-month crude is testing the $71 handle after both API and DoE data showed fresh builds in inventories, against expectations for another round of declines.
- In earnings, Dollar Tree Stores reported Q2 results that were well ahead of estimates and hiked its guidance for the full year. Executives said back-to-school sales are doing well so far, while discretionary spending continues to grow. Williams Sonoma reported a modest profit (expectations were for a loss) and significantly improved its guidance for the coming two quarters and the full year. Footwear retailer DSW managed to outperform earnings estimates. Shares of DLTR are up 7%, DSW is up 9% and WSM has risen nearly 15%.
- The dollar maintained a firmer tone during the New York session, taking its cue from comments out of the Chinese Cabinet that it would curb excessive investment in industrial sectors experiencing overcapacity, helping to erode momentum in most commodities. The comments compounded earlier rhetoric from IFO members and the ECB's Gonzalez-Paramo on economic sustainability. EUR/USD headed below the 1.4250 level, where chatter indicated an Asian sovereign account had been bidding for euros for month-end commercial purposes. French President Sarkozy commented that he would discuss energy prices at G-20 meeting in September and warned the euro alone should not suffer in FX adjustments. The USD retraced its session gains as equities strengthened following the US new homes data.
Published on Wed, Aug 26 2009, 15:33 GMT
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U.S Market Update
Mon, Aug 24 2009, 15:22 GMT
- Momentum from the latter end of last week's steady upward moves in equities is continuing this morning in the absence of major corporate news or economic data. Positive rhetoric from global economists at the annual Jackson Hole retreat over the weekend is also supporting equities. Perma-bear Noriel Roubini warned of the strong possibility of a double-dip recession in an FT op-ed piece, maintaining his prior position that the global economy will bottom out in the second half of 2009; while the Fed's Bullard in comments over the weekend cast doubt on the potential for a double dip recession. PIMCO's McCulley added to his recent comments about the "new normal" in the US, noting that in the longer term unemployment may settle around the 6% level due to positions that may not be transferable after the recovery settles in. Front-month NYMEX crude is trading in a narrow band around the $74 handle.
- In equity news, financials continue to move higher in early trading, led by Citigroup, which popped above the $5 mark for the first time since January mid morning. The WSJ's "Heard on the Street" column is overall positive on the firm, citing its stronger tangible common equity level coming out of the recent preferred-for-common stock exchange. Shares of Citi are up nearly 5% on the day, while other leading financials are up in the low single digits. Note that Freddie and Fannie are up 45% and 20% respectively, extending the big gains in the name seen from last week. In other news, Warner Chilcott confirmed that it would acquire PG's pharmaceutical unit for $3.1B. PG sees the sale adding $1.4B (or around $0.44/shr) to earnings after tax, followed by EPS dilution in the range of $0.10 to $0.12 per share in fiscal year 2010. Shares of WCRX are up 30% on the news, while PG is more or less flat on the day.
- In currencies, the greenback has seen strength from the European morning slip away as commodities maintain their steady tone despite cautious comments from the Chinese government earlier today. Overall, currencies continue to take their lead from equity markets. EUR/USD is little changed from its opening levels seen in Tokyo around the 1.4330 area. USD/CHF is holding above Friday's lows of 1.0550. Sterling is bucking the trend as fiscal concerns continue to dog the pound. GBP/USD trades at the 1.6420 area and off by 70+ pips from its Asian opening levels. The commodity-related currencies are firmer with CAD getting an added boost from better-than-expected retail sales data for the month of June.
Published on Mon, Aug 24 2009, 15:22 GMT
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U.S Market Update
Fri, Aug 21 2009, 15:27 GMT
- US equity indices are on a tear this morning after a big improvement in July existing home sales, which outpaced expectations to rise 7.2% m/m and hit their highest level since August 2007. Earlier the S&P500 hit fresh 10-month highs above the 1023 handle. Opening Fed's annual symposium in Wyoming, Fed Chairman Bernanke said the US is on the verge of recovery and the global economy is starting to emerge from recession (while also warning challenges remain). The Fed's Bullard added that the economy is on track to see positive growth in 3rd and 4th quarters. Front-month crude briefly traded above $74 to levels not seen since last summer, while natural gas is off lows and making a run for $3
Treasury markets began the day on another positive note, and look primed to finish the week out strongly consolidating a move lower in rates. But sellers came in after the housing data backing rates up. The 10-year note is now down nearly three quarters of a point which has pushed the yield back above 3.5%. The 2-year yield has bounced off that 1% level to trade at 1.065%.
- Capping a week of retail earnings, The Gap managed to narrowly beat analysts' estimates, earning multiple equity rating upgrades. Ann Taylor beat expectations and guided improved sales and earnings for next quarter. Footlocker was well below expectations. Shares of GAP are up 3%, while ANN is down 2% and FL is down nearly 8%. Salesforce.com is up 15% after beating the Street and guiding somewhat higher for the year. CRM's CFO cited some stabilization in demand, but said there has been no improvement in IT spending. In other news, there were press reports that Brazil's Vale has dropped plans to bid up to $25B for Mosaic, due to government pressure.
- The currency price action remains dependent upon the direction of equities markets. Rising risk appetite was initially fueled by European PMI data earlier today and has been sustained by the US homes sales data. Both the USD and JPY were softer against the European and commodity-related pairs as a result.
Published on Fri, Aug 21 2009, 15:27 GMT
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U.S Market Update
Thu, Aug 20 2009, 15:23 GMT
- Ahead of the NY open Chinese markets were leading Europe and US equity markets higher after the Shanghai Composite registered its second biggest one-day gain of the year, right on the heels of yesterday's big losses. The S&P500 crossed back above 1,000 just after the open, although some hesitation can be expected below early August highs around 1,010. Thus far markets are shaking off both initial and continuing jobless claims that rose more than analysts' forecasts. Initial claims are averaging 568k in August compared to a 558k average in July but a bit below averages of 612k in June. Second quarter mortgage delinquencies unsurprisingly hit another record high at 6.24%, although the rise in the prime mortgage delinquency rate to 6.41% is providing cause for real concern. Brighter data was seen in the August Philadelphia Fed survey, which posted much better-than-expected numbers and a big improvement in its employment sub-index. Front-month NYMEX crude is making fresh weekly highs above $72, while natural gas is looking to test the $3 mark despite reports overnight that an unnamed hedge fund placed a big bet that prices would be at $10 by January. Treasury prices are marginally lower even after the US Treasury said they were going to be auctioning off $109B in notes next week, which was a little below what many analysts were expecting. The 10-year yield remains just below 3.5% while the 2-year is pinned at 1%.
- On the fifth anniversary of its IPO yesterday, Goldman Sachs added Google to its Conviction Buy list and set a price target for the stock of $560, noting that Google merits a bigger premium than downstream customers like Ebay and media companies, which are slower growing and less global. Shares of Google are up more than 4%. In other tech news, Tech Data crushed earnings and revenue estimates, noting that the IT market in the Americas is showing signs of stability. TECD is up nearly 10% in the session. Goldman published a bullish report on Chinese solar names and warned that major European manufacturers face intense competition from China due to industry oversupply and China's cost advantages. Shares of Renesola are up around 20% after Goldman singled it out for praise in the report. In other solar news, Chinese solar name STP did fairly well in Q2, beating profit targets, and said Q3 shipments would rise 50% sequentially, although for the year the company said its shipments would fall to 600MW, below its prior estimates. Shares of STP have slipped into negative territory in mid morning trading.
- Another crowd of retail earnings came out yesterday and today. Sears Holding dramatically missed earnings estimates, reporting -$0.17 (ex items) v $0.35e. The firm noted that costs for store closings and hedging losses were a big impediment in the quarter. Limited Brands beat expectations and raised its 2009 guidance. Ross Stores met expectations and increased its full-year outlook somewhat. Sears is down more than 10%, ROST is struggling to sustain modest gains while LTD has given up 2% gains and moved into negative territory. Consumer staples names Heinz and Hormel both beat earnings expectations and offered strong guidance for the full year, sending shares of both companies up 2% in early trading.
- Currency trading in the USD has continued following in the wake of the equity action in the New York. Some risk aversion surfaced following the higher initial and continuing US jobless claims data, as the numbers reflected cautious comments about the global economic recovery. S&P noted earlier today that a sluggish US economy would hinder a rebound in the Asian region. The Q2 mortgage delinquencies data also supported risk aversion with another month of rising prime mortgage delinquencies and mortgages in foreclosure. EUR/USD is around 1.4225 in mid-NY morning trading while the USD/JPY is moving back above the 94 handle.
Published on Thu, Aug 20 2009, 15:23 GMT
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U.S Market Update
Wed, Aug 19 2009, 15:18 GMT
- More steep losses on the Shanghai Composite sparked softness in European trading and hit US equities before the bell this morning (note that the Shangahai Composite is now almost 20% off its early August highs). The leading US indices opened a bit below yesterday's opening levels, although they have retested yesterday's highs within the first hour of trading. Some commentators singled out Warren Buffet's op-ed piece in the New York Times for adding to the overall risk aversion in global markets, as the Sage of Omaha wrote that "...unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress." Yale Economist Robert Shiller was also out with his own predictions, telling CNBC that house prices would likely increase a sluggish 4% over next 5 years, but he is unable to rule out the possibility of another housing bubble. Crude, gas, copper and aluminum were down significantly heading into the New York session, although the front-month NYMEX contract is rebounding with strength following the unexpectedly large draw downs in stocks seen in weekly DoE inventory data. Bond prices opened up on a flight to safety bid but as stock prices have recovered Treasuries have given back some gains.
- Chinese metals traded limit down overnight, driving follow-on weakness in US mining and metal names. Steel, aluminum and copper names are all under pressure in early trading. Goldman Sachs Cuts AA to Neutral from Buy, insisting that increased supply will slow gains in aluminum market prices. AA is down 4% on the news.
- In earnings, HP was largely in line with the Street in its Q3 results and forward-looking guidance. HP's CEO said that business is stabilizing and expressed his confidence that the company will be an early beneficiary of an economic turnaround. Nevertheless, he also said HP is not ready to say business conditions have turned the corner. John Deere outperformed on top- and bottom-lines in Q3, although the company also offered plenty of cautious guidance on its business for the final quarter of its FY, noting that Q4 equipment sales would still be -34% y/y, thanks to significant production cutbacks that are being made to match retail demand. BJ's was a bit ahead of the Street and raised its full-year outlook by a hair. Executives said they saw positive membership trends in Q2, with renewals still tracking slightly ahead of plans. Shares of HPQ are down 2% and DE are down 4%. Shares of BJ spiked up nearly 4% after the open, before settling down to a modest +1%.
- Currency trading in the New York session initially looked ready to extend the risk aversion led by the yen as its advanced against the USD and European and commodity pairs. Early on USD/JPY moved below the 94 handle to make one-month lows while EUR/JPY approached the 132.10. However, a degree of calm returned with the US equity open, along with some retracement of the late Asian and European price action, with earnings from Deere driving away the initial sting. EUR/USD managed to cover from its earlier losses and hit fresh session highs of 1.4180 prior to the DOE crude inventory report. Note that the IFO's Nerb commented that most German companies could handle a euro exchange rate at 1.40, but any level above 1.50 could be a "big problem."
- The Swiss Franc was also on the radar of dealing desks. The U.S. government reached an final settlement of its tax tussle with UBS this morning and there was vague chatter of a central bank selling the EUR/CHF, along with speculation the Swiss government might start selling off its CHF 6B stake in UBS as the lockup period of its investment expired a while back. Dealers said the 1.5130 area in the EUR/CHF cross could be a critical sentiment level as it reflected both 30-week and 200-day moving averages.
Published on Wed, Aug 19 2009, 15:18 GMT
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U.S Market Update
Tue, Aug 18 2009, 15:28 GMT
- US indices are in positive territory this morning on a few decent earnings from the retail sector and a sense of relief that yesterday's weakness seems to have abated. The data picture is mixed: the July housing starts registered its fifth consecutive month of growth, although the total figure fell short of expectations, while July PPI inflation data remains in negative territory. PIMCO's El-Erian reiterated once again that the equity rally had "hit a wall" and insisted that valuations were ahead of fundamentals. Front-month NYMEX crude has gained somewhat in mid morning trade but remains below $68. Bond prices remain right near the unchanged mark with the benchmark yield remaining below 3.55. Trading across all markets is in generally lackluster with more typical summertime volumes.
- CIT reported a $1.68B loss in its Q2, missing analysts expectations by wide margins, and again warned it might have to file for bankruptcy protection if it fails to restructure its business. Just last month, CIT was bailed out with a $3B loan from some of its largest bondholders as it faced a cash crunch. CIT does not expect to return to profitability during 2009. Nevertheless, shares of CIT were up as much as 9% right after the bell, and are still up % in mid morning trading. BBT's CEO appeared on CNBC this morning to discuss his bank's takeover of Colonial Bank, noting that the deal with the FDIC should limit potential losses to a maximum of $500M.
- Home Depot has trounced rival Lowe's in quarterly earnings out this morning. Home Depot beat earnings expectations (ex items) and came in even with revenue targets, and improved its full-year forecast. Executives said concerns remain over housing, but that the company had its best gain in market share in the last five years in the quarter and saw improving comps in troubled markets in California and Florida. Shares of HD are up 3%, while LOW is sustaining losses suffered yesterday post-earnings. Department store Target also beat bottom-line expectations and met top-line targets, while apparel name TJX was a bit ahead of earnings estimates and in line on revenue. Saks reported a quarterly loss that was half the expected amount and insisted that its business is on the rebound. Shares of TGT and SKS are up about 5% or so on the day, while TJX is down 4%.
- Currency trading during the New York session has been quiet in terms of volatility so far, with price moves in the dollar continuing to reflect equity moves. Note that cautionary comments from German ZEW officials seem to have capped the rally in European equity markets. IMF Chief Economist Blanchard also reiterated caution towards all the optimism, saying that the economic recovery has begun but the potential for economic output is lower than it was before the crisis began. EUR/USD was drifting backs towards its key hourly pivot level of 1.4050 (near Monday's lows, on chatter of Asian sovereign bids). Some chatter was also circulating regarding option-related flows picking up, with 1.38 and 1.35 strikes going through with October expirations in the pair.
- Swiss National Bank Chief Jordan commented that the economic recovery in Switzerland would arrive later given its recession has lagged the ones in other countries. He also said that markets have understood the SNB's currency intervention policies, and also confirmed that the bank is content with the recent 1.50-1.53 range in the franc and would not accept appreciation against the euro.
Published on Tue, Aug 18 2009, 15:28 GMT
3
0
U.S Market Update
Mon, Aug 17 2009, 14:55 GMT
- US equity markets are extending a correction begun in Friday's session, with the leading US indices down 2% or so in the early going, USD and JPY strong, and front-month crude below $66 for the first time this month, while natural gas is testing seven-year lows. Note that after closing just above 1,000 on Friday, the S&P500 opened below 990 and remains below the key level of 1,000.. Government bonds on both sides of the Atlantic are seeing risk aversion bids after Chinese stock markets slid nearly 6% overnight. The US 10-year yield is back below 3.5%. nvestors are disregarding the August Empire Manufacturing survey, which showed a striking uptick in factory orders in the Northeast and turned positive for the first time since April 2008. There was some verbal support for the ongoing equity rally, with the CEO of NYSE Euronext saying he is more confident in US stock market rally than he was in April. Goldman Sachs' Abby Cohen reiterated her cheerleading, saying that she expects US GDP growth of up to 3% in coming quarters.
- Hedge funds disclosed quarterly holdings on Friday after the close, prompting a few notable moves this morning. Lone Pine Capital cashed out of its 31M stake in Las Vegas Sands, with the name off 9% from the news. Pershing Square flushed stakes in Wendy's, Yum and Visa - shares of WEN initially reacted very negatively to the news, dropping nearly 5% just after the open, although they have recovered somewhat. Becton, Dickinson is up a few percent after Berkshire Hathaway disclosed a new 1.2M share position in the medical technology company. Berkshire cut takes in health insurance names Wellpoint and UnitedHealth. Bill Miller's Legg Mason Capital Management raised its stake in Bank of America but reduced stakes in other financials.
- In other equity news, managed care names are up four or five percent on news out over the weekend that the Obama administration is backing away from a public option as part of the US healthcare reform. Lowe's quarterly report was full of doom and gloom. The home improvement name missed top- and bottom-line estimates, and also guided below par for the coming quarter as well as the full year. Executives warned that consumers remain reluctant to take on discretionary projects until signs of economic improvement are more evident. Shares of LOW are down 10%, and rival Home Depot is down 5% in sympathy (HD reports tomorrow morning). Major credit card issuers disclosed July master trust data, with net charge offs seen declining slightly or holding more or less steady across the board.
- In currencies, the greenback consolidated its overnight gains as the New York morning progressed. Less was heard of the risk aversion song following Empire manufacturing data, although the retracement has been limited as both the USD and JPY have maintained their strength against the major European and commodity-related currencies. The continued weakness in Chinese equities and the fifth largest US bank failure have been cited for the fresh spat of risk aversion. The Fed extended its TALF program but said they did not expect to add any further types of collateral eligible for the facility. The June TIC flow data showed that China dumped just over $25.1B in Treasuries, while other foreign buyers picked up $90.7B in net US long term assets.
Published on Mon, Aug 17 2009, 14:55 GMT
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U.S Market Update
Fri, Aug 14 2009, 15:21 GMT
- Stock sentiment was clearly weak at the NY open after the July CPI declined at the fastest pace on a year over year basis since 1949. The mood was only dampened by a miss in the University of Michigan's preliminary August confidence data. After July's strong reading of 66 analysts were projecting another leg up in August to 69, but discomfort over the state of the economy relative to the move up in stocks only worsened. Equity rally skeptic Mohammad El Erian told CNBC he believes much of stimulus impact has already been figured into the economy. Other more positive news has been overlooked, with investors disregarding the first positive industrial production reading since last fall and bellwether Genesee & Wyoming's strong carloads data. Treasury prices continue to rally sending the benchmark 10-year yield back to 3.5%. Commodity prices are under some pressure led by declines in oil. A strong Greenback and soft stock market has pushed September crude back below $69 and copper 2.5% off multi-month highs made just yesterday.
- Quarterly reports from mid- to high-end retailers continue to be mixed. Mid-range department store name JC Penney had its worst results in memory, but managed to squeak in just above expectations at breakeven. Revenue was in line with expectations. Guidance for next quarter was much lower than the consensus, although the company raised its full-year forecast considerably. JCP's CEO added color on the conference call, noting that pent-up demand is aiding back-to-school season. High-end apparel names Nordstrom and Elizabeth Arden offered solidly in-line results; JWN raised its full-year guidance and RDEN's initial FY10 EPS outlook was well below expectations. Abercrombie & Fitch's loss was more than four times the expected figure, while comps were down 30% in the quarter. Executives reiterated their commitment to not cutting prices on the conference call. Shares of long-suffering ANF actually gained 5% in early trading and remain in positive territory post-U of Michigan. JCP, JWN and RDEN are all in negative territory, with JCP down nearly 5%.
- In currencies, the yen has managed to cling to its upward momentum from the past few sessions. As noted in the European update, yen strength is being fueled by press reports out of Japan that the major Japanese exporters have lowered internal budget rates for USD/JPY from 95.00 down toward the 90 and 91 handles. This seemed to complement growing speculation that a new Japanese government run by the current opposition might accept the stronger yen seen in recent sessions after its likely victory in the country's August 30th national elections. EUR/USD is floating along above the 1.4300 area despite chatter of recent buying from Middle Eastern names, reportedly on behalf of Volkswagen's financial partner to take care of its tie-up with Porsche.
Published on Fri, Aug 14 2009, 15:21 GMT
2
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U.S Market Update
Thu, Aug 13 2009, 15:25 GMT
- US equity indices have been pretty whippy since yesterday's FOMC decision, as traders try to decide what to make of the Fed holding steady on rates and asset purchases. Overall stocks are holding onto and in many cases adding to gains, while Treasury yields remain below where there were heading into the announcement suggesting the Fed is doing a decent job corralling market expectations. The flood of debt and equity offerings continues apace, leaving investors and prognosticators alike to wonder whether the rush to raise capital indicates a temporary top or a healthy indicator this rally has legs. Initial jobless claims came in slightly higher than estimates and above last week's figure, reminding everyone once again that the jobs picture is far from clear. Last night RealtyTrac reported that US foreclosures in July were up 7% m/m (and 32% y/y), for a new record high in the company's monthly foreclosures data. To top off a dreadful data morning, the July advanced retail sales numbers declined unexpectedly, underling the continuing threats to consumer spending and the overall recovery from the toxic combo of rising unemployment, declining home prices and tight credit. The front-month NYMEX contract shot up above $72 on European GDP strength, but has traded off somewhat on equity declines in the US.
- Bond prices are higher this morning as investors become more comfortable that Fed will remain on hold in terms of raising rates for the foreseeable future regardless of volatility in the economic data. The long bond yield is just below 4.5% ahead of this afternoon's auctions results while the benchmark rate at 4.66% is some 7 basis points below where yesterday's auction went off.
- Hedge fund manager John Paulson (who won big betting against subprime last year) bought 168M shares (for a 1.9% stake) of Bank of America, making him the fourth-largest holder in the bank. Paulson also added 2M shares in Goldman Sachs, as well as new positions in Capital One, Regions Financial, State Street, M&I and Suntrust Bank. BoA jumped 5% in the premarket on the news, while other tier-one financials rose modestly on the news as well. Regions Financial was up 7% in the premarket on the news, Suntrust is up 5% in early trading and other regionals have gained one or two percent. Elsewhere in the financials, CIT is up nearly 15% after adopting a rights plan to protect its substantial tax assets.
- In earnings, Walmart came in slightly ahead of earnings estimates and a bit below revenue targets, but same-store sales notably turned negative for the quarter, declining significantly from last quarter and turning negative for the first time in years. Mid-market department store chain Kohl's reported in line and guided a bit below expectations for the coming two quarters and the full year. On the conference call, Kohl's CEO said the company had gained significant market share in 2009. Dr Pepper Snapple blew out profit estimates and raised its full-year forecast. Revenue for the quarter was in line.
- In currencies, the better risk appetite stemming from gains in European markets hit turbulence early in the US session. The price action in most commodities and equities described a parabolic arc, soaring upward in the European morning and plunging back again as US trading got underway, coupled with a modest retracement in the greenback's soft tone. The yen benefited most from the risk aversion, with USD/JPY probing the lower end of its 95 handle. Dealers were talking about big USD sell stops building below the 95.10 area. EUR/JPY and GBP/JPY crosses retreated almost 200 pips from session highs to move back into negative territory. Dealers did note that the JPY was lagging behind the risk appetite theme earlier today, with rumors making the rounds that Japan's DPJ might be willing to tolerate a strong yen if the party took power after the Japanese national elections on August 30. The South African Central Bank unexpectedly cut its interest rate by 50bps to 7.00%. The ZAR weakened against the major pairs in the aftermath of the rate decision. The Danish Central Bank also unexpectedly lowered its key interest rate by 10bps to 1.45%.
Published on Thu, Aug 13 2009, 15:25 GMT
2
0
U.S Market Update
Wed, Aug 12 2009, 15:34 GMT
- Investors are jumping right back into the pool this morning, sending US equity indices up nearly 2% in early trading ahead of the FOMC decision later this afternoon. The hesitation that drove two days of losses on the major indices has evaporated, thanks to follow-on strength from Europe, a strong quarterly report from Macy's and bullish preliminary earnings from Toll Brothers. Markets aren't blinking at another big batch of secondary equity offerings either, with nearly all of the names selling shares up on the day. Front-month NYMEX crude was up almost $1.50 per contract higher following the monthly EIA report earlier today and has managed to maintain its strength despite yet another big build in crude stocks seen in the weekly DoE inventory report.
- Treasury prices began the day moving higher but have reversed as stock momentum builds. The 10-year note future was up more than to ticks at one point with its yield moving below 3.65%, but prices are now in the red and the yield is back above 3.7%. This afternoon is expected to be extremely eventful with the $23B 10-year auction results due out a little more than an hour before a highly anticipated FOMC statement. It is also worth pointing out that Fed Fund Futures prices looking out into 2010 have pretty much recouped losses seen following Friday's jobs numbers. The March contract was at one time putting a better than 50% chance the Fed hikes the funds rate up to 0.75% by the end of the first Quarter, but that same contract is now not fully pricing in a 25 basis point hike.
- Macy's strong earnings beat estimates and missed on slightly on revenue, with quarterly profits up on robust cost cutting. The retailer nearly doubled its profit forecast for 2009. High-end apparel retailer Liz Claiborne reported its third consecutive quarterly loss, missing top- and bottom-line estimates. The company said it is looking for an additional $100M in cost cuts (on top of the $70M already announced), but said it believes the big declines in same-store sales would moderate in the coming quarters with quarterly results improving as well.
- Homebuilder Toll Brothers reported preliminary Q3 revenue figures this morning, beating the Street by nearly $100M. Toll's CEO pointed to the increase in the number of net contracts signed this quarter as a reason for optimism. "This marked the first time in 16 quarters - dating back to Q4 of FY05 - that our net contracts exceeded the prior year's same quarter. It also marked the first quarterly sequential unit increase in our backlog in more than three years," he said.
- Food name Sarah Lee beat estimates (before impairment charges), while revenue fell short of expectations due to big declines overseas. Heinz boosted its forecast for 2010, offering guidance that was much better than the consensus view, but warned of "unprecedented currency volatility" in the coming FY. Note that Nestle, the world's biggest food company, pared its FY09 outlook after missing forecasts this morning.
- In tech, Applied Materials seems to have staunched the bleeding, with Q3 results at break-even, well ahead of analysts' expectations for an $0.08 loss. Revenue was much better than expected. Solar names JA Solar and Rensola both reported quarterly losses. JA Solar's loss was three times the expected amount. Rensola met consensus EPS estimates, but missed on the top line. JA Solar's CEO said the company is seeing significant signs of market improvement in both end-market demand and financing.
- In currencies, follow-on risk aversion from the Shanghai stock sell-off and the European open seems to evaporated as equity indices in both Europe and the US rack up gains (with fresh lows in USD and JPY). EUR/USD was testing above the 1.42 handle after electing some minor sell-stops below the 1.41 level just a few hours ago. USD/JPY was back above the 96 level after probing 95.10. In Scandinavia, the Norwegian Central Bank surprised the market with hawkish rhetoric. The bank left its deposit rate unchanged at 1.25% (as expected) but acknowledged that it might be appropriate to start raising interest rate earlier than previously indicated. NOK rallied against the euro and dollar pairs as market participants seemed to be short on NOK. EUR/NOK was testing the 8.6770 level, down from the 8.81 level ahead of the comments.
Published on Wed, Aug 12 2009, 15:34 GMT
0
0
U.S Market Update
Tue, Aug 11 2009, 15:46 GMT
- US equity indices are making fresh lows in late NY morning trade as investors position themselves ahead of Wednesday's FOMC decision. The non-farm productivity and unit labor costs readings are only adding weight to equities, as they paint an unsettled picture for those looking for a solid rebound in employment: unit labor costs saw their biggest sequential decline since early 2000 while productivity made its largest gain since 2003. Energy and metals are seeing gains from the European session erode, with front-month NYMEX crude off over $1.50 and ready to dip below $69, while copper is down over 8 cents from its electronic session highs of around 2.81 to test 274. Treasury prices remain bid up on the back of lower stock prices globally despite some trepidation around today's Fed coupon pass and tomorrow's FOMC statement. The 10-year yield is back below 3.7% while the 2-year is sub 1.2% ahead of this afternoon's 3-year auction results.
- A broad selection of financial names are in the red this morning. Before the open Rochdale's Dick Bove recommended taking short term profits in bank holding companies, noting that bank stocks are "running on fumes." Adding to weight in the sector were fresh CIT bankruptcy fears stemming from the company's delay of its 10-Q. CIT warned that "going concern" issues remain and reiterated it still expects to report a net loss of more than $1.5B. Citigroup published its Q2 TARP report, crowing that it approved $6B in new TARP-supported initiatives in the second quarter. A Citigroup analyst commented on Bank of America, noting that BoA has a "clear intention" to "partially repay" TARP "before the end of 2009." The analyst also said that credit quality trends at BAC seen in 2Q are carrying through into 3Q, clearing the way for TARP repayment.
- In earnings, engineering firm Fluor modestly exceeded consensus EPS estimates and missed revenue targets by 10% or so. Shares of FLR are down in the mid single digits. Watchmaker Fossil beat bottom-line estimates while falling short on revenue. The firm guided lower for next quarter, although it said revenue and earnings should really pick up in Q4. Shares of FOSL are down 12% and heading lower. Force Protection is really blowing up in early trading, with shares down 18% after barely eking out a profit in the quarter. The company was hurt by manufacturing costs related to lower vehicle shipments. In other news, GM was bragging about the Volt's fuel efficiency this morning, claiming it would get 250 mpg in city driving. A closer look at the figures shows that this would be for the first 50 miles (40 on the battery alone, 10 on the gas generator), while longer driving on the gas generator would make for efficiency of 50-100 mpg.
- Numerous firms have filed to launch secondary offerings over the last 24 hours and most of them are deep in the red this morning. Bunge is down 6% after filing to offer 10M shares to repay debt. Boardwalk Partners is selling 7M shares to fund its expansion plans; shares of BWP are down 4%. Small cap names SPH and PSB are down around 8% after launching offerings. Pharma name Chelsea Therapeutics was initially up 4% after filing a mixed shelf that was equal to 40% of its market cap, while its shares have fallen to -6% in early trading. PETD is down 20% after filing to sell shares equal to around 25% of its float.
- In currencies, risk aversion slowly gathered momentum as the New York session wore on, with the yen leading the charge. Dealers say the yen's firm tone gathered momentum after word went around that CIT would delay its Q2 report amid rumors of bankruptcy. Note that there are numerous USD/JPY sell stops lurking below the 95.80 level. EUR/USD slowly gave away its European highs to probe 1.4110, where alleged sovereign bids from Asian and Middle Eastern names were lurking. There was also plenty of dealer chatter of massive euro sell-stop orders building below 1.4100, which corresponds with a late April uptrend line for the pair and could set the tone for a test toward 1.39. CAD and AUD maintained a softer tone on weaker energy and metal prices, with USD/CAD over the 1.10 handle and AUD/USD moving below 0.84. July Canadian housing starts came in below expectations to add to bearish Cad momentum.
Published on Tue, Aug 11 2009, 15:46 GMT
6
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U.S Market Update
Mon, Aug 10 2009, 17:47 GMT
- US Equity markets are digesting Friday's payrolls induced gains quite well, as stocks are slowly working up from opening losses to post marginal declines. With no data on the docket lingering Q2 earnings results are the main focus. Treasury prices are getting back a small portion of last week's declines but yields are consolidating at higher levels. The 10-year remains above 3.8% while the long bond has dipped back below 4.6%. Fed fund futures are recovering as well with the March contract now pricing in less than a 30% chance of a 0.75% fed funds rate in Q1 2010. Those odds had spiked to above 50% post the payroll data on Friday. Energy prices are posting modest gains and remain near early session highs while Gold has moved back below $950 as the Dollar continues to find some traction.
- Foodservice giant Sysco came in broadly in line with the Street in earnings this morning, with the company apparently dealing well with the broad downturn in consumer spending at restaurants. McDonalds reported July global comps at +4.3%, its weakest monthly showing since its +1.4% February comp. The company noted that its Asia sales were impacted by declines in China without elaborating on the point any further. Unemployment may have been down a hair on Friday but Spam is still a great way to beat the recession: Hormel Foods raised its full-year forecast thanks to stronger than expected results in the third quarter. HRL is up 7% on the guidance call, MCD is up 2% and Sysco is unchanged.
- In tech news, Microsoft officially announced the sale of its Razorfish online advertising unit to French ad giant Publicis for $530M. The move has been widely discussed over the last week, and seems to be a natural outcome of Redmond's shiny new pact with Yahoo. Dish Network faced a rough Q2, missing profit forecasts in a big way, although revenue met analysts' expectations and the company pulled of a stunning turnaround in subscriber additions. Investors seem to like the latter two points, sending shares of DISH up 10% in early trading. Priceline.com beat its Q2 top- and bottom-line estimates and guided higher than expected for next quarter. On the conference call executives said leisure travel demand was stronger than expected in the quarter, driven by lower prices.
- As noted during the European session, the overall theme in currency trading comes down to markets trying to determine whether the dollar is really decoupling from rising risk appetite. Markets continue to pick apart Friday's US employment reports as they await the results from the FOMC's policy meeting due Wednesday afternoon. The greenback for much of the morning grinded higher against its European pairs, with EUR/USD holding above the 1.4150 level - speculation there are plenty of euro sell stop lurking below this point. For the moment dealers are saying Middle Eastern names are buyers of euro ahead of this level. Just after 11AM ET Euro broke below that level electing some the purported sell stops down trading down to 1.4128. The dollar is also shrugging off news that would have typically damaged sentiment, as the US Treasury projected that the current debt limit could be reached as early mid-October, citing a letter Secretary Geithner recently sent to lawmakers. Geithner wants Congress to increase the current $12.1T debt limit over the next two months, although the letter did not request a specific increase.
Published on Mon, Aug 10 2009, 17:47 GMT
3
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U.S Market Update
Fri, Aug 7 2009, 14:52 GMT
- One story and one story only is dominating markets this morning: the better-than-expected July employment data. Equity futures jumped after the July payroll reading and the leading indices are sustaining gains in early trading. Commentators and talking heads are dissecting the data ad nauseam; the question now is whether today's numbers are a sign of lasting economic improvement or just another false dawn. Note that in a speech yesterday evening President Obama said the payroll losses for July had been cut in half, while a Goldman Sachs economist sent around a note predicting a 250K loss - in fact neither were far off the mark of -247K (prompting all sorts of conspiracy theories). July nonfarm payrolls showed their first improvement since April 2008, and fell by fewer than 300K for the first time since last August, while the decline in manufacturing payrolls was half the expected amount. The annualized unemployment rate fell to 9.4% in July from 9.5% in June, marking its first drop since April 2008.
- Even with Obama telegraphing the jobs numbers, Treasury prices still moved sharply lower post data. Yields have moved higher across the curve and are holding most of the knee jerk gains. The long bond is holding around 4.6% and the 10-year is consolidating at 3.85%. Short term yields moved up as well sending the 2-year above 1.3% for the first time since the better than expected May jobs report jolted markets. Similar to a previous spike move seen in Fed fund futures, expectations of a more aggressive Fed next year are rising. The March 2010 fed fund future now prices in better than a 50% chance the Fed hikes rates as much as 50 basis points early next year. Bernanke and crew have been pretty stern that rates are likely to remain low so markets will be watching closely to see if this hawkish sentiment holds or quickly dissolves as it did back in June.
- In other news, AIG reported its first profit in six quarters, beating estimates by a wide margin. Revenue was $10B higher than the year-ago figure. Results from the firm's various operating units showed marked improvement, with double the operating income in general insurance and operating losses in financial services cut by a factor of ten. AIG's CEO said the primary drivers of the results were reductions in net realized capital losses, primarily due to the decline in other than temporary impairments, and insisted the company's business has stabilized. Share of AIG had risen by more than one third over the last two trading session on anticipation of the results; the name was up nearly 20% this morning before dropping to +10%.
- In currencies, the payrolls data put fundamentals back in the saddle, although commentators warned that the unhappy marriage of aversion & risk appetite will doubtlessly get back to work sometime soon. Initially the USD and JPY were softer against the major European and commodity-related pairs as risk appetite rose following US payroll report that the worst of the recession has passed. EUR/USD retested its historical pivot point of 1.4430 before the dollar rallied aided by interest rate sentiment. The jobs numbers has put some upward pressure on rates, with the March Fed Fund Futures coming in around six basis points and now pricing in a 50% chance the Fed raises rates 50 bps early next year. Dealers are noting that the USD rally stemmed from the Euro Dollar futures pit, with the March 2010 contract registering a massive 14 bps range. The yen exhibited weakness across the board and was probing a key technical point against the USD at the 96.70 area. Dealers are saying the break of the one-year down trend line could help the USD/JPY re-establish itself above the historical pivot point of the 95 level, which would likely suit the goals of Japan's MoF and the BoJ.
Published on Fri, Aug 7 2009, 14:52 GMT
0
0
U.S Market Update
Thu, Aug 6 2009, 15:30 GMT
- US equity indices are mimicking yesterday's session, dropping sharply from the open in the first hour and then slowly marching back towards the unchanged mark. With yet another dismal month of same-store sales, mixed quarterly reports and a mildly better-than-expected weekly claims report, no clear theme is driving trading, although volumes much higher than usual. The FTC published new rules for oil trading today, threatening fines of up to $1M a day against violators who offer misleading reports in an attempt to manipulate markets. Front-month NYMEX crude is down more than a buck to trade just below $71 and natural gas prices moving back below $4 after a larger than expected build in stockpiles. Bond prices are marginally higher after opening lower with extra attention being paid to Europe after the BOE extending and expanded their quantitative easing program. The 10-year yield is just below 3.75% nearly matching that of the 10-year GILT.
- AIG has absolutely astonished markets over the last 24 hours, doubling in value on little news besides the recent choice of a new CEO and earnings scheduled for Friday morning. Yesterday the stock jumped to $22 from $14; the name shot up again before the open today, to top $28. AIG's rise has pulled the major US financial names along with it, with tier-one banks making robust gains yesterday and this morning. In other financial sector news, Prudential repeated the very strong earnings performance from Q1 in Q2, beating estimates and raising its 2009 forecast. Allstate, which has been hit harder than many insurers by losses on mortgage-related securities, missed earnings estimates by half but beat revenue targets. Both ALL and PRU are underperforming.
- Cisco offered solid results that were more or less in line with the Street. The company's CEO has been verbose, on both the company's conference call and in the media, noting that Cisco's Q4 was a tipping point and the firm's business is looking to improve moving forward. Consumer-oriented names Sirius XM, DIRECTV and Metro PCS offered lackluster quarterly results, with SIRI's loss in line with expectations and PCS's earnings half the expected amount. Customer churn was up at all three companies, while SIRI and PCS managed to significantly boost their net customer additions. DTV is around even, SIRI is down 6% and PCS has fallen 25% in early trading.
- Restaurant names Wendy's and Brinker both missed earnings and revenue expectations. Investors are dumping EAT, which is down 12%, while WEN still appears appetizing to some. Casual dining name DRI is down 4% on the Brinker news. Media firms Thompson Reuters and News Corp offered decent quarterly results. Warner Music Group's loss was much bigger than expected, with FX having a significant impact on earnings. Murphy Oil stomped top- and bottom-line estimates, although MUR is down 4% on the day.
- No real signs of economic improvement are coming from the July same-store sales data, although some moderation is seen in the y/y declines at certain companies. Comps at broadlines BJ's, Costco and Target all declined more than expected. After improving somewhat in June, high end department stores Macy's and Saks swung back to bigger than expected declines; Kohl's was the only department store name to show y/y growth (beating estimates). Apparel companies were as dismal as ever, although comps from The Limited and Zumiez were notably better than expected (but still down sharply y/y). Apparel segment darling Aeropostale missed SSS estimates, although it is among the few clothing retailers to show growth. TJX was a rare bright spot, with sales growth beating expectations.
- In currencies, the greenback gained mid morning in the New York session after the FTC announced new rules for oil trading. Also note that softer equity price action has also been a contributing factor. The ECB left its key interest rate unchanged at 1.00% this morning, as expected. During the press conference, ECB Chief Trichet addressed the economic, inflation and aspects of the decision. JPY-related currency pairs reacted the most to his talk, as dealers noted that Trichet's overall tone on the economy sounded quite optimistic. However, EUR/USD's inability to sustain any move above the 1.44 area contributed to a mild bout of profit-taking ahead of the US payroll report on Friday. The soft tone in August crude gave the hunt for euro sell stops momentum, trailing the recent trend. The BoE surprised the market by increasing its quantitative easing program, and GBP/USD made fresh post-lows of 1.6790, down from over the 1.7000 area just ahead of the increase of QE bond purchases program. Commodity currencies were softer on lower energy prices, with USD/CAD up 50 pips at 1.0750 area and AUD/USD drifting back below the 0.84 level.
Published on Thu, Aug 6 2009, 15:30 GMT
3
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U.S Market Update
Wed, Aug 5 2009, 15:02 GMT
- US equity markets are down somewhat this morning after the ISM reading came in lower than expected and selected corporate names missed estimates. The July ISM non-manufacturing data was just shy of expectations and the June ADP job losses were smaller than the consensus view, but this, coupled with nervousness ahead of Friday's payroll readings, has been enough to upset investors. The White House acknowledged that the looming jobs report on Friday would likely show "hundreds of thousands" of jobs lost (the July Nonfarm Payrolls consensus is -328Ke). Note that the June factory orders data showed a third consecutive month of growth, although a smaller move up than was seen in the May data. There were patches of sunshine, with financial names making solid gains thanks to much better than expected results out of leading European banks. Front month crude is down a hair, trading just below $71.
- US Treasury prices were losing ground once again ahead of the equity open in NY. Prices reversed course after the ADP jobs data as equity markets headed South. The 10-year note future has rallied more than half a point from lows and the yield is back below 3.65%. The 2-year yield has declined by 10 basis points from its highs to trade back at 1.15%.
- Consumer staples names are not helping markets this morning. Dow component Proctor & Gamble missed revenue estimates by a significant amount, spooking investors, although bottom line profit met expectations. Proctor's CFO expects more contraction in consumer discretionary markets and warned that FX would continue to be a problem this year. Kraft also missed on the top line, while earnings were slightly better than expected. The company said it would concentrate even more on cutting costs and increase promotion spending. Dean Foods missed on revenue too, and offered tepid guidance for next quarter and the full year. Shares of PG are down 3%, KFT is down 2% and DF is down a whopping 8%.
- Cult tech stocks Garmin and Coinstar both crushed earnings expectations, sending both names much higher in early trading. Note that Garmin's gross margin was significantly higher sequentially in the quarter. GRMN is up more than 20%, while CSTR is off its best levels around +5%. Video game giant Electronic Arts cut its losses more than expected but still didn't manage to break even. On the conference call, ERTS's CEO noted the game industry is "weaker than originally expected," and that the company remains cautious on the macro environment.
- In other earnings, bond insurer Radian Group astonished with a very large quarterly gain (versus expectations of a sizable loss), sending its shares up 50% and competitors ABK, PMI and MTG up 10-20% a piece in sympathy. Agrium destroyed earnings and revenue targets. The CEO said Agrium is seeing signs of improving demand fundamentals as fall approaches and continues to anticipate a recovery in potash demand later in the second half of 2009. Shares of AGU rose to as much as +4% in early trading, lifting POT and MOS along with it, before it lost altitude with sinking equity indices.
- In currencies, USD and JPY pairs benefited from a combination of profit taking and risk aversion in the New York session on the ISM data and ahead of Friday's big employment data. The greenback did manage to shrug off the Treasury's record $75B quarterly refunding package. The Treasury said it would work with Congress to ensure the national debt limit was raised in a timely fashion and insisted it was not concerned about demand. EUR/USD again retesting its trend high, testing around 1.4440 before retreating well below the 1.44 handle. GBP/USD posted 9½ month highs earlier in the European session at 1.7043, although in New York trading it fell around 80 pips. USD/JPY continues to muddle around the 95 level, although it managed to recover from session lows against its European counterparts. GBP/JPY tested 162.45, although earlier it was probing below the 161.00 level; EUR/JPY drifted over 100 pips from its session highs of 137.60.
Published on Wed, Aug 5 2009, 15:02 GMT
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U.S Market Update
Tue, Aug 4 2009, 15:36 GMT
- US equity indices opened slightly below yesterday's closing levels in the wake of the June personal income reading, which indicated the largest decline in the series since August, 2005. But equity markets picked up following the better-than-expected US pending home sales (which has registered positive gains in each of the last five months), sending indices back to around even by mid morning. Front-month NYMEX crude is largely unchanged, trading above $71. Bond prices began the session in positive territory moving inversely once again to the pre-market weakness in stocks, but prices have reversed sending yields higher after the home sales figure. The 10-year yield has pushed back towards 3.7%. Commodity prices trimmed early losses helped by the Dollar paring early gains. Crude is fractionally lower near $71.50.
- At an analyst day event Caterpillar offered a long-term view of its future performance. It reaffirmed its FY09 outlook after tweaking the forecast two weeks ago in its second-quarter earnings report. It insisted that 2010 earnings would be better than 2009, even if the recession continues, and discussed its earnings potential out to 2012 as well. Executives also said the company's strategy in this period would be to maintain the dividend. Other major earnings included CVS, whose second quarter results and full-year outlook were in line with expectations. CVS missed analysts' expectations for next quarter in guidance, however. Ag giant Archer-Daniels-Midland missed earnings targets by a huge margin on collapse in demand for ethanol and sluggish demand in other businesses. On the conference call, executives reiterated their positive long-term view on ethanol.
- PepsiCo has achieved a breakthrough in its quest to take over its independent bottlers, Pepsi Bottling Company and Pepsi Americas. Pepsi launched its offer for the firms back in late May, and the two bottling companies have repeatedly turned down its offers as too small. This morning PBG accepted a deal at $36.50/shr in cash (or a prorated stock/cash combo), up from the original $29.50/shr offer; PAS accepted $28.50/shr (or the prorated stock/cash combo), up from $23.27. The aggregate value of the two deals stands at $7.8B, and will lead to the creation of one of the largest global food and beverage companies.
- Homebuilders DH Horton and Pulte Homes both registered quarterly losses that were larger than expected. However, revenue totals at both firms beat expectations and key metrics including closings, orders and backlogs showed sequential improvement. Note that these positive notes come hand in hand with this morning's m/m pending home sales improvement, as well as positive housing data from last week. Pulte's CEO said the company is seeing signs of stability emerging in Q2.
- In other earnings, manufacturer Emerson Electric offered largely in line results. Anadarko's quarterly loss was smaller than expected. Managed care name Healthspring beat EPS expectations, competitor Health Net missed by a hair, and healthcare product distributor Henry Schein was in line with the Street. GMAC said its Q2 loss would be nearly one third larger than last quarter's results, stating that the quarter was adversely affected by the overall turmoil in the industry and specifically by GM's bankruptcy process. Auto parts manufacturers ArvinMeritor and TRW Automotive both did better than expected, with TRW back in the black ahead of selected items. TRW's guidance for the coming quarter and the full year is well ahead of estimates.
- In currencies, risk appetite was looking hard for fresh energy during the New York morning after a touch of profit taking hit markets during European session. With data showing US personal income declining by 1.3% in June, investors expect consumer spending will take some time to recover, possibly providing an additional catalyst for risk aversion. Dealers noted that the decline partly stemmed from the unwinding of one-time transfer payments from the US stimulus plan. EUR/USD hugged the 1.4400 level through most of the New York session, ahead of the option expiration cut at 10amET. But the better-than-expected US pending home sales helped to calm risk aversion, sending EUR/USD back toward the 1.4430 level and USD/JPY back above 95. Now markets participants are waiting to see whether the US employment data due over the next three sessions will support the stabilization and economic recovery scenario; note that major commodities, equity indices and currencies have touched key psychological levels over the last 24 hours (NYMEX Sept crude is over $70, the S&P 500 is testing the 1,000 handle and GBP/USD is touching the 1.70 mark.
Published on Tue, Aug 4 2009, 15:36 GMT
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U.S Market Update
Mon, Aug 3 2009, 15:18 GMT
- Follow-through strength from Europe and Asia bid up US futures before the bell while the ISM data helped sustain momentum after the open. At 10:30amET the S&P500 broke above the 1,000 mark at for the first time since November 5th, 2008. The July ISM Manufacturing index was better than expected, while the prices paid and new orders sub indices were both above 55, indicating growth. This is the seventh consecutive gain in the index, although the headline number still remains below the 50 level. The ISM's Ore said that it would be difficult to convince manufacturers the US is on the brink of recovery, "but the data suggests that we will see growth in the third quarter if the trends continue." Yesterday former Fed Chairman Alan Greenspan told ABC's George Stephanopoulos he is "short term optomistic with many caveats," in particular housing and hopes the Fed can hold off on rate hikes for "a couple of years" (but does not believe they have that much time). Front-month NYMEX crude is finding traction above $70 once again while copper has made another high going back to October. Treasury prices are under pressure pushing the 10-year yield back above 3.65% ahead of this afternoon's quarterly refunding announcement.
- In earnings news, MGM's loss in the second quarter was much higher than expected, thanks to impairment charges and big costs for retiring debt. Investors are looking past the results, with shares of MGM spiking up as much as +7% just after the bell and around +3% mid morning. Conglomerate Lowes Corp missed earnings estimates, driven primarily by impairment charges Loews had to take on investments losses at insurance subsidiary CNA Financial. CNA's quarterly earnings exceeded analysts estimates. Shares of CAN are up 10%, while L is up 4% and headed in the right direction. Tyson Foods beat earnings and revenue targets thanks to cost cutting and lower input costs. Shares of TSN were up 4% in the premarket, but have quickly sunk to around -4% early trading. Second-tier energy names Marathon Oil and FirstEnergy are up in the low single digits after offering solid second quarter results and exceeding analysts targets.
- In currencies, the greenback hit fresh 2009 lows against European and commodity-related pairs, with EUR/USD testing the 1.4400 level, USD/CHF probing the 1.0600 and GBP/USD above the 1.69 handle. Continued strength in global equity markets highlighted the ever growing appetite for risk, which is providing a negative backdrop for the USD. Pre-Lehman collapse PMI readings throughout most of Europe have driven stock markets higher this morning. Sterling led the pack as the UK PMI manufacturing moved above the pivotal 50 level for the first time since April 2008. In the US, the ISM survey is only boosting risk appetite.
- Note that the overall tone for the USD is nearing some key chart momentum points, with the 1.06 area being eyed in USD/CHF. The SNB will report its July CPI data in tomorrow's session and intervention chatter could get louder if the pairs is below 1.06 for any prolonged period of time. In addition, the RBA has a rate decision on Tuesday, and could step up its rhetoric over strength of AUD.
Published on Mon, Aug 3 2009, 15:18 GMT
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U.S Market Update
Fri, Jul 31 2009, 15:32 GMT
- US equity trading has been jumpy and erratic this morning, with investors evidently undecided whether the Q2 GDP reading is a positive or a negative. The Commerce Department released its preliminary view of annualized Q2 GDP at -1%, beating expectations for -1.5%, while the personal consumption component was much lower than expected. Nevertheless, the economy has been in negative territory for four quarters now, its longest stretch in the red since 1947. Commentators have been discussing the figures ad nauseam this morning. The IMF said it sees a gradual economic recovery in the US, but warned that growth will stay lower than past recovery trends and said near-term risks are to the downside. JP Morgan's chief economist raised his Q3 GDP forecast to +3% from +2.5%, but warned that unemployment would remain high for years to come.
- Treasuries opened marginally higher this morning and prices accelerated to the upside after the initial look at Q2 GDP. While the headline figure beat expectations, GDP still contracted in the second quarter at a rate of 1% keeping inflation hawks from crowing too much. Despite these "better" outcomes, traders seem to have picked up on another revision of the Q1 figure to down more than 6% and following the data money came out of stocks and into bonds. The long bond future has gained more than a point, pushing the cash yield below 4.4%, while the 10-year is up more than half a point. As we have seen for much of the week the curve is getting flatter and the benchmark spread is narrowing below 245 bps.
- Chevron and Total were the final two global energy giants to report second quarter results, following reports from Exxon, Shell, BP and Conoco earlier this week. Like Exxon, Chevron missed earnings targets while beating revenue estimates by a significant margin. Profit was down 71% y/y, and its downstream segment operated at a loss for the quarter. Total's quarterly profit was in line with expectations, revenue was much better than expected. Shares of CVX are struggling to keep in positive territory, while shares and ADRs of the other four supermajors are down in low single digits.
- Car retailer AutoNation has been much in the news this morning with all the talk about cash for clunkers. The company's CEO told CNBC that it has seen a 36% surge in traffic following the initiation of the cash for clunkers program. The firm beat expectations in its second-quarter report, but missed revenue targets by 10% or so. Shares of AN are down 3% or so; fellow auto retailer Sonic Automotive is up 3% and Ford is up 6% in early trading
- Energy firm Constellation beat top- and bottom-line expectations and guided higher for the year. On the conference call, the firm's CEO discussed the ongoing tie-up with EDF, noting that the merger does not need to be made "at all costs." The company expects power prices to stay weak in the near term and then bounce back in 2011 and 2012. Utilities Dominion Resources, American Electric Power and PSE&G all beat earnings estimates, while the former two names missed revenue estimates. PSE&G warned the abnormally cool weather conditions this summer would make it hard to achieve its 2009 earnings guidance.
- In currencies, New York trading has centered around the US and Canadian GDP numbers as well as month's end liquidity concerns. The better-than-expected US number was certainly welcome, but the lower benchmark revision for 2008 GDP (+0.4% instead of +1.1% as previously reported) curbed risk appetite just a bit. Dealers cited the narrower trade deficit and a surge in government spending as positive factors for GDP. In Europe, ECB sources told the press that the bank does not have a clear outlook for the economy and reiterated there is the possibility of another credit crunch. According to the sources, some in the ECB believe government bond purchases need to be added to the current covered bond program. If the Euro Zone economies weaken further, the bank would discuss further rate cuts. In its report, the IMF said the USD is moderately overvalued. EUR/USD ending the morning at its best level moving above 1.42.
Published on Fri, Jul 31 2009, 15:32 GMT
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U.S Market Update
Thu, Jul 30 2009, 16:57 GMT
- Equity indices are surging this morning after spending several sessions in the doldrums, with the DJIA up triple digits, Nasdaq above 2000 for first time since last October, and the S&P actually eying 1000. The continuing claims data was 100K below the consensus figure, offering optimists encouragement over employment, following on this week's hopeful housing numbers. Front-month NYMEX crude has recovered nearly all of yesterday's losses to trade above $66 after Goldman Sachs reaffirmed its $85 year-end WTI crude target, calling recent weakness temporary. Goldman forecasted US stabilization and Chinese growth would drive oil higher. Commodities are bid up across the board with gold up 1%, copper higher by 3.5%, grains higher led by a 5% increase in soybean futures. Treasury prices remain lower as sentiment remains fragile ahead of today's 7-year and in the wake of the disappointing 2 and 5-year results. The US benchmark 10-year yield is holding right around 3.7%.
- Behemoth integrated energy firms Exxon and Royal Dutch Shell each reported sharply contrasting results this morning. Like ConocoPhillips, Exxon's revenue beat expectations but was down significantly from 2008 (-66%), while its earnings were well off the consensus view thanks to big quarterly declines in upstream and downstream profits. RDA blew out top- and bottom-line estimates, but said it too is facing a difficult environment in both upstream and downstream segments. RDS also warned that energy demand remains weak, cautioned about excess capacity in the market and complained that industry costs remain high. XOM is down a percent or two in early trading. Earnings from second-tier energy names Tesoro and Apache were better than expected, although Tesoro missed top-line revenue targets, while Apache outperformed on the top line. Both names are up 5% or so in the early going.
- Results from chemical industry leaders Dow and BASF indicate zero recovery for chemicals. BASF's net in Q2 was well below estimates and the firm warned it expects a significant decline in sales and earnings in 2009. Dow's bottom-line earnings were much better than expected while revenues were a big miss. Dow said its 2009 operating plan does not count on material improvements in market conditions for the remainder of the year. Note also that CitiGroup Raised DOW to Buy from Hold.
- Credit card rivals MasterCard and Visa both crushed the Street's earnings expectations, although revenue at both firms was merely in line. Both firms offer more qualitative guidance: Visa reaffirmed that it would achieve its targeted revenue growth in the high single digits in 2009, while MasterCard does not expect to meet its 2009 revenue growth target of 12%. MA's CEO said he does not expect global crisis will improve until some time next year, while a Visa executive said the company is not observing any indications of a sustained turnaround in the US economy.
- Newly-minted DJIA component Travelers was largely in line with expectations, and competitor Hartford Financial Services destroyed consensus estimates but cut its full-year outlook in half. Note that CIT took another step away from bankruptcy this morning, after Barclays extended another $1B in (very expensive) credit to the troubled firm
- Consumer staples names Kellogg and Colgate-Palmolive beat earnings targets and missed on revenue by a hair. On the conference call, a Kellogg executive said cost pressures this year are way down from 2008 levels, aiding results. Motorola managed to turn a (tiny) profit after two quarters in the red, but its guidance for next quarter makes it questionable whether it can earn a profit next quarter. Motorola's CEO sees Q3 mobile device sales flat q/q with unit shipments lower and said the firm has not changed its strategy of splitting off its mobile device business. Wynn Resorts surprised investors with a solid quarterly profit, but warned that its y/y results were not comparable as the quarter included Encore at Wynn Las Vegas, which was not open for Q2 2008.
- In currencies, corporate earnings are sustaining in the New York session the risk appetite that blossomed on Asian and European bourses. Also aiding sentiment was a reiterated pledge from China's central bank to "unswervingly continue applying appropriate, loose monetary policy," complemented by a drop in US continuing claims that only reinforced the sense that recessionary forces are moderating.
- EUR/USD began the NY session in the upper third portion of its session trading range but continued to struggle to pierce the 1.41 level. Mid-morning the IMF commented that the euro was overvalued by 15% versus fundamentals and urged the ECB to maintain low interest rates, insisting that the central bank had scope for more interest rate cuts. The tone of the IMF statements seemed to differ with IMF Chief Strauss-Kahn's recent comments that the USD was not weak and that the market was valuing it correctly. The USD's move into positive territory of 1.4015 was short-lived as equities and oil maintained their firm tone.
- USD/JPY tested the 95.70 area as the market gunned for stops that were lurking above the 95.30 area. Sterling sustained most of its earlier momentum after better UK house price data, which rose for its third straight month. GBP/USD continued to hover around the 1.65 area after opening in Asia at 1.6355. Commodity-related currency pairs were firmer by 100 pips from their opening levels in Asia thanks to Goldman's big call on crude.
Published on Thu, Jul 30 2009, 16:57 GMT
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U.S Market Update
Wed, Jul 29 2009, 15:44 GMT
- US equity indices are soft again through the first part of today's session, looking much like the previous four days, with a few weak earnings reports putting pressure on trade. PIMCO's El-Erian reiterated his view before the open that the stock market has gotten ahead of reality on underlying growth and earnings. The Commerce Department's June Durable Goods data was mixed, with the index turning negative again after last month's growth and the ex-transport figure sustaining May's slightly positive trend.
- Commodity markets are all under pressure from a resurgent Greenback. Weekly DOE crude inventories swelled an unexpected 5M barrels confirming similar data from API yesterday. August NYMEX crude futures have slid more than 5% headed toward the $63 figure, while spot gold and other metals are also dropping noticeably too. Grain futures are lower across the board as well led by wheat which trades at its lowest level in months.
- Treasury markets are anxiously awaiting this afternoon's $39B 5-year note auction. Though yesterday's 2-year results were strong on a historical basis, traders did pick up on an appreciable decline from the metrics seen in June. Prices are rebounding in today's session helped by the consternation in other asset classes. The long bond yield remains pegged near 4.5% while the benchmark is holding 3.6%. The benchmark spread has narrowed back towards 250 basis points.
- Sprint continues to hemorrhage monthly wireless subscribers, partially driving an unexpectedly large quarterly loss in Q2. The company lost a total of 1M of these post-paid customers over last quarter, a figure the company said was only partially offset by its pre-paid business. The Palm Pre smartphone is also helping; executives said the Pre helped blunt the assault from Apple's iPhone juggernaut. The other big (but not unexpected) tech news was the official confirmation of a Yahoo/Microsoft search deal, with a ten-year term. The announcement has been expected for a week now, and the only really surprising part of the deal was the lack of any cash component, with the arrangement essentially a search-for-advertising swap. Note that electrical components names Arrow and Tyco Electronics both beat earnings expectations and offered strong guidance for next quarter. Tyco's CEO said demand for consumer products is showing signs of improvement and inventory reductions appear to be substantially over.
- Earnings at integrated oil major ConocoPhillips were in line, although its profit was down a shocking 76% on a y/y basis dud to declining revenue margins and revenue was a big miss. Net income from E&P was $725M, about 82% lower than a year ago. Second-tier energy name Hess saw its profit fall even further, down 89% y/y, although it did much better than the Street had expected. Like COP, revenue was well short of expectations.
- Time Warner and Time Warner Cable both had strong quarterly results, with earnings comfortably ahead of the consensus view in the quarter. Both companies also reaffirmed their full-year earnings forecasts. A Time Warner Cable executive warned that the firm has not seen much change in the dismal advertising environment, although a Time Warner, Inc. exec did note that some stability has returned to advertising markets. Online media name IAC Interactive missed bottom-line expectations by a wide margin, but managed to return to profitability after last quarter's loss. Revenue at IACI was better than expected.
- Multiple healthcare names reported results yesterday and today. Benefits manager Medco was in line with expectations across the board; managed care names WellPoint and WellCare beat earnings expectations, and WellCare guided earning well ahead of target for the year; specialty pharmaceutical name Hospira beat top- and bottom-line estimates and guided slightly higher for 2009. Auto rental names Hertz and Penske both crushed earnings estimates. Hertz also raised its full-year forecast. Penske cited cost reduction estimates for its solid quarterly performance.
- In currencies, the dollar and yen have broken from their usual relationship with equity price movements. Overall the late drop in the Chinese equity markets before the New York session made many players wonder whether the July equity rally is sustainable, particularly as the traditional August vacation period commences. The USD was stronger against the major currency pairs as both energy and metals maintained a soft tone in the session. Month-end profit taking appearing to be the overriding sentiment. Germany's July CPI registered its first negative annual reading since reunification back in 1990; ECB officials have expected to experience a brief period of negative inflation in Germany and across the Euro Zone in general. EUR/USD is hovering near session lows of 1.4085 with dealers noting of some Euro sell stops lurking below the 1.4050 area. The 30-day mvg avg currently at 1.4047 level. USD/CAD consolidated under Tuesday's 1.0905 highs, but dealers are noting of some significant USD buy stops building above the 1.0930 area. AUD/USD also consolidated around the 0.8200 area.
Published on Wed, Jul 29 2009, 15:44 GMT
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U.S Market Update
Tue, Jul 28 2009, 16:14 GMT
- US equities are under a little pressure from dismal earnings out of US Steel, Deutsche Bank and Valero, as well as declining consumer confidence, with all three leading indices in negative territory. Another shot of positive housing data is raising hopes for stabilization in home prices, coming as it does on the heels of yesterday's increase in June new home sales yesterday. The May Case Shiller home price index logged a very small sequential increase, prompting commentators to trumpet that this is the index's first move upward since July 2006. Adding to the froth was a stronger than expected July Richmond Fed Manufacturing number, although the Commerce Department's July Consumer Confidence reading declined m/m and was weaker than expected. Front-month NYMEX crude is plummeting, wiping out three sessions worth of gains in early trading this morning. Gold prices are giving back 1.5% to trade below $940 for the first time in more than a week.
- Treasury prices are rebounding as a renewed bout of risk aversion works it why through US and European markets. The US 10-year note is up half a point in the cash market yielding 3.65%. The 2-year yield is unchanged holding above 1% in terms of yield ahead of this afternoon's $42B auction results.
- US Steel reported its second consecutive quarterly loss this morning, although the shortfall was smaller than analysts had projected. The company missed revenue targets. US Steel's CEO said there are signs destocking has ended in North American and Central European markets, although the firm's outlook remains opaque. Recall that mid-cap US steel names Nucor and Reliance both reported quarterly losses last week. Goldman Sachs is more optimistic about the sector, apparently, and raised the US Steel Industry to a buy from neutral overnight. It also offered a buy call on US Steel itself. US Steel opened down 4% and made a run for breakeven before heading back to the downside. Industry ETF SLX is down 2% in early trading.
- Office Depot's quarterly loss was almost twice the expected amount and the company's quarterly same-store sales were down 18%. Revenue was in line with expectations, however. On the conference call, ODP's CEO said he was "cautiously optimistic" that the economic decline has hit bottom. Retail names Supervalu and Group 1 Automotive both fared better in the quarter than ODP. Supermarket chain SVU reported in line and cut its full-year outlook, warning that it sees no near-term change in consumer spending patterns. Car and auto parts retailer GPI blew out earnings estimates and exceeded expectations in its full-year guidance, saying it believes that the automotive retail market has stabilized. Shares of ODP are down 15%, GPI is down 5% and SVU is up nearly 10%.
- Quarterly reports from Viacom and Interpublic Group shed some light on the media/advertising industry. Media conglomerate Viacom's earnings were in line, while revenue was well short of the consensus view. Domestic ad revenue was -6% and international advertising was -8%; in films, theatrical revenue was -27% and home entertainment was -29%. Advertising giant IPG missed top- and bottom-line targets, but executives struck a positive note on the conference call, saying the worst is behind the industry, which seems to be coming off a bottom.
- Other major earings included integrated oil name Valero, with a slightly smaller than expected loss and better-than-expected revenue. Health insurance firm Coventry Health was much better than Aetna's results yesterday, beating earnings and revenue targets and raising its 2009 forecast. Generic pharma name Teva offered solid results and reaffirmed its full-year guidance, noting that Barr integration is ahead of schedule. Shares of VLO are down 3%, TEVA is up 4% and CVH is up 10%.
- In currencies, the New York session saw the greenback hit the brakes and reverse earlier losses after hitting fresh eight-week lows above 1.4300. Overall dealers were noting that the urge to take profits was creeping into market sentiment after major option barriers were tested during the European morning, including 1.43 in EUR/USD and 1.0770 in USD/CAD. The failure of the USD/JPY cross to hold above its 21-day moving average was cited as a potential range breaker.
- More drama is emerging from the Baltic region, with chatter circulating among dealing desks that Latvia might have devalued its currency despite the recent agreement between it and the IMF for emergency funding. Dealers noted that despite the fact devaluation was not one of the IMF's conditions for the aid, Latvia might decide to devalue the Lat anyhow. The rumor hinged on sharp price movements in the EUR/SEK cross, which rallied 13 big figures from the European open, propelled by a market trying to find the news behind the move. But the overall market was caught massively short on EUR/SEK and USD/SEK as corporate buyers came in. Separately, the IMF noted that needs of emerging markets (ex China) could be in range of $1.3T to $2.0T over the next decade.
Published on Tue, Jul 28 2009, 16:14 GMT
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U.S Market Update
Mon, Jul 27 2009, 15:21 GMT
by Trade The News Staff
- Cuts to full-year guidance at Aetna and Honeywell are apparently trumping the latest improvements in housing data, with all three major equity indices trading in negative territory this morning. The June new home sales logged a strong 11% sequential improvement over May's numbers, although the data also showed median prices continue to decline on both a y/y and m/m basis. Note that the July Dallas Fed manufacturing index was very bearish, at -25% v -11%e. A two-day US-China trade summit opened in Washington, DC, with very general commentary out of President Obama, Treasury Secretary Geithner and senior Chinese officials. Front-month NYMEX crude is more or less unchanged, around $68. Treasury prices continue to head South pushing the US 10-year yield back towards 3.75% ahead of a week stuffed with new supply.
- Dow component Verizon reported quarterly results that were just a hair ahead of the consensus and largely flat business metrics. The company typically does not offer forward-looking guidance, but it did say it is planning 8,000 job cuts in the second half of the year. Shares of VZ are down 2%. Aetna reported its Q2 earnings ahead of its prior schedule this morning. The health insurance giant reported more or less in line with analysts' estimates and also announced steep cuts to its full-year forecast. Aetna said higher-than-projected medical costs have not been fully captured in 2009 pricing and warned that earnings will continue to be adversely affected by a higher commercial medical benefit ratio. Shares of Aetna are down 5% or so in early trading, while shares of the other health insurance majors are making modest gains.
- Like Aetna, Honeywell's Q2 results were in line with expectations while the company shaved the top end off its full-year earnings guidance and cut its revenue forecast significantly. Honeywell's CEO said that economic conditions remain challenging and the company is not planning for any recovery in 2009. Specialty manufacturer Corning beat top- and bottom-line expectations, and managed to raise its gross margin by nearly a third over last quarter. Corning raised its forecast for 2009 by 15% over last year thanks to strong LCD TV sales in the first half of the year. Investors are not impressed, however, and shares of GLW are down nearly 4%. HON opened down 2% and are now around even.
- In currencies, emerging market rumblings helped the USD come off its worst levels in early New York trading. EUR/USD failed to break above the 1.43 handle as chatter of some large USD buy stops building above 1.4300 but "protected" by option barriers that are in play at 1.4300 level. Also contributing to the profit-taking sentiment was the lack of market response to the increase risk appetite following the US new home sales, the biggest gain in eight years. EUR/USD wrapped up the New York morning just above the 1.4210 level. In Eastern Europe, a Latvian parliamentary coalition member has decided to withhold its vote in favor of an emergency funding agreement with the IMF. Lavian press outlook Leta had noted that the IMF might sign LOI with the country as soon as today to keep bailout funds flowing. The Hungarian central bank slashed its key interest rates by 100bps to 8.50%, more than the 50bps expected. Commodity currencies retreated from session highs as profit-taking ensued. USD/CAD failed to elect the slew of USD sell stop orders said to be lurking below the 1.0770 area.
Published on Mon, Jul 27 2009, 15:21 GMT
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U.S Market Update
Fri, Jul 24 2009, 15:32 GMT
- The Q2 earnings season rally hit a wall this morning, with commentators blaming lackluster results from Microsoft and Amazon for being unable to sustain the upward momentum. The two tech sector giants did not excel in the April-June period, and investors have dumped each, helping to send the Nasdaq down more than 1.5% and weighing down US equities across the board. Note that the final July University of Michigan Confidence Index was one point better than expected, although the reading was a solid 5 points below the final June reading. Front-month NYMEX crude has been trading in a tight range around $67. Treasury prices are rebounding very modestly from yesterday's selloff helped by the selling in stocks. Yields are not giving back much though, with the 10-year staying above 3.65% and the 2-year holding 1%.
- Microsoft missed revenue targets by a non trivial amount and was merely in line with analysts' earnings expectations in its fourth-quarter report last night. Microsoft's CFO said business continues to be negatively impacted by weakness in the global PC and server markets. He said there are signs the worst is over, but warned the balance of the year would remain difficult. Amazon also slipped up on the top line, but by a trivial amount, while earning were uninspiring. Analysts cut both names to neutral from buy overnight and investors are dumping the stocks, with Amazon down 7% and Microsoft down 10%.
- US solar power names SunPower Corp and MEMC outperformed analysts' expectations. SunPower's earnings were nearly twice the anticipated amount while MEMC reported $0.03 (versus expectations for $0.00); revenue at both firms was well ahead of the consensus view. Executives at SunPower said they were confident about the second half of the year, although MEMC's CEO said the solar industry faces limited demand growth and excess inventory. Shares of SPWRA are up 25%, boosting selected solar names as much as 5%, with TAN up 3%. Shares of WFR are down 15%.
- Both American Express and Capital One opened in the red this morning after offering leaden earnings reports after the close yesterday. Charge offs at both companies have kept rising on a sequential basis, although provisions for losses are beginning to creep down at both. AmEx missed revenue targets by a bit, while Capital One beat top-line estimates (and reported a quarterly loss that was slightly smaller than expected). COF opened down 5% but has shot up to +3% in the first hour of trade. AXP has muddled along in the low negative single digits.
- In currencies, attention seemed to focus on the CAD in the New York morning as loonie tested the 1.0800 level after overnight remarks from Canadian Trade Min Day. The minister said that while a rising CAD hurts exports, he was not concerned about the currency and reiterated the BOC view that the Canadian economy is moving closer to positive growth. USD/CAD saw good two-way flows as the pivotal 1.08 level sustained attacks. Dealers said there were a few extremely aggressive directional accounts trying to gun for the alleged USD sell stops lurking below the 1.0770 level. The overall USD trend has been down over the last two weeks, with dealers noting that of some 'cyclical' observations with July 27th cited as an important date for most currencies.
Published on Fri, Jul 24 2009, 15:32 GMT
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U.S Market Update
Thu, Jul 23 2009, 15:19 GMT
- Unbridled enthusiasm is sending the major US equity indices through the roof this morning, with the DJIA breaking above 9,000 within the first hour of trade. Solid quarterly results from Dow components and a positive housing report from the National Association of Realtors is fueling this morning's rally. The June existing home sales number was in line with expectations, but the m/m growth trend in overall sales and median prices, coupled with a faint decline in inventory are all good news for housing. The NAR also emphasized that the share of distressed properties in sales is "declining measurably," further indicating a trend toward normalization. Front-month NYMEX crude fell below $65 before the opening bell, but has shot up above $66 along with the equity rally. Treasury prices are declining as investors' risk appetite rebounds with every tick higher in stocks. The 10-year yield is back above 3.6% while the long bond is testing 4.5%.
- Dow components McDonalds, 3M and AT&T reported solid second-quarter results this morning. 3M was the standout, soundly beating top- and bottom-line expectations and boosting its forecast for FY09. 3M's CEO said he expects the US economy has bottomed out, although he also warned the company is not seeing any improvement in demand yet. McDonalds and AT&T both modestly exceeded analysts' estimates and reported healthy gains in major business metrics. Economic bellwether UPS reported in line with the Street, but missed a bit on its guidance for next quarter. On the conference call, UPS executives said that while they are seeing economic stabilization, there have been no signs that growth is returning, noting that the Q3 business environment would remain similar to that in Q2.
- Tech names Qualcomm, eBay and EMC all modestly exceeded expectations. Chipmaker Qualcomm's Q4 results were positive, much better than AMD's disastrous quarter but hardly the blowout quarter seen out of Intel. Qualcomm also raised its FY09 revenue outlook. Online retailer eBay also met consensus estimates and guided slightly above par for next quarter. EMC said the Data Domain merger would boost profits in 2010. Sandisk roared back to profitability, crushing estimates for a $0.16 loss and nearly doubling its margins.
- Ford's Q2 results showed that the automaker is firmly on the highway to stability, with executives insisting the firm would "achieve or exceed" its 2009 financial targets. Even Ford Motor Credit managed to turn a proft. After taking account of its debt reductions, the company was in the black to the tune of $2.3B, although its manufacturing operations are not profitable yet.
- Mid-cap steel makers Nucor and Reliance Steel did not have a good second quarter. Reliance racked up an unexpected quarterly loss and fell $200M short on the top line, making for the company's first net loss since becoming a public company in 1994. Nucor's loss was slightly smaller than expected. Nucor executives are concerned that the marginal uptick in orders is not representative of an increase in "real" demand but more a result of both inventory adjustments and concern over rising prices. Reliance's CEO said he believes the worst is over but still does not anticipate any meaningful improvement in demand for the balance of the year.
- In other earnings, tobacco names Phillip Morris and Reynolds American both beat earnings expectations and raised their FY09 forecasts modestly. Fertilizer company Mosaic was solidly in line with the Street, while competitor Potash Corp. slipped a bit. Mosaic said customer confidence is returning, pipeline inventories have been drawn down and soil nutrients need to be replenished, pointing to recovering crop nutrient markets in 2010. Potash cut its 2009 forecast and limited its qualitative comments to the standard line that buyers have been extremely cautious thanks to the crisis.
- In currency trading, the dollar maintained a soft footing early in the New York session as price action followed in the wake of US earnings. In addition, the euro's inability to take out the recent high of 1.4277 was seen as a good reason to lighten up positions and take profits. EUR/USD briefly tested below the 1.4200 level but headed higher as the Dow Jones tested 9,000. The JPY was broadly weaker against the major pairs ahead of tomorrow's Japanese investment trust launch. USD/JPY probed toward the 95 neighborhood, up over 130 pips, while the EUR/JPY and GBP/JPY pairs were well over two big figures firmer in the session. JPY weakness was initially attributed to rumors that the Japanese MoF might have told some large Japanese accounts that it is safe to buy USD/JPY around the 93 area. AUD/USD struggled to stay above the 0.82 area as chatter circulated that the Australian Central bank (RBA) might conduct more reserve management activity.
Published on Thu, Jul 23 2009, 15:19 GMT
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U.S Market Update
Wed, Jul 22 2009, 15:13 GMT
- Uncertainty seems to be interrupting the earnings season rally that has been under way for the last seven or eight sessions, with a big miss from Morgan Stanley unsettling investors this morning and US equity indices zigzagging in and out of negative territory. Bond prices are lower after yesterday's rally as Fed Chairman Bernanke's second day of testimony on the hill appears to have much less of an effect. Oil is recovering some early declines after weekly inventory data from the Department of Energy.
- Morgan Stanley has proved to be the laggard among the top five bank holding companies. The firm reported a quarterly loss that was bigger than expected, and more than twice the expected figure once charges for repaying TARP were factored in. Results were also significantly hampered by an accounting rule related to the value of its debt. Strength in the firm's wealth management and investment banking revenues was not enough to offset declines in trading revenue and real estate losses. Shares of MS opened down 4% but have recovered somewhat in mid morning trading.
- Four leading regional banks reported better-than-expected results, including Wells Fargo, US Bancorp, SunTrust and Bank of New York. KeyCorp's loss was greater than analysts' estimates. Note that results from Wells Fargo and Bank of New York were well below expectations after additional charges for TARP, various write downs and merger expenses were taken into account. Shares of WFC are down 5%, while BK is down 8%. STI's loss was less than expected, although its non-performing loans keep increasing. USB remains firmly profitable, stating that deposit growth is strong while its commercial real estate portfolio is under pressure. Shares of STI and USB are making modest gains this morning. KEY's loss was somewhat offset by revenue that beat expectations and big improvements in ROE and ROA.
- Yesterday evening boldface tech names Apple and Yahoo both blew out analyst estimates, although Apple's guidance for next quarter was notably lower than expected on top- and bottom lines. On the conference call, Apple's CFO said the company has been unable to meet demand for the new iPhone 3G-S, and warned iPod sales are continuing to decline over time. Yahoo's CEO said she is seeing "less fear in the marketplace" and advertisers spending more actively. AMD's results contrasted dramatically with Intel's results, with AMD reporting yet another quarterly loss. AAPL is up 4%, YHOO in the red but off its worst levels and AMD is down 14%.
- In other earnings, Boeing managed to exceed consensus estimates in Q2 and its FY09 guidance despite the recession and ongoing trouble with the 787 Dreamliner. Executives said the firm is still assessing the schedule for 787 test flights and first deliveries more than a month after announcing yet another delay due to problems with a body component. PepsiCo offered results that were more or less in line with expectations and reaffirmed its full-year forecast, noting that it has begun to see the return of consumer spending, even in developed markets. Pfizer also reported in line, and increased its 2009 forecast by a hair. Mid-cap industrials WHR and ITW offered solid results and better-than expected guidance.
- The consolidation in EUR/USD seen throughout the European morning continued into the New York session as option expiration chatter tamed the price action. The 1.4200 strike remained a magnet for choppy price moves ahead of the NY cut. The USD looked like it would initially gain some upward momentum as risk aversion appeared in the wake of Morgan Stanley's poor quarterly results. Dealers noted that the EUR/USD almost broke an eight-day string of higher lows with the 1.4150 level cited as pivotal support. Thus far, market has paused above just above the 1.4150 area. CAD eventually reacted to better retail sales data for May with the 1.10 handle again tested during the morning in USD/CAD. Dealers are noting that prospects for softer equity markets and lower oil prices could cap further gains in the CAD-related pairs. Looking ahead, the Brazilian Central bank is expected to cut its SELIC target by 50bps to 8.75%. The decision usually comes after the value date change (5:00pm ET).
Published on Wed, Jul 22 2009, 15:13 GMT
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U.S Market Update
Tue, Jul 21 2009, 15:32 GMT
- Investors have multiple tier one earnings reports to reckon with this morning, in addition to Fed Chairman Bernanke's Congressional testimony and more jitters over CIT. The DJIA has sustained modest gains thanks to strong results from Caterpillar and Merck, while the Nasdaq is in negative territory. S&P500 is around even. Treasury prices opened notably lower as the major indices tested the June highs, but as stocks gave back some initial gains bond prices recovered. Yields accelerated to the downside upon the release of Chairman Bernanke's testimony to Congress. Though much of it was covered in his WSJ editorial this morning he did stress that unemployment was likely to remain high into 2011 potentially undermining what is already expected to be a gradual recovery, and for that reason will only consider tightening fiscal policy once the job market shows signs of recovery. The US 10-year has rallied nearly a full point from session lows pushing the yield back towards 3.5%. The 2-year yield has slid more than 10 basis points from session highs of more than 1% sparking a rallying in fed fund futures contracts.
- Note that three of the four Dow components (CAT, KO, DD and MRK) that reported this morning beat EPS targets but missed revenue expectations; Merck managed to exceed expectations on both the top and bottom lines. Shares of Caterpillar, a widely watched economic bellwether, are up a whopping 10% after the company stomped earnings estimates and offered a very bullish outlook for the full year, with a broad range that is twice the consensus view at its high end. Coca-Cola reported top-line earnings that were a bit ahead of the consensus, although its revenue missed expectations by $500M. Shares of KO are down a few percent in early trading. Note that the company was significantly hurt by FX in the quarter. DuPont's earnings results were much better than expected and the company reaffirmed its 2009 EPS forecast. The company warned, however, that its revenue would remain below par next quarter, noting that it sees Q4 results broadly better than Q3 results. Shares of Merck are up 5% after a solid second-quarter report. Merck executives reiterated that the Schering Plough merger would close in Q4 and said they see continued improvement in top line results.
- Shares of asset managers State Street and Blackrock are both in negative territory this morning. State Street reported a giant after-tax "extra ordinary loss," although operating earnings were mildly better than expected. BlackRock beat top- and bottom-line targets solidly. Assets under management at both firms climbed showed sequential improvements, although STT reported q/q revenue declines in key product segments. Note that a BLK executive said clients are beginning to ask if they have "too much cash" and look to move into other asset classes with more risk. Competitor Legg Mason is bucking this trend, up 3% after returning to profitability for the first time since early 2008. Weak results from Zions Bancorp and Regions Financial are pulling down the other regional banks, with ZION down 10% and RF down 14%. Both reported disastrous ROE and ROA figures, boding ill for other regionals.
- While quarterly results from Texas Instruments were not as dramatically good as those out of Intel last week, they were still very strong, with operating earnings about one third ahead of the consensus view, gross margins headed back toward normal levels and order up 27% sequentially. TXN's outlook for next quarter is better than the Street's, although it warned demand trends remain uncertain. Nevertheless investors are selling shares of TXN, with the name down nearly 5% in early trading. Small enterprise software firm JDA Software is up 30% after a very strong quarterly report.
- Two more major US airlines reported huge quarterly losses this morning, on the heels of American last Wednesday. Continental's loss was in line with expectations, while United's loss was slightly smaller than projected. Southwest Air also reported quarterly results, which were more or less in line with analysts' estimates. Shares of UAUA are up 7%, while CAL and LUV are down 6%. Continental's president said that business travel has stabilized at low levels and warned there is no visibility as of yet on autumn travel demand. All three airlines continue to slash capacity, with promises of more reductions in coming quarters.
- In currencies, New York trading saw USD profit taking from the European session abate as better corporate earnings from Caterpillar and other major US corporations sharpened risk appetite. Sovereign accounts are continuing to show buying interest around 1.4190, indicating more reserve diversification. EUR/USD managed to break above the 1.4250 level for fresh six-week highs. BoE's Bean commented that Q2 GDP would likely be negative and said he was uncertain about the durability of any UK housing market recovery. CAD was also in the spotlight as the Bank of Canada left its key interest rate unchanged at 0.25% (as expected) and removed a key line from its statement regarding concern about the "unprecedented, rapid appreciation" of CAD, helping the currency firm above the 1.10 level. Dealers noted that the BoC's statement showed hardly any protest over the strong CAD. Energy and metals hit fresh session highs as a result.
Published on Tue, Jul 21 2009, 15:32 GMT
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U.S Market Update
Mon, Jul 20 2009, 15:17 GMT
- With an apparently hopeful outcome in the offing for CIT Group and European markets making gains, US equity indices opened modestly higher in New York with volumes even closer to normal and the DJIA back in positive territory for the year to date for the first time since early June. In the premarket, Goldman Sachs boosted its forecast for the S&P 500 Index, saying that improving earnings will spur the steepest second-half rally since 1982. But the enthusiasm has leaked away in mid morning trading and the leading indices are back around even. Note that business group NABE stated earlier this morning that the recession is abating although there are few signs of a robust economic recovery, and warned that conditions are continuing to weaken. Front-month Sep NYMEX crude, which tested $65 earlier today, is back around even near $63.50. Treasury prices opened lower on the back of equities' gains but have worked back towards unchanged on the day. The 10-year yield is hovering at 3.65% while the 2-year is just below 1%. Gold prices moved back above $950 for much of the morning but are relinquishing some of their gains.
- CIT seems to have come to an agreement with its bondholders over the weekend. According to widespread press reports, the bondholders will extend $3B in new credit to the company backed by its unsecured assets, allowing it to restructure outside of bankruptcy. No confirmation of the deal has come out of CIT as of yet, but is expected sometime today. Shares of CIT nearly doubled in value in the premarket, and remain up more than 80% in early trading. Financial sector names are up in the low single digits this morning, with the exception of Citi and BoA; there have been unconfirmed reports that Citi is considering a 30-year note, and Citi is down 5% on the news.
- Mid-cap manufacturing firms Johnson Controls and Eaton are both up 7% in early trading. JCI beat earnings estimates while missing revenue targets; investors are enthusiastic as the auto parts manufacturer returns to profitability after two consecutive losing quarters. The CEO said the company would increase its profitability next quarter and into 2010. Eaton's top line results were in line and revenue was below par, while its guidance for next quarter was better than expected.
- Oil services names Haliburton and Weatherford are headed in different directions in the wake of earnings reports this morning. Haliburton was more or less in line with the Street, although it said there would be little recovery in North America this year. Shares of HAL are up 5%. Weatherford is down 8% after missing top and bottom-line estimates. In other earnings, Hasbro is up 4% after earning more than expected and reducing the expected dilution from its JV with Discovery Communications.
- In currencies, risk appetite firmly underpinned sentiment in New York trading this morning, with USD and JPY currencies were under pressure against most other currencies, particularly the commodity-related and emerging market units. The Russian Ruble surged over 3% at one point against the USD to test the 30.80 level. This was the largest one-day gain for the ruble in over a decade. The NY morning was marked by consolidation of the price moves seen during the Asian and European session. EUR/USD is holding above the 1.42 level with some minor stops below the 1.4190 area. The pair was unable to break above the 1.4250 level where some quasi-government offers were rumored to be lurking. Note also that the IMF approved a $250B Special Drawing Rights (SDR) allocation to increase global liquidity. The proposal still needs to be submitted to Full Board of Governors for final approval.
Published on Mon, Jul 20 2009, 15:17 GMT
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U.S Market Update
Fri, Jul 17 2009, 15:07 GMT
- The impetus to buy stocks following the Goldman Sachs and JP Morgan results earlier this week seems to be wearing off today, with US equity indices are headed sideways in early trading. Citi and Bank of America offered uninspiring quarterly results and investors dumping shares of GE, leaving few catalists that would keep things rolling. Nevertheless, investors are consolidating what looks to be the best week for the major indices in months. The June housing starts and building permits totals were both better than expected, and the prior month's housing starts were revised higher. Some are seeing signs of hope in the crisis at CIT, which has started frantic talks with various parties to sell units and managed not to upset markets as much as might have been expected. PIMCO's Crescenzi said markets are taking the situation in stride, and their reaction shows stability returning to the system. Front-month NYMEX crude is up more than a buck this morning, trading above $63.
- Treasury prices have continued to trend lower following yesterday's hiatus, with some acceleration following the better than expected housing data. Yields have moved out to their highest levels in nearly 3 weeks as stocks consolidate gains in what looks to be the best week in months. The long bond yield has regained 4.5% while the 2-year is back at 1%. With the 10-year yield back above 3.6% the benchmark spread widened out to more than 260 basis points.
- Citigroup's Q2 earnings were something of a mirage: on the one hand, the bank racked up a $4.2B profit in the quarter thanks to the sale of Smith Barney to Morgan Stanley. But after backing out these gains, quarterly losses were only slightly better than expected. Bank of America's Q2 earnings were slightly better than expected, but hardly the blowout craved by many investors. The loss provisions, write downs and charge offs continue to rise at both BoA and Citi, with BoA's non-performing assets rising significantly on a sequential basis (the firm put special emphasis on trouble in commercial real estate) and Citi's total write downs rising to $6.57B in the quarter. BoA CEO Lewis did not that the integration of Merrill Lynch is on track and meeting goals, and expects his firm to see "normalized earnings" in 2010. Citi and BoA are making low single-digit gains in early trading, with most other major financial names in positive territory.
- General Electric was the other big earnings story of the morning. GE beat bottom-line expectations but slipped a bit on revenue, thanks to the impact of FX and declines in its industrial segments hit by the recession. Shares of GE are down 4%, but off their worst levels. The company has discontinued giving guidance, but it did talk a lot about its outlook on the conference call, noting that its FY09 outlook for non-finance related profits are "little changed" and warned that equipment revenue would be down 10-15% y/y in 2010. CEO Immelt said GE Capital is profitable, and also said he is seeing big improvements in capital markets. GE's CFO warned consumer lending losses are trending below forecasts and said GE's outlook on commercial real estate remains cautious.
- Tech giants IBM and Google both managed to beat Wall Street's earnings expectations, although revenue results at both companies were lukewarm. IBM's better profits certainly stemmed from its improved margin performance, as revenue declined in all of its major divisions. Big Blue remains positive looking forward, raising its 2009 earnings forecast and offering a glimpse of its FY10 outlook that was above the consensus. Google managed to grow margins, meet revenue expectations and keep top-line growth in positive territory, and on the conference call said that business has stabilized and cheerfully said that that large advertisers have "come back to the table." Investors are not impressed, however, and shares of GOOG are down 3% this morning. Shares of IBM are up 3% in the early going.
- Following a relatively quiet overnight session, the greenback has maintained some strength during the New York session, with EUR/USD holding above 1.4050 and chatter circulating that some decent euro sell stops are lurking below this level. With US housing starts hitting their highest level since last November, dealers are wondering if this might not be too much of a good thing given the ten months' supply of new homes on the market. Nonetheless the USD and JPY will continue to follow the equity price movement as risk appetite maintains its momentum.
Published on Fri, Jul 17 2009, 15:07 GMT
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U.S Market Update
Thu, Jul 16 2009, 15:21 GMT
- US equity indices opened in the red this morning as the government's refusal to throw CIT a lifeline overshadowed better JP Morgan earnings and sent the overall financal sector lower in the pre-market. The better-than-expected weekly jobless claims were overlooked as well, despite the fact the continuing figure was tantalizingly close to dropping below six million (the Labor Department did note that seasonal factors continue to play a role in the lower figures). The three leading indices popped into positive territory in the first 30 minutes of trade, only to get knocked down again by the July Philly Fed data, which offered a sharp contrast to yesterday's hopeful industrial tea leaves, with the figure nearly twice a bad as expected. Another piece of data is hovering in the background: RealtyTrac reported that the foreclosure activity surged to record levels again in the second quarter, up 11% sequentially and up 20% over the same period last year. June was the fourth consecutive month to see foreclosures above 300K.
- After dropping toward $60 earlier, front-month NYMEX crude is around unchanged at $61.70. Treasury prices have rallied getting back a good portion of yesterday's declines. The 10-year benchmark yield does remain above 3.5%. JP Morgan announced the sale $1.25B in credit card bonds not backed by TALF following their earnings announcement. This is ahead of a TALF announcement scheduled for later today that will be the first to include eligibility of CMBS.
- JP Morgan opened in negative territory along with the rest of the US financial sector despite the firm's Goldman-like quarterly performance. Adding to the weight in financials, FDIC Chairman Bair said tougher curbs and additional fees were needed for the largest US financial firms. JP Morgan's earnings and revenue totals were miles above consensus estimates, despite big charges for repaying TARP and the FDIC's special assessment fee. CEO Dimon had plenty to say before and after the conference call, noting that it is unlikely the credit card business will make money in 2010, and that the dividend could be increased next year if there are improvements in charge offs and overall conditions. Also note that Charles Schwab reported solid Q2 reports, in line with all expectations.
- Mobile phone giants Nokia and Sony Ericsson reported contrasting second-quarter results, although their outlook . Nokia came in below expectations on both the top and bottom lines, predicting its market share would remain flat in mobile devices next quarter and overall industry volumes would be down 10% in 2009 over last year. The Sony Ericsson JV's net loss was significantly smaller than expected, while revenue was a bit below expectations. The JV saw challenging market conditions everywhere in the quarter and said it expects the market to remain difficult all year, echoing Nokia in saying the global mobile phone market would be down 10% in 2009. Nokia's ADRs are down nearly 14% in early trading, while the ADRs of Sony and Ericsson are both down about 2%. Note also that shares of MOT are down 6% and headed lower.
- In other earnings, blood product and dialysis name Baxter offered in-line quarterly results and slightly upped its forecast for the full year. Biotech name Biogen Idec reported strong results in the quarter, although it cut back on its earnings outlook for 2009. Both names are up in the low single digits in early trading. Paint and coatings manufacturer PPG Industries shellacked earnings targets but slipped on the top line, noting that it only sees mild market improvement next quarter. Packaging manufacturer Sonoco also beat bottom-line targets and missed top-line revenue expectations, and trimmed its full-year earnings forecast. Both PPG and SON are both strong, up 6-7% in the early going. After a decent Q1, motorcycle legend Harley Davidson fell out of the saddle in Q2, thanks mainly to declining shipments and credit charges. After dropping a bit before the open, HOG is up 6% in early trading. Hotelier Marriott had a decent Q2, but cut its 2009 guidance due to economic conditions, sending shares of MAR down 8%.
- In currencies, dollar sentiment appeared soften up initially during the New York session as earnings and economic data, including JP Morgan's earnings and the US claims data, helped stoke risk appetite. Note that the dollar is at or near numerous key chart points heading into the weekly close. EUR/USD was above 1.4140 and close to breaking out of its one-year downtrend line after hitting the all-time high of 1.6030 last August. However, the Philly Fed number helped reign in the risk appetite and EUR/USD was heading into mid-morning New York trade just above 1.41. The yen has maintained a firmer tone as well, with USD/JPY in the mid-93 level after testing 94.45 earlier today.
Published on Thu, Jul 16 2009, 15:21 GMT
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U.S Market Update
Wed, Jul 15 2009, 16:38 GMT
- Strong industrial surveys coupled with volume levels trending toward normal, Intel's quarterly earnings and fresh strength in financials ahead of big reports from the sector on Friday are buoying the leading US equity indices. The July Empire Manufacturing survey came in dramatically better than expected (-0.55 v -5.00e), with both the prices paid and new orders sub indices flipping positive, while the Fed's June Industrial Production data crept even closer to positive. Master trust data from the leading credit card issuers showed some glimmers of improvement in charge-offs and delinquencies, adding some upside to the financials. Front-month NYMEX crude is holding the psychologically important $60 level, up nearly $1.50 in early trading, with the contract just shy of $62. Spot Gold is around $930/oz. A weaker US Dollar on overall increased risk appetite is helping commodity prices in general, and bringing some sellers into the Treasury market. Sep copper has made a 1-month high moving back to $2.40 while wheat and soybean futures are up 2% in Chicago. The US 10-year yield is firmly back above 3.5% while the benchmark spread is widening back towards 260 basis points.
- Results from DJIA component Intel, S&P500 major YUM and the largest US airline AMR are moving their respective sectors in early trading this morning. Intel's blowout results after the close yesterday prompted lots of price target increases in the name overnight and has buoyed the shares of numerous other semi stocks, with AMD, NVDA and the SMH fund all up in the high single digits. Shares of INTC are up 7%. Fast food giant YUM had a mixed report yesterday, exceeding bottom-line targets by a fair margin but missing on the top line. On the conference call this morning, YUM's CEO warned that the higher EPS but sluggish sales theme would continue in 2009, adding weight to his shares and those of other major fast-food names. YUM is down around 5%, while MCD, BKC and WEN are also a few percent into the red. A slightly smaller than expected loss from AMR is helping keep the airline stocks in positive territory this morning, despite a consecutive quarter of double-digit y/y comps for most of the company's major metrics.
- In other earnings news, Abbott Labs reported its Q2 and guided Q3 results more or less in line with expectations, and also reaffirmed its 2009 forecast for the fourth time in a row. Investors are evidently not impressed, as shares of ABT are down 5% in the early going. Media conglomerate Gannett is on fire, up 20% after destroying earnings estimates (but missing revenue targets). Note that GCI's publishing segment revenues are down more than 25% on a y/y basis, and even digital revenues are down more than 18%. Specialty chemicals name Lubrizol also killed their Q2 targets in a preliminary report this morning, providing no additional commentary on their very strong results. LZ is up 5% in mid-morning trading, but off its best levels, while other specialty chemical names such as ALB and WDFC are up 3-5%.
- In currencies, there has been little change in the overall dollar sentiment in the New York session as the greenback maintains its softer tone on the back of rising risk appetite and firmer commodity prices. The dollar was also weakened by news South Korean sovereign fund KIC would purchase inflation-hedging assets, including property and commodities. Dealers are noting that China had a hand in the price movements. PBoC economist Wang Yon stated that China should moderately increase its holdings of US Treasuries, saying that China and other nations with large dollar reserves should hold talks with the U.S. government on such funds can be injected into the world's largest economy, and those talks should include the possibility of shifting bond holdings into other assets such as stocks and gold. Some dealers have concluded that China has hit the reset button on the reserve currency issue. Treasury Secretary Geithner reiterated that the USD would remain principal currency and remained committed to strong USD. He also stressed that the US was committed to lowering its budget deficit. UAE Central Bank Gov Al-Suwadi stated that the UAE remained committed to its USD peg after meeting Geithner earlier today. EUR/USD tested the 1.4100 level where it encountered some additional selling orders. CAD and AUD pairs were firmer on the rising risk appetite, with AUD/USD moving above the 0.80 area and USD/CAD testing below 1.12.
Published on Wed, Jul 15 2009, 16:38 GMT
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U.S Market Update
Tue, Jul 14 2009, 15:00 GMT
- US equities are choppy this morning as investors weigh the widely expected record results from Goldman Sachs and solid numbers from Johnson & Johnson against a bit of a surprise in June wholesale prices. The June PPI data showed wholesale prices rose far more than expected in the month, for their biggest gain since November 2007, due to higher energy prices. The data has bought some sellers into the Treasury market sending the 10-year yield up to 3.4% while weighing on stocks. Front-month NYMEX crude spiked above $61 earlier this morning, but the contract has retreated towards opening levels below $60.
- The first major financial company to report this earnings season, Goldman Sachs fulfilled widespread expectations from the last week for a blow-out second quarter. Topping its impressive performance in Q1, the bank holding company destroyed earnings and revenue expectations and delivered an impressive 23% return on equity (versus 14.3% last quarter).Trading and investment revenues were up a whopping 93% y/y and 51% q/q. And just after the open Goldman's CFO said the company is still talking with regulators about altering its financial holding status to "allow additional activities," prompting commentators to wonder just how dead the investment banking model really is. Goldman is up a modest 1% this morning after its shares traded up more than 5% over recent days; competitors BAC, JPM and MS are all down about 1% a piece. Note also that CIT is up 25% or so this morning after last night's report in the WSJ that the government is in advanced talks with the company over some sort of bailout.
- Dow component Johnson & Johnson reported Q2 results that were a bit above estimates and reaffirmed its full-year earnings forecast, while trimming its revenue outlook for the year slightly. On the conference call, JNJ's CFO said the results were among the most challenging ever for annualized comparisons due to the loss of patent coverage for Risperdal and Topamax. The company is seeing tighter consumer spending in certain parts of medical device business and continues to experience significant impacts from FX translation (-$0.06 EPS, -6% revenue impact). Railroad CSX beat earnings expectations in its Q1, although revenue lagged the Street by a bit. The company said it expects revenue to continue falling in Q3 in 8 out of 10 markets, with a return to strength in 2010. Shares of CSX are up 6%, while other leading railroad names are up 2-3%. In other earnings news, Sun Microsystems said it expects a much larger loss than analysts have been projecting in its Q4, with revenue weaker than expected as well. Oracle noted that it still expects Sun to be accretive to earnings in the first year. Take-Two also said it would loose more than expected in the quarter, and said it now projects a significant loss for FY09 as well. Shares of TTWO are down 9%.
- PC industry leaders Dell and Microsoft are both making headlines. At an investor meeting, Dell executives said they are seeing demand stabilize but also warned that the competition has improved as the dynamics of the industry evolved. While the enterprise business is still weak, the consumer unit is seeing strong results in the current quarter. After providing a glimpse at its online application strategy the other day, Microsoft unveiled its strategy and pricing for its Azure cloud computing platform. Shares of DELL are down 7% this morning, while MSFT is around even. Note that Intel reports after the close today.
- In currencies, the USD and JPY sustained a soft tone into the New York session as risk appetite gained a bit. Note that while the Asia session provided some optimism about green shoots, news out of Europe indicated that some cracks remain in the recovery. The German ZEW survey in particular highlighted the fact that any recovery would be bumpy. EUR/USD pushed above the 1.40 level but encountered some resistance after ECB's Hurley noted that monetary policy must support real economy and any interest rate hike should only come when the recovery was shown to be totally solid. Sterling drifted off its best levels after the June UK Commercial Property Values survey fell by 0.9%, for its 24th consecutive decline. GBP/USD is around 1.6300 during the New York morning. USD/CAD is probing below its 30-day moving average at 1.1400 and AUD/USD has been hovering around the 0.79 level for most of the morning.
Published on Tue, Jul 14 2009, 15:00 GMT
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U.S Market Update
Mon, Jul 13 2009, 15:10 GMT
- US equity indices opened higher this morning and are making further gains after slipping a bit. However, volumes are still one-third below average and the overall sentiment remains substantially unchanged. In an interview with the FT published yesterday evening, Larry Summers said he "does not think the worst is over" for the US recession, warning that it "would not surprising" if GDP falls further. In the UK for talks, Treasury Secretary Geithner commented that there has been a significant easing of the financial crisis, although the recovery still faces plenty of significant risks and challenges. Front-month NYMEX crude is down a dollar or so, trading just above $59. Treasury markets are successfully digesting the recent gains with yields still hovering around the lowest levels in two months. The long bond is below 4.2% and the benchmark is holding at 3.3%.
- The banks were back in headlines as two big stories - Goldman Sachs and CIT - kept analysts and commentators chattering over the weekend. Goldman Sachs, which reports its second-quarter results on Tuesday, was the subject of wildly positive press reports. The New York Times wrote that the company is likely to post "huge profits," given analyst forecasts. The bank holding company's shares climbed in the NY pre-market as Meredith Whitney talked to CNBC about the company. Note that Whitney's firm raised Goldman to a buy with a $186 price target this morning.
Shares of Goldman are up 4%, while other major financials were up 3-4% as well.
- Last Friday CIT apparently hired bankruptcy advisors after failing to win government borrowing guarantees after extended negotiations. CIT has a $1B payment due in mid-August and it remains unclear whether the company will be able to make the payment or not. Executives spent the weekend trying to compile a plan that would convince customers and investors that it can deal with its liquidity crunch, lobbying members of congress, government officials and regulators. Geithner said he is monitoring CIT's situation closely, insisting the US has the authority it requires to resolve CIT if needed. Shares of CIT are down about 25%, compounding the big losses seen on Friday. Many other second-tier financial names and regional banks were making 3-5% gains in the early going.
- In currencies, the risk aversion that characterized the Asian session was put on ice as the European morning wore thanks to constructive comments from China's PBoC and the Japanese cabinet on their respective economic outlooks. A PBoC assistant governor said there were some positive signs in the economy, while the Japanese Cabinet's monthly report raised its view on exports, imports, business spending and private consumption sectors. However, both far east nations noted that uncertainties remained. EUR/USD recovered the majority of its European session losses to trade around the 1.3960 ahead of the US equity open. GBP/USD is also off its worst levels but remains softer across the board against the major pairs. AUD and CAD price action mirrored oil movements, with AUD/USD moving back toward 0.78 after testing 0.77 during Europe. USD/CAD is testing 1.1600 after probing toward the 1.17 neighborhood.
Published on Mon, Jul 13 2009, 15:10 GMT
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U.S Market Update
Fri, Jul 10 2009, 15:56 GMT
- US equities indices opened lower this morning and are printing fresh lows in mid morning trade in the wake of the worse-than-expected University of Michigan confidence reading. Various bold-face commentators are offering pessimistic assessments, adding to the heavy tone. Permabear Nouriel Roubini said the US economy is not yet recovering and the recession will last six more months, while noted Yale Economist Robert Shiller said the US needs a second fiscal stimulus package. GE CEO Immelt wrote in an FT editorial that the US economy requires a "fundamental transformation," and went on to discuss the failures of an economy based on services and consumption. NYMEX crude shows no signs of letting up on its downward slide, with the front-month contract testing below $59 after Italian PM Berlusconi said the G8 has expressed disapproval of speculation in oil markets and its discussed intervening to block speculators.
- With the Dow falling towards 8100 and crude firmly below $60 risk aversion has put another underlying bid into US Treasuries. The bench mark spread has narrowed back to 240 basis points with 10-year yield nearing 3.25% for the first time in nearly two months. The yield is approaching its 200-day EMA as well.
- GM passed a critical point in its restructuring process this morning, with the formal acquisition of the best assets of "old GM" by "new GM" following yesterday's court approval of the sale. CEO Henderson insisted that "many" of GM's problems are in the rearview mirror and reiterated that he would take the company public again "as soon as is practical." More job cuts and massive cost reductions are still in the future for the automaker, as Henderson said he would reduce salaried staff by 20% by end of 2009. GM is required to pay off its loans from the government by 2015, but Henderson said the goal is to repay them "much sooner."
- Energy giant Chevron offered a mid-quarter update after the close yesterday, warning that its Q2 downstream results are projected to be significantly lower than the first quarter. The company said its Q2 upstream earnings would benefit from increases crude prices, but this would be largely offset by substantial unfavorable foreign currency effects. Shaw Group fell short of the Street's earning expectations and cut its full-year outlook by around 10% in its Q3 report. Shaw's CEO said that underperforming projects impacted its Fossil & Nuclear segment. Shares of CVX were down 3%, while SGP were down 9% in the early going.
- Insurance firm Progressive Corp was more or less in line with earnings estimates, while net premiums were right in line on a y/y basis. Regional banking name Susquehanna Bancshares said its second-quarter results would be below expectations due to a rise in loan loss provisions (from $35M in Q1 to $50M in Q2), while its non-performing loans rose to $230.2M from $156M q/q. Shares of SUSQ fell in the premarket and after the open, bottoming out around -10% before recovering somewhat. In other equity news, Goldman Sachs raised the US software and the US computer hardware sectors to a buy, moving selected names. Hard drive manufacturer STX is up 5% on the move, while IBM and CA are down slightly after being cut to neutral at Goldman.
- In currencies, the USD and JPY maintained most of their European gains thanks to continuing concerns over the sustainability of the global recovery. The Chinese trade data registered its eighth consecutive monthly decline in both imports and exports components, while the US trade balanced improved during the month of May, with exports registering their biggest sequential gain since last July. There was vague chatter that the Russian Central bank (CBR) was a euro seller ahead of the NY morning, but no confirmation of such action. The CBR did cut its refi rate earlier today and the Ruble was broadly softer which could be complementing such speculation. The EUR/USD ending the NY morning around the 1.3940 area and USD/JPY at 92.40. The commodities softness hit the AUD and CAD pairs, preventing CAD from benefiting from an improved employment report (the Canadian June employment report much better than expected at -7.4K, while the part-time component was +40.1K)
Published on Fri, Jul 10 2009, 15:56 GMT
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U.S Market Update
Thu, Jul 9 2009, 15:37 GMT
- US equities opened in the black this morning, as the weekly initial jobless claims fell below 600K for the first time in 24 weeks (continuing claims remain at all-time highs around 6.8M). Better-than-expected results from earnings season opener Alcoa, as well as initial positive investor reaction to June SSS figures supported sentiment. But like yesterday the gains were short lived and evaporated quickly in trade that continues be characterized as thin and choppy. Front-month NYMEX crude futures strengthened to above $61 before dropping below $60 level this morning for the first time since May 26. Treasury prices opened lower but yields are remain below the levels seen ahead of yesterday's 10-year note auction results.
- Mid-cap financial group CIT is up 10% in today after the FT reported executives at the company are pushing regulators to stop stalling its requests to issue government-backed bonds. CIT is the only major financial group that received TARP but has not been given the go-ahead to FDIC-backed debt. In other financial sector news, Citi shook up its senior management yet again, bumping CFO Ned Kelly to vice chairman and naming John Gerspach CFO in his stead. Former CFO Gary Crittenden is leaving the company. In March Gerspach was moved to be chairman of Citi Holdings, the entity created to manage bad assets the company is looking to sell.
- Alcoa kicked off earnings season yesterday after the close by surprising investors with a smaller-than-expected loss and impressive revenues. On the conference call, executives said the company's liquidity situation is much better and said they were "very close" to being free cash flow positive. Shares of AA gained 5% before the open this morning, but have dropped into negative territory in mid morning trading. A couple of small cap names are also moving on earnings news, with both Scansource and Helen of Troy up 8% or so after much better than expected earnings performances last quarter. Note also that SCSC is down 14% after guiding revenue for next quarter much higher.
- The June same-store numbers were a mixed bag this month, with most companies still well below last year's levels but more than a few outperforming expectations. TJX and ROST blew out estimates, coming in at +4% versus -2.6%e and +1% versus -2.3%e, respectively. ARO continues to stand out from the pack, with sales up 12%, although its worth noting this growth is less than the stronger growth seen in April and May. Department stores reported declines across the board, although they nearly all did better than expected, with high-end names SKS (-4.7% v -10.7%e) and JWN (-10% v -11%e) doing surprisingly better than expected. Higher-end mall retailers continue to suffer. LTD was much worse than expected (-12% v -8.3%e), while AEO and ANF racked up yet another month of big double-digit declines, with both worse than expected. Big box discounters BJ and COST were both a little better than expected, but still showing uncomfortable y/y sales declines, while TGT did worse than expected, at more than -6%.
- In currencies, the dollar once again tried to regain its composure during the New York morning as the G5 made vague comments on the reserve currency issue. A Chinese official reiterated that management of reserve currency system must be improved, with a "more diversified" system a chief goal. World Bank President Zoellick insisted the dollar would remain the primary reserve currency but warned its role cannot be taken for granted by the United States. EUR/USD briefly probed above the 1.40 handle in early NY where it meet some selling pressure (rumored to be the Bank of International Settlements). Risk aversion crept back in after the mixed picture presented by the US claims data. Dealers noted that the initial claims number was likely impacted by seasonal factors as auto layoffs were far less than expected. Note that the German finance minister reiterated calls for the Bundesbank to consider making corporate bond purchases, citing need to improve lending given the looming threat of a credit crunch persists in the second half of 2009. The Bundesbank declined to comment on the remarks. The BoE left both its interest rates and quantitative easing measures unchanged. GBP/USD tested 1.6270 in the aftermath of the decision on relief that the £125B QE was left alone for the time being.
Published on Thu, Jul 9 2009, 15:37 GMT
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U.S Market Update
Wed, Jul 8 2009, 15:32 GMT
- The IMF helped US equities open higher this morning for the first time since last Wednesday, but all three major indices made their way back to the red around 11amET. Overall markets were hit with a fresh bout of risk aversion late in the NY morning as bids came into the Japanese Yen. Nervous investors seem to be waiting for more robust positive signals to emerge from upcoming earnings reports. The IMF published an update to its World Economic Outlook report, raising its 2010 global growth forecast to +2.5% from +1.9% back in April (and slightly lowering its outlook for 2009 growth to -1.4%). However the IMF also warned that while the global economy may be beginning to pull out of recession, recovery would likely remain sluggish. Front-month crude continues to plumb new monthly lows, down $1.50 to trade around $61.25. In its medium-term outlook this morning, OPEC said it sees 2010 demand up a paltry 0.5%, while it said 2013 demand would remain below 2008 levels. The weekly DoE inventory figures are not helping things either with a larger than expected build in gasoline inventories. Gold is under pressure as well moving back towards the $900 mark for the first time in more than a month.
- US Treasury prices have been the beneficiary of the equity selling. The long bond yield has worked back toward 4.25% while the benchmark is nearing 3.4% once again. These are levels not been seen since late May while the curve has flattened back below 250 basis points in the benchmark spread. Markets are cautiously awaiting today's 10-year reopening as yields have come in more than 50 basis points from the June auction. Investors are anxious to see whether the US Treasury can continue to raise money easily in the face of discounted prices.
- A couple of consumer names have seen big moves in the wake of better-than-expected quarterly results. Discount retailer Family Dollar beat analysts' estimates by a hair last quarter and boosted its 2009 outlook for the third time, while its guidance for next quarter was well ahead of consensus estimates. Shares of FDO are up 10% in early trading. Casual dining name Ruby Tuesday did much better than expected in its Q4 and beat estimates in its guidance for next year, sending its share up 8% in the pre market; those gains vanished in the first half hour of trade, with RT in negative territory presently. Note that Pepsi Bottling beat earnings estimates but missed revenue targets in a big way thanks to FX impact and steady declines in volume world wide. Shares of Tractor Supply Company are up 9% after the agricultural machinery retailer hiked its earnings guidance for the year and crushed estimates for its Q2. Las Vegas Sands jumped 5% in the pre-market on news it was mulling an IPO for its Macau units, but shares are back to even mid morning.
- Currency trading in the New York session absorbed a flurry of reports from government agencies, cartel members and central banks without too much movement this morning. The greenback maintained its trading range from the Asian and European morning, but has broken out late in the morning led by the USD/JPY move below 94. The Green is posting strong moves higher against the Euro, Pound, and Franc on risk aversion flows. The IMF report suggested that economies must remain supportive until economic growth resumed and deflationary risks subsided. Rising unemployment and loss of confidence in financial sector could trigger inflation but deflation risks are seen as small. The ECB published a report on the role of the euro, noting that international use of the currency was relatively stable in 2008 and stating it accounted for 26.5% of global reserves compared to 25.3% at the end of 2007. Dealers noting that ECB report on Euro's international role suggested that the global financial crisis has had no visible effect on the USD and maintained its preeminence in international financial markets. Reports implies that emerging economic including China, Russia and India have had little success in actually reducing the USD's role in global affairs, despite repeatedly stance on such an objective. The OPEC report was followed by comments from El Badri, who said the cartel was still concerned about oil demand and hoping oil demand would bottom in 2009.
Published on Wed, Jul 8 2009, 15:32 GMT
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U.S Market Update
Tue, Jul 7 2009, 15:07 GMT
- US equities opened lower for the third consecutive session this morning as caution ahead of earnings season keeps things subdued and volume remains very thin. Note that earnings season officially begins with Alcoa's second-quarter report after the close tomorrow. Front-month NYMEX crude has extended its slide, down $1 on the session to around $63. Treasury prices opened marginally lower in Chicago but have rallied back toward unchanged. The US benchmark yield is back at 3.5% while the 3-year offer 1.44% ahead of this afternoon's auction results.
- Healthcare stocks, particularly HMOs and hospitals, have been strong this morning as chatter circulates that Senate Democrats and the White House are moving closer to a deal on healthcare reform. The WSJ reported that the White House Chief of Staff reiterated the Administration is willing to be flexible on reform as long as the deal gets done. Senator Grassley did question the timing of any healthcare bill, cautioning that a Senate vote may not come before the August recess, but he still expect the legislation to pass this year.
- Discover Financial is down more than 10% this morning after announcing yesterday that it would offer $500M in common stock (9.8% of market cap) and reaffirmed that it would report a 8.5-9% managed net charge off rate for Q3. KeyCorp is up 4% after Keefe Bruyette raised the name to Outperform and the bank launched an offer to exchange $1.74B of preferred securities held by its various trusts for up to 158.5M shares of common stock (about 31.5% of shares outstanding). Note also that the American Bankers Association said that Q1 consumer loan delinquency rate hit 3.23%, for the highest reading on record. Late payments on home equity borrowings were 3.52% in Q1. The ABA said the effects of soaring US unemployment and an uncertain economic picture is driving delinquencies on credit card debt to all-time highs as a record number of consumers fell behind on their bills.
- Currency trading exhibited a reversal in price action from European moves during the New York session. The EUR/USD pair probed back above the 1.40 level aided by a comment from German Finance Minister Steinbrueck, who commented that interest rate hikes would be needed to mop up liquidity in Europe. Although he did not mention any timeframe for the moves, EUR/USD tested 1.4050 where it did encounter some decent euro sell orders to quell the upside momentum. The reserve currency issue remains on the front burner ahead of the G8 summit, impacting EUR/USD. Dealers have noted that Middle-Eastern names have been aggressively playing the recent range in the pair. The American Bankers Assoc (ABA) survey data was also a factor.
- As the morning wore on the risk aversion theme resurfaced, helping the USD and JPY off their session lows as the commodity and equities revered thei intial gains. USD/JPY moved back below the 95.00 level as some chatter circulated that the Bank of International Settlements (BIS) was on the offer in the pair. The EUR/CHF cross also getting attention as it drifted lower towards the 1.5150 level as dealers debated if any additional SNB currency intervention would prove effective as the market seems long the pair already. A move back toward 1.5000 could occur as weak market longs have been flushed out.
Published on Tue, Jul 7 2009, 15:07 GMT
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U.S Market Update
Mon, Jul 6 2009, 15:04 GMT
- US equity indices opened to the downside this morning thanks to lingering caution from Thursday's worse-than-expected non-farm payroll data. Traders bid up equities ahead of the 10amEST June ISM non-manufacturing data, but indices have dropped to session lows despite the ISM beating expectations. Note that the ISM prices paid sub index popped above 50 for the first time since last fall. The front-month NYMEX crude contract continues to make one-month lows, now down $2.50 to trade above $64. There has been little significant equity news to speak of, although it's worth noting that the FTC cleared Net App to acquire Data Domain (for $30/shr in cash and stock), while EMC upped its offer for the firm to $33.50 in cash from its prior offer of $30.
- Treasury prices have seen some selling at the long end of the curve pushing those yields higher. The long bond is back above 4.35% while the benchmark is holding 3.5%. The curve has steepened with the benchmark spread gaining traction above 255 basis points. The Fed is undertaking another coupon purchase while the Treasury is auctioning off $8B in TIPS later this afternoon.
- In currencies, the risk aversion stemming from the payroll data continued to roil FX trading, to the benefit of overall USD and JPY sentiment. During the New York session the EU's Barroso said he was unsure when the recovery might begin and warned Europe's growth potential would not be the same post crisis. Rising doubt on the global growth front has brought the fiscal health of countries and whole regions back into question. The Indian finance minister noted that its goal sustainable 9% GDP growth over the medium term would require continuing efforts to provide fiscal stimulus.
- EUR/USD is hovering around the 1.39 handle during the NY while the USD/JPY tested below the 95 handle for one-month lows. EUR/JPY cross was off 200 pips below the 132 level. Energy and metal commodities remained heavy with the strong dollar against the European pairs. GBP/USD tested below the 1.62 level ahead of the NY morning before retracing back towards 1.62. Sterling's soft tone also buckled as the growing potential for more quantitative easing (QE) from the BoE continues to unsettle traders. The "shadow MPC" called on the BoE to maintain the base rate at 0.5% and called for an extension of its quantitative easing (QE) beyond the £150B it currently has permission to undertake. CAD and AUD were off their worst levels from the European morning. USD/CAD is around 1.1630 while AUD/USD is straddling the 0.79 level.
- With the G8 summit in Italy set to begin later this week, the USD remains vulnerable to comments from various G20 members on its reserve currency status. The Indian Foreign Secretary commented that he was open to idea of replacing USD as global reserve currency. This comment echoed India Gov't Advisor Tendulkar stated last Friday that he would not be surprised if Rupee basket was revised to reduce role of USD. For the moment the risk aversion theme is outweighing the bulk of the reserve currency rhetoric. French President Sarkozy stated that a joint position on oil prices from the UK & France would be published within the next few days and commented that oil prices must target a reasonable price range.
Published on Mon, Jul 6 2009, 15:04 GMT
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U.S Market Update
Fri, Jun 26 2009, 15:38 GMT
- Stock prices are giving back some ground in New York, but Indices remain near their best levels for the week after yesterday's surge. Investors have been mulling over May personal spending, personal income and savings data while awaiting the much anticipated final House vote on the climate bill. This morning's data exhibited growth across all categories in May, although the savings rate soared to a 15-year high of 6.9 percent, deepening fears about the squeezed consumer and the overall potential for recovery. Front-month crude is trading just above $69, way off its overnight highs that peaked above $71. Note that the annual rebalancing of the Russell indices becomes effective after the close of trading in US markets today temporarily boosting volumes.
- Treasury prices remain firmer as markets continue to view this week's strong note auctions as an all clear sign on the supply front at least temporarily. Prices are also being helped by month and quarter end flows as well as the hiatus in scheduled new supply through the end of the month. The 10-year yield is nearing 3.5% and a close below that level would be a first for June. The curve remains flatter with the benchmark spread narrowing towards 240 basis points.
- It remains unclear whether the cap and trade climate bill will reach the floor of the House for voting today or not. Last night there were reports that the Democrats did not have the votes they need to pass the legislation, which was confirmed this morning by White House advisor Valerie Jarrett. House leaders will likely delay voting if they don't feel they have enough votes.
- The fallout from Boeing's lastest 787 Dreamliner delay is beginning to hit home. Last night Australia's Qantas said it would defer delivery on 15 Dreamliners to 2013 and cancels orders for another 15 787s scheduled for delivery in 2014-15. Qantas used to be Boeing's largest customer for the Dreamliner. Later Air Berlin quashed press rumors that it was planning to cancel its own Dreamliner orders.
- In earnings, KB Home offered tantalizing Q2 results. Although the company's quarterly loss was nearly twice the expected amount (thanks to various non-cash charges), its revenue was much better than analysts' estimates while its new orders grew by nearly 60% over last quarter and its backlog grew appreciably. These hopeful statistic echo Lennar's results yesterday, as did comments from KBH's executives that housing trends seem to be moderating and buyers are taking advantage of bargain prices. Shares of KBH are down 8%, while other homebuilder names make small gains. Micron's Q3 loss was slightly smaller than expected as the company's gross margins turned positive for the first time in a year, providing one more sign the semiconductor industry is healing. Palm's quarterly loss was also shrank as its margins improve markedly, although the firm's phone sales declined more steeply on a y/y basis than last quarter. On the conference call, PALM's CFO said margins would surpass 30% soon, although profitability would not return until late 2010. Shares of PALM are up more than 10% in early trading. Shares of small-cap tech name Gerber Scientific are down 15% after surprising investors with a second big quarterly loss in its Q4.
- Potash Corp cut its Q2 guidance to $0.70 from $1.10-1.50 on lower potash sales volumes due to deferral of purchases by customers around the world. Note that earlier this week German fertilizer name K+S cut its sales forecast by 1/3 and then slashed its global demand outlook. POT is down a few percent this morning, although the name has declined by 20% or so over the last few weeks.
- In currencies, the dollar has consolidated in the lower end of its session trading range this morning, weighed down by a PBoC financial stability report that mentioned the reserve currency issue. EUR/USD tested above 1.4100 as New York traders got their hands on the Chinese report. The dollar managed to stabilize on some risk aversion concerns as a pronounced increase in domestic savings rate highlighted consumer spending declines due to unemployment and fears of more job losses. CAD remained choppy and followed the price action in oil. USD/CAD tested 1.1450 as oil probed $71.30 but moved towards 1.1550 after the Chinese central bank reiterated its cautious outlook on the sustainability of any economic recovery.
Published on Fri, Jun 26 2009, 15:38 GMT
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U.S Market Update
Thu, Jun 25 2009, 15:35 GMT
- Equity buyers pulled equity indices up from pre-market declines leading to a modest rally in the first hour of trading. Indices have held onto and even built on gains despite weekly initial and continuing jobless claims numbers that were higher than expected, and back month totals being revised higher. Markets are also keeping a leery eye on Congressional grilling of Fed Chairman Bernanke, as representatives strive to dig up dirt on negotiations that preceded the Bank of America/Merrill Lynch merger. Note that PIMCO 's El Erian agreed with Warren Buffet's statements from yesterday that there are no signs of green shoots in the economy. On the bright side, the April RPX Composite housing market report rose by 1.2%, for the first such increase since the composite peaked in June 2007. Home prices increased on a month-over-month basis in 18 of the 25 metropolitan statistical areas (MSAs) covered by the report. Front-month crude continues to edge back toward the $70 handle. Note also that gold is rocking today after advice from a senior Chinese government researcher that China buy gold given expected declines in the USD.
- Treasury prices are moving higher but still remain below levels seen ahead of yesterday's FOMC statement. The 10-year yield is hovering around 3.65% while the benchmark spread is holding above 250 basis points. The curve was a bit flatter heading into yesterdays Fed statement. Focus will again be paid to this afternoon's final auction for the week when the US Treasury sells $27B in 7-year notes.
- Better-than-expected results from homebuilder Lennar and Bed, Bath and Beyond are adding to the positive tone this morning. Lennar's quarterly loss was a fraction of the expected amount (ex write-offs and tax deferrals), thanks to impressive sequential gains in new home orders and deliveries. Executives citied more confident homebuyers, lower home prices, low interest rates and government stimulus programs for their improved business. BBBY beat top- and bottom-line expectations in its Q1. Nike was more or less in line with the Street, although the company's quarterly sales were flat and future orders are headed in the wrong direction.
- Two notable firms updated their guidance for the coming quarter, providing a positive glimpse of their respective sectors. Rental car firm Hertz's earnings outlook for its Q2 is an order of magnitude better than analysts' expectations, while its outlook for rentals is for a slower rate of decline than last quarter. Hertz's CEO said car rental demand in both the US and Europe has stabilized and said there are more summer peak reservations than expected. PC component manufacturer Seagate raised its revenue outlook for next quarter by a modest amount on better-than-expected demand and favorable pricing. Shares of STX are down 2%, while HTZ is up 9%.
- Food manufacturers ConAgra and McCormick are both under pressure this morning after reporting quarterly results and guiding for the year in line with expectations. Apparently commentators feel that brand-name packaged foods are under pressure from private-label, store brand products. Shares of CAG are down 6% in the session.
- In currencies, the greenback faced choppy price action during the New York session, although it did benefit from minor risk aversion flows on another steady weekly jobless claims reading. The Swiss Franc continued to be the main focus as speculation continued about the SNB's intentions in weakening its currency. There was chatter of a large bid in the 1.0980 area, although USD/CHF has struggled to maintain a foothold above the 1.10 handle in the session. The pair was grinding lower during the morning towards 1.0970 to test the resolve of any potential intervention. CAD started the NY morning on a soft tone, hitting a one-month low against the USD at 1.1638 but managed to retrace as Aug crude and spot gold maintained positive readings.
Published on Thu, Jun 25 2009, 15:35 GMT
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U.S Market Update
Wed, Jun 24 2009, 15:31 GMT
- The May Durables reading has restored some confidence this morning, with the leading US indices opening in positive territory and headed sharply higher in mid morning trading. The Commerce Department said demand for manufactured products rose for a second month in a row in May, with the Durables series sustaining the positive growth seen in April. Note that non-defense capital goods orders (ex-aircraft) rose by +4.8%, for the largest rise since September, 2004. The government's May new home sales data (342K V 360Ke) echoed yesterday's lower-than-expected NAR May existing home sales numbers, although latter seems to have blunted housing's impact today. All eyes are now on the FOMC rate decision later this afternoon, as investors look to see whether the Fed reiterates its commitment to maintain "exceptionally low" rates for an extended period of time. Gold prices rallied early in the pit trading session on reported short covering. The Aug contract is up 1.4% at $937. Crude prices continue to inch back towards $70 while natural gas heads in the other direction.
- US Treasury markets initially saw a burst of selling following May durable goods but prices then recovered. Things generally seem to be on hold ahead of FOMC and the $35B 5-year note auction. The 5-year cash yield remains right around the 2.7% level.
- Shares of Oracle are making strong gains, up 7% after a slightly better than expected Q4 earnings report yesterday that was free of any big surprises. Executives pointed to increasing operating margins and market share taken from SAP as proof of the company's improving outlook. The firm's earnings guidance for next quarter was in line with estimates, although revenue was a bit below estimates. Casual dining name Darden reported in line with expectations and hiked its quarterly dividend, although a dismal full-year forecast is weighing on the name today, with shares of DRI down 2%. Executives warned the industry's weakness over the past six months will continue throughout the rest of the company's fiscal 2010. Monsanto beat bottom-line targets but missed on revenue, and guided toward the lower end of its range for the year. Shares of MON a bit higher today, trading in line with the other major ag stocks. Rite Aid's loss was a bit less than expected, while it guided a slightly larger loss for the year. Investors initially looking past the company's quarterly results and sent shares of RAD up nearly 10% in early trading, although the name traded off mid morning. Shares of Supervalu are down nearly 15% after the supermarket chain guided same-store sales -3% for Q1 and said Q1 earnings would be "substantially below" the market consensus of $0.65e.
- In currencies, the greenback entered the New York session on a soft note with reserve management adjustments allegedly behind the weakness; dealers said Eastern European names were "aggressive" Euro buyers. However, the dollar managed to benefit from another alleged round of SNB indirect currency intervention via the Bank for International Settlements (BIS), which sold CHF against both the euro and dollar pairs (the SNB and BIS declined comment on intervention). EUR/CHF shot from 1.5010 to 1.5287 while USD/CHF soared from 1.0665 to 1.0910 within a half-hour period this morning. Dealers are more confident now that the 1.5000 level in EUR/CHF is the clear "line in the sand" for SNB intervention. Last week, the SNB reiterated that it would continue to counter Swiss Franc strength, especially against the euro, to counter deflationary forces in its economy. The intervention had an additional twist (and more market impact), with dealers suspecting USD/CHF intervention this time around, opposed to only EUR/CHF during the initial March 12th intervention as well as suspected April, May and last week's June moves.
- Across the pond, members of the BoE have testifying in Parliament during the New York morning. The BoE's King noted that declines in sterling would not fully offset the UK's weak economic outlook but would help the country be more competitive. King noted budget deficits have gotten "extraordinarily" large and called on the next parliament to do something about them. He cautioned that the Treasury may face challenges funding the deficit "down the road" and added that the MPC has decided against providing a low interest rate commitment as inflation will likely remain below the bank's 2.0% target. GBP/USD was initial softer as the BoE members spoke but has remained in the middle of the session trading range around 1.6540.
Published on Wed, Jun 24 2009, 15:31 GMT
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U.S Market Update
Tue, Jun 23 2009, 15:29 GMT
- US equity indices remained down in the premarket as investors brood over yesterday's big slide and more negative macroeconomic forecasts. The 10:00amEST round of economic data didn't provide much to lift spirits, with the April Housing price index a bit better than expected and the NAR's May existing home sales slightly lower than expected. The NAR's chief economist warned that sales were less than expected because poor appraisals were stalling transactions, noting that contracts are falling through from faulty valuations that keep buyers from getting a loan. Front-month NYMEX crude has sustained recent declines, trading down $0.50 or so below $67.
- Value buyers stepped in to buy leading bank holding names this morning after yesterday's sell off, although shares of the banks were pointing back toward even by mid morning. Bank of America priced its 200M depositary share exchange offer at $12.7048 per share as the bank works to complete its extensive capital raising process in the wake of the government stress tests last month. Ratings of regional banks Keycorp and Fith Third Bancorp were cut at Fitch this morning, sending FITB shares down 6% or so in early trading.
- The EU and US filed a joint complaint with the WTO against China over Chinese export curbs on various raw materials, specifically bauxite and phosphorus. Also keep in mind that Boeing has postponed the first flight of the 787 Dreamliner due to the discovery of a weak body joint, although a company played down the fix as being inexpensive and assured the public that the company believes the production schedule will not be affected. Shares of Boeing are down 8%, with key suppliers like HXL also taking hit, trading down almost 10%.
- In earnings, shares of Kroger are under pressure after the grocery giant beat earnings estimates but came in a bit below top line targets. Kroger also reaffirmed its full-year earnings and same-store sales targets. Shares of Smith & Wesson are down 10% after a lackluster quarterly report and in line guidance yesterday. Office furniture name Steelcase was up as much as 15% before trading off to around +4% this morning after breaking even in its Q1 (the Street expected a $0.14 loss) and forecasting breakeven earnings for next quarter as well. Steelcase's CEO said that recent order patterns have reflected modest seasonal improvements, and insisted that the Q1 may prove to be the company's low watermark. Commercial Metals' quarterly loss was slightly smaller than expected, while the company predicted a similar loss next quarter. CMC traded up 4% or so in the early going. CMC's CEO warned that any volume improvement in the quarter was seasonal and not reflective of any stimulus effect, and also said that destocking appears to be in its last stages.
- In currencies, the greenback was on the defensive throughout the New York morning after comments from a US Treasury official failed to convince markets not to fear rising US bond yields. The Treasury's Ramanathan said his department "doesn't read much" into rising yields given that issuance was "completely blind" to quantitative easing that higher yields might not only be due to increased supply. Russia Deputy PM Shuvalov used the opportunity to comment that while US Treasuries may be among his country's top investments, the Russian Central Bank could quickly adjust its reserves policy if necessary. The ECB's Weber reiterated his usual hawkish comments, noting that the ECB has used up its room to lower interest rates and that the bank's exit strategy would not be influenced by politics. He reiterated that Germany needed to keep an eye on state and national budget deficits. There were a slew of comments from various European debt agency heads regarding their comfort with scheduled 2009 and 2010 issuances. In addition, word that Boeing would delay its first flight of the dreamliner added to risk aversion sentiment that took a brief hiatus during the European morning. EUR/USD holding above its prior resistance level of 1.40 ahead of the first leg of the US refunding schedule. JPY price action continued to follow the equity markets on the risk aversion/appetite themes. USD/JPY is holding in the mid-95 neighborhood
Published on Tue, Jun 23 2009, 15:29 GMT
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U.S Market Update
Mon, Jun 22 2009, 15:24 GMT
- US equity futures were weighed down in the premarket by European declines and pessimistic comments out of the World Bank. In the first hour of trading US indices are well into the red, and are testing last week's lows with the S&P bouncing off of 900. Last night, World Bank Chief Economist Lin said the World Bank expects a deeper global recession in 2009, with the global economy -2.9% (versus the bank's prior -1.7% estimate). Despite a forecast for growth in 2010, Lin said that "recession-like conditions" will not go away next year. The Fed policy decision later this week is adding to the uncertainty; with no change in rates expected, commentators are speculating whether the Fed will expand its purchases of Treasuries or not. Front-month crude is way off last week's highs, down $2.50 to trade around $67, with major metals well off recent highs as well.
- Fixed income futures were higher, with dealers citing duration extension buying as a factor complementing the risk aversion sentiment. There was a revival of demand for safe-haven government debt as European and US equity markets traded lower ECB's Nowotny noted earlier today that the ECB was likely on hold for the remainder of 2009, while Germany's IFO data was mixed in key segments.
- In an opinion piece in the Wall Street Journal, former Fed Governor Fredrick Mishkin wrote that the Fed is facing a serious dilemma regarding the best way to reckon with the rise in long-term interest rates, given their potential to choke off the recovery and hurt the housing market. Mishkin warns that while the expansion of Treasury bond purchases by the Fed would have the benefit of lowering long-term interest rates temporarily to stimulate the economy, in the current economic environment it could be dangerous as it may enable fiscal irresponsibility and stoke inflation.
- In equity news, Shares of Goldman Sachs are holding up better than nearly all the rest of the financials this morning on a report in the New York Observer that Goldman staff have been told to expect large bonuses on estimates of substantial earnings growth in the first half of the year. Walgreens held things together in Q3, with earnings and revenue in line with Street estimates. On the conference call, Walgreen's CEO said the company plans to slow down opening of new locations next quarter and warned that consumers have cut back and are buying affordable essentials only. In its May master trust data, Target said that net charge-offs fell a hair over April levels, while the overall delinquency rate also fell a bit. Marvell Technology raised its revenue guidance for next quarter by a substantial margin. Marvell's CEO said the company is more optimistic based on improved orders in this quarter. And media outlets everywhere are chewing over reports that Apple CEO Steve Jobs had a liver transplant a few months ago in secret.
- In currencies, the euro is weaker across the board as market participants focus on ECB rhetoric regarding fiscal balance and the Maastrict Stability Pact. ECB officials have really begun preaching the gospel of budgetary responsibility now that the outlines of stabilization have begun to take shape in economic data and Euro Zone finances remain under pressure. Over the weekend ECB Chief Trichet said the Euro Zone was at a point where additional debt cannot be accumulated, despite the extraordinary events that had previously justified expansionist budgets. Risk aversion is being driven by lower commodity prices, which suggest the market taking a more realistic look at the green shoots. The reduced forecasts from the World Bank have only added to this sense of caution.
Published on Mon, Jun 22 2009, 15:24 GMT
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U.S Market Update
Fri, Jun 19 2009, 15:20 GMT
- The absence of any US economic data has cleared the way for an overall subdued trading environment, considering it is a quadruple witching Friday. Equity indices are posting modest gains while commodities generally tick higher and the greenback languishes. US Treasury prices opened lower as yesterday's selling pressure carried through to this morning's open in Chicago, but prices have since recovered today's losses. Yields still remain a good margin away from last week's multi-month highs and are trying to recover from yesterday's mortgage back induced selling. Soothing commentary from Treasury Secretary Geithner as well as the EU after its recent summit are undergirding optimism. In addition, GM is likely to emerge from bankruptcy a month ahead of schedule, by mid July, according to press reports. Front-month NYMEX crude is up a bit, trading just under $72.
- Rochdale's Dick Bove made positive comments on Citigroup this morning, noting that he belives the bank's shares could rally as much as 28% in the near future, to $4.00/share. Shares of Citi remain in positive territory as the rest of the major banks sink into the red. The New York Times writes that private equity firm Kohlberg Kravis Roberts may cancel its plans to list on the NYSE. It was planning to merge its operation with KKR Private Equity Investors, but now it may pursue the merger without the complicated process of listing in New York.
- Research in Motion's Q1 results and Q2 forecast were more or less in line with estimates yesterday afternoon. Analysts have reacted tepidly this morning, with BoA/Merrill Lynch reiterating its prior price target of $100 and lowering its 2010 earnings estimates on the firm, while Thomas Weisel raised their PT ever so slightly. Apple is launching its 3GS iPhone today; AT&T noted that it has sold "hundreds of thousands" of the new model in preorders. Shares of Apple have held steady all week, while PALM has jumped 10% in the early going this morning. Shares of RIMM are down 2%. Carmax zoomed ahead of estimates in its Q1 report today, sending its shares up as much as 15% in early trading. A Carmax executive said that the used car market continues to be less bad than market for new cars. Smith & Wesson reloaded its Q4 revenue guidance thanks to its acquisition of Universal Safety Response, Inc, putting it well above the consensus estimates.
- UBS shined some light on the solar industry in a sector report, raising its 2010 global demand estimates thanks to the emerging recovery in China and the US. However, it lowered its solar module price estimates to near marginal cost. UBS's top global industry picks included First Solar, Wacker Chemie, Yingli & OCI Company. It rated Yingli and SunTech Power at Buy based on favorable cost structures and strong distribution. In addition, it sees SunPower as best positioned to win in the US commercial and residential markets. UBS downgraded SolarWorld, citing lower estimates for gross margin based on ASP pressure
- In currencies, the greenback maintained a tone of consolidation tone during the New York session despite firmer equities, with EUR/USD unable to capitalize on higher gold or oil prices. CAD retraced its earlier strength and moved above the 1.13 level following the weaker than expected Canadian retail sales data. The Mexican Central Bank said its easing cycle was almost over and stated that the second half of 2009 should see improvement in its economic activity. The bank cut its overnight rate by 50bps to 4.75% this morning, as expected.
Published on Fri, Jun 19 2009, 15:20 GMT
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U.S Market Update
Thu, Jun 18 2009, 15:45 GMT
- US equity indices are generally making the first real advances of the week as the blowout Philly Fed data prompts investors to buy stocks. The tech heavy NASDAQ is the notable laggard in front of tomorrow's quadruple witching and this afternoon's earnings results from RIMM. The initial jobless claims remain above the 600K level, while the continuing claims have fallen on a w/w basis for the first time in months. Some commentators believe the improvement had more to do with benefits running out for long-term unemployed rather than any uptick in hiring, however. The Philadelphia Fed provided a stark contrast to Monday's disappointing June Empire Manufacturing data, with its survey of business conditions dramatically better than expected (-2.2 V -17.0e), for the best reading since last September. Front-month crude is back above $71 in early trading.
- The brighter picture on the data front and the Treasury announcement that they would be auctioning off $104B in new coupon supply next week has brought sellers back into the bond market. The benchmark 10-year has popped back above a 4.75% yield with the long bond rate nearing 4.6% once again.
- Financial stocks are bouncing back a bit after three days of declines now that the broad outlines of the new financial regulation proposals have been made clear. However, commentators are showing some doubts about Citigroup, which many assume will not benefit from the new regulatory regime. GE Capital is also likely to face more regulation under the new system. The WSJ points out that GE's finance arm does not currently fall under the purview of a bank regulator, while under the new regulations GE Capital would likely be classified as a systemically important firm because of its size and be forced to operate under stricter regulatory oversight. Shares of GE fell as much as 5% in early trading, before heading back toward positive territory.
- Major industrial names Caterpillar and Emerson Electric disclosed order data that hardly indicates any recovery is under way for these two companies. Cat's three-month retail sales in North America fell 57%, compared with declines of 51% and 41% in April and March, respectively. Retail sales for the rest of the world fell 35% over the period, also at a faster pace than in the prior two months. Emerson said order trends improved sequentially in May from the month before, but continued to show weakness across its global markets. Emerson's three-month order rate was down 25% in May, compared with declines of 25-30% in March and April.
- In earnings, J.M. Smucker crushed analyst estimates in its Q4 report and also guided full-year earnings above expectations. The company also managed impressive y/y margin and US retail growth. Carnival Cruise Lines came in ahead of expectations in its Q2, despite higher fuel prices and disruptions from H1N1. The firm guided slightly below par for next quarter, and cut its full-year forecast slightly. Discover Financial reported a profitable Q2 thanks to a big payout from its lawsuit victory against Visa and MasterCard. Before this special item, TTN analysis suggests that the firm lost $0.15 per share in the quarter, compared to analysts estimates for a $0.30/shr loss.
- In currencies, rising risk appetite helped EUR/USD and EUR/CHF move higher following the US weekly claims data, which saw the first w/w drop in continuing claims since Jan 2nd and the largest weekly decline since Nov 2001. Overall, risk appetite improved as participants took the data at face value. The better Philly Fed and leading indicators also cemented the view that the worst of the economic crisis has past. EUR/USD tested the alleged "Chinese" 1.4000 option barrier but encountered some stiff selling nonetheless.
- The sharp move in Swiss Franc-related pairs prompted renewed chatter of currency intervention, with the Bank of International Settlements cited as the intermediary. Dealers are noting it remains unclear whether 1.50 is the clear "line in the snow" for SNB intervention. The market has significant long EUR/CHF positions, and the cross was testing the 1.5000 in early New York trading where plenty of option barriers seemed vulnerable. SNB's Jordan commented that the SNB had no fixed FX threshold. Nonetheless, the cross soared to 1.5140 on rumors of intervention, with the BIS, the SNB and the ECB all having "no comment" on whether actual intervention had occurred. Dealers are now focusing on the key resistance level of 1.5230, which corresponds to the downtrend line from the 1.6330 highs made in late July 2008.
- Oil and metals encountered a choppy session and the price movement was reflected in the AUD and CAD pairs that mirrored the commodity price action. USD/CAD tested the 1.1360 area before moving back to 1.1250. The pair was also aided by the higher-than-expected Canadian CPI data. AUD/USD is back above the 0.80 handle as rising risk appetite put oil back in positive territory.
Published on Thu, Jun 18 2009, 15:45 GMT
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U.S Market Update
Wed, Jun 17 2009, 16:10 GMT
- US equity markets are having trouble finding any real momentum one way or another this morning. European bourses remain heavy while stock prices both here and abroad have been held back by cautious comments from FedEx, a broad slate of bank ratings downgrades from S&P and a CPI reading suggesting an economic recovery is minimal at best. The May Consumer Price Index was barely positive on a m/m basis, while the y/y figure showed the biggest annual drop in the series since 1950. The data provides evidence that the recession is keeping inflation in check or that deflation is around the corner, depending on one's point of view. Front-month NYMEX crude is down again this morning, with the contract under $70 led by a decline in gasoline prices and on the back of increasing supplies.
- The CPI data has enabled bond bulls to remain in charge. Another coupon purchase from the Fed and no new supply coming to market this week has kept yields retreating. The 10-year is backed off some 40 basis points from last week's run towards 4% while the long bond is moving away from the 4.5% level. Fed fund futures continue to rebound from the selling experienced post the jobs report and now price in roughly a 40% the Fed hikes rates by the end of the year.
- The White House is expected to officially present its plan for a total overhaul of the US financial regulatory structure later today, although the broad contours of the plan have been discussed by various officials over recent days. Last night a senior Obama Administration official confirmed earlier reports that the plan would require firms that create various asset-backed securities to retain a 5% stake in their securitizations and would address money market mutual funds. This morning, White House Advisor Goolsbee told CNBC that the Fed would be tapped as a "day-to-day" supervisor of financial institutions. Note also that yesterday afternoon Senator Reed introduced a bill to regulate hedge funds, with legislation that would require hedge funds, private equity funds and venture capital funds to register with SEC.
- Financial names have been loosing ground since the open after S&P downgraded ratings and outlook on 22 US banks. S&P said that it believes operating conditions for the banking industry will become less favorable than they have been in the past, characterized by greater volatility in financial markets during credit cycles and tighter regulatory supervision. It also warned that the loss content of loan portfolios should increase, but recent capital rebuilding will likely help banks defray these losses. Most of the downgrades were for regional banks, although Wells Fargo was a notable national bank that was downgraded as well. Shares of WFC are down 5%. Regionals are getting hit across the board, with ZION and FITB leading the charge, both down around 8%. USB is a an exception, with its repayment of $6.6N in TARP funding buoying its shares. Shares of all the leading banks are in the red, with Citi and BoA down more than 5% in early trading.
- In earnings, FedEx's earnings soundly beat expectations, although revenue was well below par. The firm's guidance for next quarter was notably below analysts' forecasts; FedEx's CFO noted that the recent run-up in fuel prices would have a significant negative impact on its results next quarter. A lack of visibility on fuel prices kept FedEx from offering full-year guidance. On the conference call, the CEO said that if oil stays where it is, FedEx should recoup fiscal Q1 losses related to fuel charges in fiscal Q3 & Q4. Adobe reported in line with expectations, and offered very broad guidance ranges for next quarter. Executives said the firm's North American market has continued to stabilize, while Europe has remained weak. Scotts Miracle Gro fertilized its outlook for the full year, strengthening its earnings forecast on double-digit y/y sales increases year to date. Silicon Labs has joined other semiconductor names in raising guidance thanks to stronger consumer demand.
- Potash names are getting slammed this morning after German fertilizer manufacturer K+S slashed its 2009 sales forecast to 4-4.5M tons from 6M prior due to weak demand. The company said there were no signs of recovery in European demand, and that declining demand was putting pressure on prices. Shares of MOS, POT and AGU are down around 8% on the news mid morning, while the Frankfurt-listed shares of K+S [SDF.GE] are down a whopping 16%. Solar names are weak after Canadian Solar said it would ramp up module production to 800MW this year from its prior forecast of 620MW. CSIQ is down 8%, while solar sector ETF TAN is down 4%. Also note that Star Scientific lost a major case in its ongoing attempts to enforce patents against Reynolds American, sending shares of STSI down 80%. Star has vowed to keep fighting in this case.
- In currencies, the greenback maintained a softer tone against the euro during the New York session but continued to consolidate within a 1.3800-1.3930 range, with price action capped by sovereign names. Overall the dollar's tone weighed down by the largest annual CPI drop since 1950, cautious quarterly guidance by FedEx and the banking jitters from S&P's big move. The soft US CPI number fuelled expectations that the Fed would keep interest rates low. Risk aversion is helping the JPY firm up against most of its major pairs, with USD/JPY probing below the 96 area and GBP/JPY dipping below the 156 handle. China's Premier Wen Jiabao commented earlier that the potential economic recovery was at a critical juncture and this weiged upon equity prices and commodities. The CAD and AUD saw the bulk of their European gains erode on the back of softer oil and metal prices. NYMEX crude back below the $70/barrel while spot gold hugging the lower end of the $930/oz level. USD/CAD tested the 1.14 level for fresh 3-week highs. AUD/USD unable to retake the 0.80 level.
Published on Wed, Jun 17 2009, 16:10 GMT
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U.S Market Update
Tue, Jun 16 2009, 15:34 GMT
- US equity indices are moving sideways this morning as another round of grim industrial production data clouds out any sunshine from the mildly positive housing data. The May housing starts and buildings permits data came in slightly above estimates, rising by the biggest amount in three months. However, the May industrial production and capacity utilization data provided herbicide for green housing shoots, with both readings still in negative territory. The industrial production data showed its seventh straight month of contraction, while capacity utilization marked its fourth consecutive record low. Bearish comments from various quarters are also weighing on sentiment: Goldman Sachs Chief Economist said he still sees the potential for a market correction over next several weeks, while the American Bankers Association forecasted US unemployment peaking at 10% and above 9.5% throughout 2010. Note also that Morgan Stanley expects to repay its TARP funds sometime today. NYMEX crude has recouped its losses from yesterday on the weaker USD, with the front-month contract back over $72 mid morning.
- US Treasury prices opened to the downside after it was reported Russian President Medvedev would raise the reserve currency issue at today's BRIC meeting. But the official outline of the communiqué failed to really spook investors and another coupon purchase from the NY Fed sent prices into positive territory and yields lower. The 10-year is yield has returned towards 3.7% while the long bond offers 4.53%.
- In earnings, shares of Best Buy are down 5% after the company came in more or less even with analysts' estimates and reaffirmed its 2010 forecast. Smithfield Foods' loss was slightly less than expected, while its revenue was well below estimates. The company believes the A(H1N1) virus only had a short-term effect on US pork demand. As consumers received more accurate information about the virus, Smithfield saw domestic market conditions begin to move back to more normal levels. International markets still face some restrictions, however. La-Z-Boy was in the black in its Q4 crushing estimates for an $0.11 loss. Shares of LZB are up 15% but off their best levels.
- In other equity news, Genzyme temporarily shut down drug production at its Allston Plant after it detected a virus that impairs cell growth in one of six bioreactors at the facility. The company expects the plant to be fully operational by the end of July. Shares of GENZ fell 7% before the open and have recovered somewhat in early trading. Steelmaker Nucor essentially reiterated their earlier qualitative guidance for Q2 with hard numbers before the open. The company said its loss in the quarter would be smaller than expected, sending its shares up 4%. According to Nucor's CEO, order entry has improved in recent weeks, although the economic outlook remains very uncertain in light of the continuing structural economic challenges. Shares of Tyco are up 8% after the firm guided substantially higher than the Street for its Q3, citing additional revenue in consumer markets and undersea telecom segments.
- In currencies, the greenback was softer headed into the New York session on price movement ahead of the BRIC summit in Russia and better German ZEW data. EUR/USD tested the 1.3930 level before meeting solid selling from sovereign names in Asia. Dealer chatter of euro buy-stop orders above the 1.3950 level are safe for the time being. The BRIC draft communiqué came out just before the equity open, calling for a "diversified, stable, predictable currency system," with no mention of the role of the dollar or any supra-national currency. The statement indicates there are conflicting views among Russian and other BRIC finance officials, given that the reserve currency issue was brought up in a general sense but without any specific mention the dollar's role.
- JPY price action has been choppy as dealers continue to debate the situation at Japan's public pension fund, the worlds largest. There was news the fund might sell JGBs to cover payments; dealers were noting that this could mark the beginning of the end for Japan as a capital exporter. In addition, Japanese tax laws could encourage repatriations of funds back home. These raise question about whether you can expect the JPY to be in demand for the foreseeable future. The steady dollar during the mid-NY morning helped the energy and metals consolidate their earlier gains. The CAD and AUD currencies were paring their gains as a result.
Published on Tue, Jun 16 2009, 15:34 GMT
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U.S Market Update
Mon, Jun 15 2009, 18:10 GMT
- A big disappointment in the June Empire Manufacturing index spooked investors before the open this morning, as the survey of manufacturing conditions in the North East indicated much steeper declines than expected instead of another sign of moderation. Major US indices opened slightly to the downside and have headed steadily downwards in mid morning trading. With things looking shaky, mid-morning comments from Fed Governor Evans that there is a risk US unemployment could get close to 10% added to the downward momentum. The ECB's Papademos, Meredith Whitney, and NYU's Nouriel Roubini have added to the steady chorus of cautious commentary as well. Equity weakness and the stronger dollar have pushed front-month crude to session lows below $70. Bond markets are bid up after TICS data that showed foreign countries have yet moved to substantially cut US Treasury holdings. The US 10-year yield is back below 3.75% while the benchmark spread has narrowed back below 250 basis points.
- Treasury Secretary Geithner and White House advisor Larry Summers filled in more details on the Obama Administration's proposals to regulate derivatives and securitized products in this morning's Washington Post. According to the piece, the administration will propose that all derivatives contracts and dealers be regulated and require originators to retain interests in asset-backed securities. Systemically important firms will face "stringent" supervision by Federal Reserve and a new Council of Regulators with broader responsibility across the system. President Obama is scheduled to announce a major overhaul of financial sector regulations on Wednesday morning.
- Bank of America and Morgan Stanley are notable laggards this morning, with both down 2.5% or so in early trading. Overnight Rochdale's Dick Bove said BoA would suffer "horrific" loan losses, while the bank's May Master Trust data showed net charge offs jumping to 12.50%, versus 10.47% in April. Capital One's May Master Trust charge offs rose nearly 1% over April levels. Master Trust data from the other leading credit card issuers is expected throughout the day.
- Illinois Tool Works revised its Q2 earnings guidance slightly upwards and reaffirms its revenue growth target after deciding to keep a business segment that had been slated for divestiture.. Shares of the company are off nearly 3%, weighing down competitors Snap-On, Stanley Works and Black & Decker as well. Small semi manufacturer O2Micro joined the competition in raising guidance, citing increased demand for LCD TVs. Shares of OIIM rose 10% in the pre-market and have sustained gains in early trading. Struggling retailer Limited Brands reduced the lower end of its 2009 earnings range and predicted same-store sales would down 5% to 10% for the year. Note also that Canaccord Adams has soured on all the smartphone exuberance, downgrading AAPL, NOK and RIMM this morning.
- In currencies, the greenback has firmed up on weekend comments out of Russia to the effect that there were no plans to discuss the reserve currency issue at tomorrow's meeting of BRIC nations (Brazil, Russia, India and China). Note also that French President Sarkozy said the G20 would have to address the currency issue at some point. IMF's Lipsky commented that the USD would remain the world's reserve currency for the foreseeable future. European currencies were hampered by continued concern regarding the Continent's banking sector. EUR/USD remains in the lower quarter of its session range throughout the NY morning. Dealers are discussing the technical importance of 1.3800 in the pair, with chatter circulating of euro sell stops building up below 1.3800 down through the 1.3720 area.
- Not all the news was rosy for dollars, however. The April TIC data showed global demand for US financial assets, with China, Japan, Brazil and Russia trimming treasury holdings in a shift that may reinforce concerns that demand for American debt will wane amid record deficits and the decline of the dollar's reserve status. Risk aversion helped the JPY firm against the majors, with EUR/JPY off 200 pips at 135.50, while GBP/JPY was lower by 150 pips to test below the 160 handle during the New York session. CAD and AUD were softer as the stronger USD weighed upon most energy and metal markets. Additional weight hit USD/CAD, sending the cross below the 1.13 level after the Bank of Canada said significant stresses remain in financial markets and that risks to household balance sheets have increased since December. AUD/USD is moving back below the 0.80 handle.
Published on Mon, Jun 15 2009, 18:10 GMT
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U.S Market Update
Fri, Jun 12 2009, 15:15 GMT
- Trading is once again subdued and unsettled this morning, with US indices opening to the downside before the DJIA and S&P recovered to just short of breakeven. The Nasdaq is underperforming thanks to weakness in tech names. The preliminary June University of Michigan Confidence survey came in a hair below expectations, with both one- and five-year inflation expectations above the 3% level. Dollar strength and lots of "commodities are overbought" commentary shaved around $1.50 off the price of front-month crude earlier this morning, although some of those losses have vanished as oil heads back over $72. Bond prices remain firm following yesterday's 30-year auction, aided by comments from Japanese Finance Minister Yosano.
- Shares of BlackRock opened down 2% and then dropped to -6% the morning after consummating its purchase of Barclays investment unit for $13.5B and becoming the world's largest money manager. Threats of Congressional subpoenas have benefited Bank of America, whose shares are outperforming those of the leading banks after a top Republican official on US House financial oversight panel threatened to drag Fed Chairman Bernanke and former Treasury Sec Paulson before the committee to testify on the BoA/Merrill Lynch deal.
- Troubled insurer Hartford Financial announced a share secondary yesterday evening. The firm plans to sell $750M in common equity, or about 16.4% of its current market cap. Hartford also commented that it would accept TARP funding, although an executive qualified this statement earlier this morning, saying that the firm was still "evaluating" participation in TARP. The exec also said Hartford might take "significantly less" than the $3.4B initial authorization from May. Shares of HIG are down 8% in early trading. Principal Financial Group said last night that it had decided not to take TARP funds, citing the stabilization of the financial systems and the firm's improved capital position. Shares of PFG are down a few percent in early trading.
- Landmark legislation granting the FDA the power to regulate tobacco passed the Senate yesterday afternoon in a 79-17 vote. A nearly identical version of the bill moves to the House today, with most commentators noting that passage is virtually assured. President Obama has pledged to sign the bill. Shares of tobacco companies have not really responded to the Senate action; most believe the legislation is a net positive for the industry. In other tobacco news, there was vague chatter making the rounds yesterday that Star Scientific had reached a settlement in its long-running patent infringement suit against Reynolds American. Shares of STSI have fallen this morning, trading down as much as 10% on the rumors.
- In other equity news, shares of National Semi are off 8% despite the company reporting a smaller-than-expected Q4 loss and beating revenue targets in its guidance for next quarter. Shares of Savient Pharmaceuticals are up 50% on chatter that FDA staff have released a positive report on drug candidate Krystexxa ahead of an advisory panel meeting next week.
- In currencies, the dollar is extending its rebound from weekly lows thanks to verbal relief from reserve diversification jitters. During the Asian session, Japan said its trust in US Treasuries was "unshakable." Softer Euro Zone Industrial Production data was also cited as behind the shift in sentiment, with the numbers pointing toward continued contraction and prolonged economic weakness. The Spanish Government cut its 2009 and 2010 GDP forecast and raised its 2010 budget deficit estimate to 7.9% of GDP from 4.8% prior, and the two main Spanish unions said the government had approved an additional €17B in unemployment aid. Events like this highlight the fragility of the current incarnation of the Maastrict stability pact, which dictates a 3% debt-to-GDP ratio for most members. Also note that position squaring ahead of the G8 finance ministers conference was also a factor in the USD's firm tone.
- EUR/USD has held below the 1.40 level for the bulk of the New York session while GBP/USD is 200 pips off its Asian highs of 1.6600. USD/CAD is 200+ pips higher, well above the 1.1220 level, while AUD/USD is off 100 pips from its Tokyo open to trade below 0.81. USD/JPY remains within striking distance of breeching its August downtrend line, with a close above 99.00 set to elect some further upside dollar momentum in the pair.
Published on Fri, Jun 12 2009, 15:15 GMT
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U.S Market Update
Thu, Jun 11 2009, 15:19 GMT
- Equities continued their post-beige book rally before and then after the bell taking heart from the Fed's assertion that the slump is moderating in nearly half its districts. However indices did encounter some early resistance around 950 on the S&P keeping a lid on gains thus far. Before the open May advance retail sales came in even with estimates, at +0.5%, making for the biggest gain in the series in four months. Data was aided by consumers snapping up discounted auto deals and then paying higher prices at the pump. The initial jobless claims were a bit lower than expected, while continuing claims moved out to yet another all-time high. Front month crude continues to rally, trading above $72 after the IEA raised their monthly demand forecast.
- Sellers returned to the US Treasury markets in the early going. Talk still centered on the 4 basis point tail required in yesterday's 10-year reopening which briefly sent the benchmark yield above 4%. But following another loss of 600K jobs for the latest week buyers stepped in and yields have backed off. The long bond is only fractionally lower yielding 4.775% ahead of this afternoon's auction results.
- Ratings upgrades are moving selected financial stocks. Bank of America is up 7% after Keefe Bruyette raised the name to Outperform from Market Perform, noting that the completion of capital raising takes away a level of uncertainty surrounding the bank. Note that BoA CEO Lewis is getting grilled in front of Congress this morning on questions regarding his bank's acquisition of Merrill Lynch. Among the regional banks, Regions Financial rose as much as 9% before trading off while Fifth Third rose 6% after Goldman Sachs boosted the names to Buy from Neutral.
- Another crop of corporations sought to mold expectations by adjusting guidance ahead of earnings season. Qualcomm raised its revenue forecast for Q3 by 10% or so (but refrained from offering earnings guidance), noting that robust demand for chipsets would aid its top line. Clorox reaffirmed its forecast for 2010 and raised its dividend by a bit. Medco Health affirmed its full-year forecast. Railroad Genesee Wyoming cut its earnings outlook for next quarter thanks to declining traffic, sending its shares down 4% on the news.
- Recent comments from Boeing and Yahoo have provided insight to the two companies respective industries. Boeing dropped a bombshell mid morning, trimming its long-term 20-year demand forecast by a small amount as the airline industry continues to reduce capacity in the face of the economic crisis. Last night a Yahoo executive said that the company is seeing lots of advertising activity from mid-level customers, stating that advertising is "coming back."
- In currencies, the greenback continued to consolidate under a barrage of data, bond issues and commentary, providing good two-way price action. Nonetheless, market participants are well aware that green shots could easily be replaced by a George Constanza-style "double-dip" recession. Aiding these fears was White House Advisor (and former Fed Chairman) Volcker, who commented that prospects for a strong recovery were unlikely, despite some growth in late 2009. Volcker also added to the ongoing conversation on global reserve currencies, noting that some sort of special reserve currency would ultimately be logical but there were no practical alternatives to the dollar today or "for many tomorrows." A Goldman Sachs economist chimed in as well, noting that central banks need to hold fewer dollars and forecasted a softer dollar in the medium and long term on the growing risk of reserve diversification.
- Some key levels looking ahead for EUR/USD are in the 1.3950 to 1.4090 area. Dealers are noting that a break below 1.3800 could alter the recently constructive Euro picture. Above the 1.4150 would elect another round of Euro buy stops. The USD/JPY pair faces critical resistance line at the 99.00 area, which represents the August downtrend line.
- The Swedish Kroner (SEK) continues to get whipsawed thanks to the economic meltdown in the Baltic states. EUR/SEK tested above the 10.82 on rumors of political turmoil in Latvia; Sweden has substantial banking exposure to the former Soviet satellite. SEK sentiment was also weighed down by dovish comments from the Riksbank's Svensson, who commented that another interest rate cut (rates are at 0.50%) was possible, while the Riksbank's Wickman-Parak said low interest ratse might be necessary for a relatively long period of time
- Two notable meetings are on the horizon. Firstly, G8 finance ministers are meeting in Rome this weekend. French and German officials have commented that currencies are unlikely to be discussed at the confab. It should be noted that it is the finance ministries meeting in Rome who would provide central banks with any currency intervention orders. Then next week Brazil, Russia, India and China (the so-called BRIC countries) are set to meet in Moscow on June 16. Markets expect further talk about diversification of reserves away from the U.S. dollar. Brazil stated yesterday that it was not attempting to weaken the USD and did not benefit from a weaker USD. Russia has been the most vocal on creating a new reserve currency, while China has remained a large buyer of US treasuries this year despite inaccurate stories to the contrary. China's "diversification" steps have been to purchase many USD based commodities
Published on Thu, Jun 11 2009, 15:19 GMT
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U.S Market Update
Wed, Jun 10 2009, 15:33 GMT
- US equity indices gained a bit in the premarket, but headed lower and slipped back into the red in another morning of lighter volume and little data. Comments from various high-profile figures are competing to set the tone this morning. Goldman Sachs's CEO Blankfein, who seldom comments publicly on the economy, told reports this morning that he expects a long, protracted recession, and said that the current upturn is not the real recovery. Later in the morning, PIMCO's McCulley responded, saying that he sees green shoots and believes the recovery is for real. In comments to the North Carolina State Senate, Fed Governor Lacker said the labor market may weaken further although he is seeing evidence of consumer resilience, and predicted the recession could end later this year. Note also that Chrysler and Fiat have finalized their alliance now that the US Supreme Court has signed off on Chrysler's bankruptcy process. The company is expected to emerge from Chapter 11 very shortly. Front-month NYMEX crude nearly broke $72 in early trading after the Kuwaiti Oil Minister said OPEC may consider raising output if oil reaches $100/bbl and Gazprom's CEO warned that the oil market has pinpointed $100/bbl as the 2010 benchmark price. Spot gold continues to its inability to retake the $1,000/oz mark and has descended back into negative territory for the session, hovering around the $950.
- Treasury yields have moved out to fresh 2009 highs in the benchmark bringing 4% into view. The 10-year traded above 3.91% after a Russian central bank official was quoted as suggesting Russia is considering moving away from USTs and buying IMF bonds. This rehashed concerns sparked by Chinese comments last week that suggested they were looking at IMF bonds as well. It is worth noting that these comments were released conveniently ahead of today's 10-year note reopening from the US Treasury. At 1pm the results of the $19B sale will be announced followed by the beige book release and later on an announcement from the Fed regarding the schedule of upcoming coupon purchases.
- Shares of Citigroup are outperforming this morning after the bank launched its share exchange operation (which it first proposed back in February), aiming to convert $58B in preferred shares and other preferred securities into common shares in order to pad its capital base. The Treasury will convert about $25B of its $45B preferred investment, giving it a 34% ownership stake. According to press reports, it looks like BlackRock has managed to snatch Barclay's iShares unit out from under the nose of CVC Capital Partners. The WSJ writes that a deal may be near for BlackRock to buy the unit for $12-14B, which is a bit more than the FT targeted on June 5th. Also note that there are reports the Obama Administration has dropped plans to cap compensation at financial firms who take bailout funding, leaving the job of regulating Wall Street pay to Congress.
- Various firms are fine-tuning guidance in an attempt to get out ahead of the unsettled economic situation. Home Depot tinkered with its 2009 forecast, saying that earnings would be -7% to flat y/y (better than its prior -7% view), while revenue is still seen as -9% y/y. HD opened a few percent higher on the news. Aerospace and industrial manufacturer Barnes Group has withdrawn its 2009 guidance, citing increased uncertainty in the transport sector. Barnes shares are down 7%. Real estate giant CB Richard Ellis offered a "highly preliminary" view of its second quarter that was below expectations. Shares of CBG jumped up to 20% on the news, before trading off to +15%. Visa said it sees high single-digit growth in 2009 and believes it will return to 15-20% revenue growth in 2010, depending on the course of the crisis.
- Comments from various sources are buffeting the big chip manufacturers. Industry analyst Isuppli said that Intel's Q1 microprocessor share -2.5% q/q to 79.3% while AMD's share rose 2.3% q/q to 12.8%. The group sees Q1 global microprocessor revenue -21% y/y and sales -16% y/y. AMD's CEO echoed recent comments from the likes of Michael Dell, saying its too early to say PC market has hit bottom. He also predicted that Q4 is the earliest time for on-year revenue and PC demand growth (note just the other day Intel's CEO said he is confident the bottom has been reached in the PC market). Taiwan Semi believes the worst is over for the chip industry and expects industry growth of 5-6% in 2009, with recovery arriving in the second half of the year.
- In currencies, the greenback managed to shake off its earlier vulnerability in the choppy European session price action. Alleged comments from the French Finance Ministry, to the effect that currencies rates would not be discussed at this weekend's G8 summit, helped the pair test 1.4144 ahead of the New York session. The dollar seemed poised for a beating after Russian Central Bank First Deputy Ulyukayev commented that Russia was mulling plans to reduce its share of reserves held in US Treasuries in exchange for IMF bonds. The central banker noted that it would diversify reserves if the Chinese Yuan (CNY) became a new global reserve currency. Note that Russia's $401B of reserves include roughly 30% US Treasuries. EUR/USD retested the 1.4140 level, but failed to make a fresh session high on the Russian comments. Dealer chatter then focused on the pending IMF bond issue and debated whether there really was going to be any central bank portfolio adjustment away from treasuries and into IMF bonds. Keep in mind that the IMF has not disclosed the makeup of its pending bond issue, and it remains an open question whether they will be denominated in USD, EUR or a basket comprised of Special Drawing Rights (SDRs, which are an accounting chit only and not a circulated currency). Risk aversion returned after comments from Goldman CEO Blankfein, sending the EUR/USD probing below the 1.4000 level as oil and energy markets took note of the cautionary outlook from Goldman's chief. AUD and CAD are off their best levels, while USD/CAD is retesting 1.11, 150 pips above its NY morning lows. AUD/USD at 0.8050 after testing 0.8130 overnight.
Published on Wed, Jun 10 2009, 15:33 GMT
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U.S Market Update
Tue, Jun 9 2009, 15:36 GMT
- US stocks opened higher but have been drifting lower after the expected Treasury announcement on the banks cleared to repay TARP funds. Investors are evidently selling the news, after a buying surge late yesterday afternoon. Other cautious voices on the financial system have been heard, with Fed Governor Fisher warning again that some banks are still too big to fail and a Congressional bailout oversight panel stating that the stress tests might have to be repeated. Yale economist Robert Schiller told Bloomberg TV that "We may have a recovery, but I suspect it will be a disappointing one." Front-month crude is strong again this morning, trading up above $69 while gold is back above $950. The Greenback came under a fresh bout of selling pressure after Goldman Sachs made a technical call by the Euro against the Dollar. Yields continue to give back some of the recent gains with some steepening across the curve. The 2-year has given back more than 10 basis points from the highs yesterday to dip back below 1.3%. Later today the US Treasury is auctioning off $35B in 3-year notes.
- After the close last night, the Fed approved the capital raising plans for the 10 banks that were deemed in need of extra capital in the government's stress tests. The WSJ later reported that the Treasury would approve $50B worth of TARP paybacks this morning, while further press speculation about which institutions would be cleared to repay continued through the US open. In the end, Tresury Secretary Geithner stated just after the open of trading that 10 banks holding a total of $68B in TARP had been approved for repayment (without naming any individual firms); confirmation from the banks themselves has been hitting the wires since that time. For the record, Geithner noted that more than 600 banks have taken $199B in TARP funding.
- Since the announcement, Morgan Stanley, JP Morgan, American Express, Capital One, Bank of New York, US Bancorp, State Street BB&T Corp and Northern Trust have confirmed TARP repayments. AXP and COF are about the only names to make significant gains on the news, with the two credit card companies up as much as 4% on the news, although AXP is off its best levels. Most of the rest of these names are trading around even or in negative territory.
- Apple is trading around even in the wake of its big iPhone news yesterday. Multiple analysts raised price targets and made positive comments on the name overnight. BoA/Merrill Lynch believes the new iPhone are likely to put some near-term pressure on Research In Motion to move faster on user interface innovation, although indicated that RIMM isn't that threatened by the development. Shares of RIMM are up 2% today, while shares of PALM, which released its competing Pre smartphone last weekend, are back around even after rising as much as 5% after the open. Nuance and especially TomTom are riding Apples coattails on the iPhone news, as software from both firms are integral to the phone's speech recognition and GPS capabilities. Share of NUAN are up more than 3% today, while the Netherlands-listed shares of TomTom have shot up 15% today.
- In other equity news, Texas Instruments offered an upbeat mid-quarter update yesterday, guiding Q2 results well above expectations and saying that the semiconductor industry is making incremental improvements. Shares of TXN are up 6%, while the SMH is up 3% on the good news. Truck maker Navistar missed earnings and revenue targets by quite a bit, and slashed its 2009 forecast nearly in half. Navistar's CEO was not sunny on the economy, noting that the recovery will likely take longer than expected, leading to the worst market conditions for the firm in nearly half a century. NAV opened down 5% but has risen back into positive territory in early trading. Apparel retailers Men's Warehouse and Talbots both did markedly better than expected in Q1. MW was solidly profitable (versus expectations for a small loss), while Talbot's quarterly loss was half the expected amount. Talbot's CEO said the company saw a substantial rebound in merchandise margin from the fourth quarter and is seeing strength in key categories. Shares of MW are up 15%, while TLB is off opening highs around even.
- The greenback and commodity prices were back in sync during the New York session, reinforced by a research note from Goldman Sachs that discussed five reasons for a weak dollar, including rising risk appetite, the continued climb in commodity prices and lingering doubts about the reserve currency issue. EUR/USD moved above the 1.3900 handle as New York traders took the helm and proceeded to test above the 1.420 level before consolidating. The reserve currency question is likely to have continued momentum as the BRIC meeting later this month is expected to discuss the issue. There has been more talk about an SDR as a new synthetic reserve currency, which has in turn undermined confidence in the currently dominant reserve currency over the last six weeks. The current IMF SDR basket contains about 40% USD and 37% for the EUR, compared to the current share of about 60% USD and 30% for the EUR in central bank reserves globally.
Published on Tue, Jun 9 2009, 15:36 GMT
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U.S Market Update
Mon, Jun 8 2009, 14:50 GMT
- Equity trading is sluggish and downbeat this morning, with the three major US indices opening in the red and heading lower in the early going. With no major data releases to set the trend, investors are fretting ahead of the disclosure of which banks have been cleared to repay TARP funds. In addition, there is some tension from the Chrysler bankruptcy, as a decision is also expected soon from the US Supreme Court on whether the body will hear a challenge from a group of Indiana pension funds over the auto manufacturer's deal with Fiat or not. Front-month NYMEX crude is back above $68 after dropping as low as $67 overnight. The US Treasury curve continues to flatten with the benchmark spread moving below 250 basis points. Short term yields are ticking up with the 2-year approaching 1.38% while long term yields are lower.
- Investors are waiting for official news from federal officials on which banks will be allowed to repay TARP funds, with an announcement expected as soon as today. Various reports have indicated Goldman, American Express and JP Morgan would be among the first banks granted approval to repay government funds, while Morgan Stanley is also reportedly pressing hard to cleared as well. Shares of JP Morgan are outperforming this morning, up 1% or so while nearly all the other big bank names are in the red. Over the weekend Bank of America Chairman Massey said the board is taking a "fresh look" at the company's succession plan for CEO Lewis. This comment comes after there were press reports on Friday that the FDIC was leaning on Citigroup to oust CEO Pandit. In other financials news, Barclays said it might take a 20% stake in BlackRock as part of the latter's purchase of Barclays Global Investors.
- Apple is holding its software developers' conference today, where many analysts expect the company to roll out new, less expensive iPhone models. Any news is expected after the keynote begins around 1pmEST. Shares of AAPL are down 10% or so in early trading, while competitors RIMM and PALM are down about 2% or so. Note that Palm's Pre smartphone was launched this weekend, exclusively with Sprint.
- In other equity news, Cardinal Health fine tuned its 2009 forecast at an investor presentation this morning, guiding to the low end of its prior $3.50-3.60 range. Talbots said it would sell its J.Jill unit to private capital group Golden Gate Capital for $75M. Rambus withdrew some patents from the ITC proceedings against NVIDIA.
- In currencies, the greenback remained steady against the European pairs and consolidated its earlier gains thanks to rising shorter-term interest rates and lingering concerns over the health of European government fiscal and commercial banking sectors. The earlier S&P downgrade of Irish corporate debt is also a factor. Dealers are noting that German state-controlled bank WestLB AG reportedly came close to being shut down at crisis talks over the weekend. EUR/USD was probing the lower end of the 1.38 handle during New York trading. IMF Chief Strauss-Kahn noted that an recovery was not possible until banks are cleansed of their toxic assets and warned that a large portion of losses currently carried on banks balance sheet have not yet been disclosed. Both the AUD and CAD currency pairs were weaker and lower third portion of the session range.
Published on Mon, Jun 8 2009, 14:50 GMT
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U.S Market Update
Fri, Jun 5 2009, 14:57 GMT
- Markets are very active this morning as rumors and macroeconomic jitters roil markets. Futures ran up respectably in the premarket after the May nonfarm payrolls data came in much, much lower than expected (-345K V -520Ke), making for the smallest decline in the series since last September, coupled with the first upward revision of the back month data in nine months. But equity indices immediately gave back gains after the NY open, dropping straight into negative territory in the first hour of trade as rumors circulated that the nonfarm payrolls number had been significantly miscalculated (with speculation centering on a fishy birth/death adjustment). Labor Secretary Solis denied the rumors in a statement around 10:30amEST. By 10:45amEST indices had bounced back into positive territory. Rumors aside, the May annualized unemployment rate hit 9.4%, a bit higher than expected and now over the psychologically-important 9% level. PIMCO's Bill Gross chimed in right after the data, noting that he believes things are now worse than the government's "more adverse" scenario for unemployment used in the stress tests. Front-month NYMEX crude peeked above $70 this morning before trading back down to around $68 as strenght in the Dollar weighed on commodities.
- Trading in US Treasury markets was wild this morning as the jobs data and comments from the Fed's Lockhart sent yields flying. All eyes were on the jobs figures, but about 15 minutes before the nonfarm payrolls release Lockhart reiterated his belief that it was imperative the Fed doesn't wait too long to begin tightening and that he is neutral on the notion of increasing long term Treasury purchases at this time because it could imply "purposeful monetization." Yields were at six-month highs heading into the jobs report and surged on the much better than expected non-farm payrolls figure. Interestingly the curve flattened noticeably as 2-year rates moved up a staggering 25 basis points. The benchmark 10-year yield approached 3.9% on the spike but has since backed off to 3.8% while short term rates continue to push higher. The benchmark spread was trading at another all time high of 280bp pre data, but is now dipped back below 260bp. The Dec Fed fund future has sold off and now prices in roughly a 70% chance the Fed hikes rates at the end of the year, although Bill Gross said he doesn't see the Fed raising rates anytime soon because unemployment likely won't peak until the end of the year.
- The ADRs of Rio Tino and BHP opened up +9% and +7%, respectively, after the announcement of their game-changing iron ore JV overnight. BHP has been the big winner of the breakdown in Rio Tinto-Chinalco negations, which has Rio walked away from. Rio shareholders had been vehemently opposed to the deal with Chinalco, voicing concerns that the deal would have been a fire sale of valuable assets during a period of unprecedented market turmoil, not to mention the uneasiness over a loss-making arm of the company's biggest client (China) having access to the company's board and pricing agreements. Analysts have noted that BHP appears to have now achieved its main objective of last year's failed takeover of Rio Tinto, namely synergies at Pilbara. For an equity investment of $5.8B, BHP expects to generate $10B in savings in the near term.
- Press reports this morning discussed Apple's plans to launch a cheaper version of the iPhone at its developers conference next Monday. In addition, the WSJ writes that Steve Jobs is likely to return to work this month. Chip giants Applied Materials and Intel have been commenting on the state of the market. AMAT's CEO told the Commercial Times that there are no signs of a stable recovery in demand in the global chip market. More specifically, he said that while the decline in demand has bottomed, orders are coming only from China, not the US and Europe. Intel's EMEA Chief concurred, noting that the slump may have hit bottom, noting that he expects to see demand growth in the second half of 2009.
- In other equity news, Merck is down 2% on news that a Phase III study of its Rolofylline drug did not meet the primary or secondary efficacy endpoints for acute heart failure. Guess? is up a respectable 6% after beating revenue and earnings estimates in its first quarter earnings report. Midcap retail services firm ABM Industries is up 10%% after missing estimates slightly but reaffirming its 2009 guidance. IT services Agilysys is off 5% after a disastrous Q4 report.
- In currencies, the greenback was steady heading into the payroll data. The deceleration in job losses indicated by the data, combined with recent signs of stabilization in housing and manufacturing, may signal the economic slump is easing. Still, dealers are keeping in mind that US consumers are spending less and saving more than in quite some time. USD and JPY were initially weaker on the rise in risk appetite from the positive data; EUR/USD tested 1.4265 in the initial knee-jerk market reaction. However, the miscalculation rumors and Lockhart's comments quickly reversed USD sentiment. All in all, the USD has maintained a firm tone for most of the New York session, with the EUR/USD testing below the 1.40 handle and GBP/USD dipping below the 1.60 level.
Published on Fri, Jun 5 2009, 14:57 GMT
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U.S Market Update
Thu, Jun 4 2009, 15:39 GMT
- Investors seem indecisive this morning as US equity indices initially traded lower before lifting into positive territory. Gains are marginal at this point as stocks seem unable to build momentum in either direction ahead of tomorrow's important jobs figures. Constructive news like notable consolidation in tech is being offset by weakness in retailers post May SSS results. Initial and continuing jobless claims held little in the way of surprises, while decisions out of the BoE and ECB to hold rates steady were as expected. Front-month crude has bounced back toward the six-month highs well above $68 on plenty of comments from OPEC Secretary General El-Badri. Other commodity markets are recovering as well as sellers return in the Greenback. Grains are up 2-3%, copper +2.75%, and gold up more than 1% nearing $980. Treasury prices are slipping once again after the US Treasury announced another $65B in coupon supply for next week. The US benchmark spread at 273 basis points remains close to all time highs.
- The leading national banks are outperforming markets this morning on incremental news from the Treasury on various bailout programs. Herb Allison, who has been nominated to oversee the TARP program and replace Neil Kashkari, told Congress in his confirmation testimony that more TARP repayments were likely next week, raising hopes a big move could come out of the likes of JP Morgan, Morgan Stanley or Goldman Sachs. In addition, there's been news from PPIP. Last night the FDIC confirmed that it would not proceed with test sales of toxic assets, although the Treasury stated this morning that it would be pre-qualifying managers shortly for the Legacy Loans component of the PPIP, indicating that the program will indeed be getting underway soon. Also note that regional bank Fifth Third has been up as much as 7% in the early going after successfully wrapping up its $1B capital raise.
- In other equity news, Intel said it would acquire Wind River Systems for $11.50/shr in cash, in a deal valued around $884M. The deal is expected to close this summer, with Wind River being integrated into Intel's Software and Services Group. Commentators not that this transaction is a game changer with broad implications for the tech sector. Wind River makes software for mobile phones and in-car entertainment systems, a growth area Intel covets given the stagnation in PC and server markets. Shares of WIND are up 50% in early trading. Axsys entered a definitive agreement to be acquired by General Dynamics at $54/share, in a deal valued at $643M. Shares of AXYS are up 6%. Boeing and EADS are both up a bit after United Airlines asked from bids from the two manufacturers for up to 150 new airliners. Also note that the IATA said overnight that orders for the two firms could fall by as much as 30% in 2010.
- May same-store sales were not pretty, with many retailers reporting steeper declines than expected as consumers continue to hold back on spending. The usual suspects did manage to sustain positive gains, with discount chains FRED and ROST offering low single-digit gains, while teen-oriented mall chain ARO notably outperformed estimates by a wide margin. Discount apparel retailer TJX also managed to outperform expectations. Warehouse retailer COST slipped back into negative comps after April's unchanged reading, while BJ continued its slide into negative single-digit SSS. TGT also slipped back into negative single digits, after April's strong positive comp. All the major apparel and luxury retailers reported yet another month of abysmal negative sales. Note that WMT has discontinued monthly same-store sales reports.
- In currencies, a flurry of rumors, data and central bank decisions made for a highly volatile New York session so far. Sterling was knocked around by was the forefront of the rumors that Prime Minsiter Brown had resigned his post due the growing expense account scandals. GBP/USD fell 300 pips to 1.6100 within 10 minutes of the emergence of the rumor around 8amEST; a government spokesperson quickly squelched the rumor, prompting a mild GBP retracement to 1.6275. At about the same time as the UK PM rumors, dealers also noted that several large banks executed lots of G10 currency trades at the same time, with sources attributing the volatility to rumors that China's Chinalco would walk away from a $19.5B investment deal with Rio Tinto, unwinding related hedges. The BoE rate decision was not a big factor, with the bank leaving rates unchanged, as expected. Note as well that the Bank of Canada left its rate unchanged at 0.25%.
- The ECB also left their key interest rates unchanged, as expected. ECB Chief Jean-Claude Trichet delivered the usual comments about staff projections, reiterated that current interest rate level of 1% was appropriate although not necessarily the lowest possible rate, and also noted that prior rate cuts were still passing through to the economy. But what markets were really waiting for were details about the ECB's covered bond purchase program. Trichet said the ECB did not consider the cover bond program "quantitative easing" and reiterated that the maximum amount would remain at €60B, disappointing hopes for larger purchases. Interestingly, the ECB commented that it appreciated comments from US officials on their desire to maintain a strong dollar policy. The EUR/USD price action did encounter some swift changes within a 100 corridor of 1.41 to 1.42 handle as Trichet explained the economic, inflationary outlook and the cover-bond program. EUR/USD ended the NY morning little changed from its opening levels from Asia. It seems that dealers' overall assessment remains that the ECB is unwilling to extend themselves as a source of economic aid should the green shoots turn brown. Currency dealers continue to see key hourly support around the 1.4050/70 area.
Published on Thu, Jun 4 2009, 15:39 GMT
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U.S Market Update
Wed, Jun 3 2009, 15:34 GMT
- US equity indices opened lower this morning as the morning's ADP job data spooked investors into taking profits after two days of strength. The May ADP employment change registered a slightly bigger decline than expected, while an extra 50K in job losses was added to the prior month's data. Nevertheless, the data is still showing big improvements over the 600K+ declines seen in the first three months of the year. Fed Chairman Bernanke is testifying before Congress this morning, telling legislators that the US cannot keep borrowing indefinitely to meet spending needs and warning that tax rates must ultimately be "set at a level sufficient to achieve an appropriate balance of spending and revenues." Front-month crude is well off recent highs, down nearly $2 around $66.75.
- Last night more details emerged concerning the Fed's tweaking rules under which banks may repay TARP funds. Among other things, JP Morgan, American Express and Morgan Stanley were all specifically told to raise more capital in order to pay back TARP, less than four weeks after they were told they had enough to deal with a deeper economic slump. Goldman Sachs was not asked to raise more capital since it had raised funds in April. There have been reports that Citigroup is looking to amend common share authorization up to 60B. Back in March there were various press comments speculating that Citi would look to boost its share authorization up to 40B to fulfill an exchange of preferred stock into common stock.
- Negative guidance calls from Aetna and Valero have dragged down both names and their respective sectors in early trading. Aetna cut its 2009 forecast to $3.55-3.70 from $3.85-3.95 thanks to rising medical costs and falling Medicare revenue. Wachovia and Credit Suisse cut their ratings on the name overnight. AET is off its worst levels in early trading, but still down 8%. Other managed care names were down on the news, with CVH, CI and HUM down 3% or so today. Valero offered Q2 earnings guidance of -$0.50, which compared very unfavorably with analysts' expectations for $0.74. Valero's Q2 has been adversely affected by extended downtime at its Delaware City and McKee refineries and by the continuation of weak sour crude oil discounts and lower diesel margins. Shares VLO are down 16%.
- Homebuilders Toll Brothers and Hovnanian are both heading in the same direction in early trading despite their divergent second-quarter results. TOL cut its quarterly loss to a bare minimum (ex write downs), beating analysts' estimates by a wide margins. The firms new contracts have nearly doubled, offering homes that some of the upswing seen in certain housing data is aiding the company. Toll's CEO said it appears some buyers are beginning to re-enter the new home market. Hovnanian's loss was bigger than expected, and its metrics did not quite show the improvements seen at Toll brothers. TOL is down 6% in the early going, while HOV is -10%.
- Tech journal Digitimes reported this morning that solar cell spot prices have fallen to $1.4/watt. According to the article, Chinese and Taiwan polycrystalline manufacturers were offering spot quotes of $1.4/W at last week's Intersolar 2009 trade fair. Recent research suggests the average industry manufacturing cost is around $1.8/watt. Solar names are giving up the gains of recent days on the news, with leading solar ETF TAN -5% on the news.
- In currencies, the greenback hit choppy trading in the New York session but held its firmer position as the ADP employment report prompted risk aversion and profit-taking ahead of the ECB decision tomorrow and Friday's US non-farms payroll report. The USD was wobbly as dealers debated the authenticity of a "joint statement" issued by several Asian monetary authorities; some have noted that reporters may have compiled the statement comments that were in fact made separately. Later in the New York session the back-month revision of the ADP numbers and the failed Latvia bond auctions prompted renewed USD buying against the major European pairs, with the Swedish Kroner especially weak given Swedish lending exposure to Latvia. This was tempered by comments from Bernanke that Treasury yields are rising on both deficit concerns as well as an improving economic prospects. The inability of the USD/RUB pair to sustain any downward momentum below the 30.50 level also aided the dollar, as the move cut the aggressive appetite for euros at the Russian Central Bank in its quest to smooth out its currency basket. The commodity currencies also retraced from their recent trend helped by weaker energy and metal weakness.
Published on Wed, Jun 3 2009, 15:34 GMT
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U.S Market Update
Mon, Jun 1 2009, 15:13 GMT
- GM's bankruptcy filing, which arrived just before 8amET, is captivating the media this morning, with front pages, home pages and talking heads discussing little else. So far equities are responding well to the long-expected news, with all three leading indices opening higher and pushing out to around 2.5% gains by mid morning, extending Friday's solid gains. The DJIA was adjusted this morning, with CSCO replacing GM, and Travelers replacing Govt capital infused Citigroup; shares of CSCO and TRV are up 4% or so on the move. On the data front, April Construction Spending was much better than expected, posting its biggest monthly gain since last August, coming a hair to the positive side at 0.8% versus expectations of -1.5%. The May ISM Manufacturing reading was in line, although traders are focusing on the much better than expected prices paid and new orders component, with the latter hitting its highest level since November 2007. Commodities continue to rally, with front-month crude pushing out yet again to six-month highs around $67.50, although gold is off earlier highs, at $977.
- Little new has emerged in the flurry of GM news this morning, with most of the details disclosed previously through waves of sources, press releases, and official comments over the course of the last few weeks. To recap, GM is still expected to emerge from Chapter 11 protection (the largest industrial bankruptcy in US history) in 60 to 90 days stripped of most debt, with ownership of 60.8% by the U.S. Treasury, 11.7% by the Canadian and Ontario governments, 17.5% by the New VEBA, and 10% by unsecured bondholders. Over in Europe, Germany brokered a deal to sell GM's Opel unit to a consortium of buyers that includes Russia's state-owned Sberbank (35% stake), Magna International (20% stake) and Opel employees (10% stake). GM will retain a 35% stake in the unit. Germany is extending €1.5B in funding for the deal, although German Chancellor Merkel was keen to mention that the Opel situation is putting US-German relationship under strain. Note that there have also been multiple reports over the weekend that fellow bankrupt automaker Chrysler is expected to emerge from bankruptcy as soon as today. And also note that the CEO of auto retailers AutoNation told CNBC this morning that he believes annual auto sales will be back over 14M units in five years, up from the dismal forecasts for 9M in overall sales in 2009.
- Morgan Stanley and Citigroup have closed early on the launch of their joint venture, which combines Morgan Stanley's wealth management unit with Citi's Smith Barney division in a new unit called Morgan Stanley Smith Barney. The JV was originally scheduled to launch in Q3. Morgan holds a 51% stake in the venture, which generates about $14B in net revenue a year. Goldman Sachs has sold $1.9B worth of shares in Industrial and Commercial Bank of China, representing nearly 20% of Goldman's 4.93% stake in the Chinese bank, which is the world's biggest lender by market value. Regional bank Zions Bancorp popped 7% before the open after announcing debt and stock sales to shore up its balance sheet, although shares were down to +3% by mid morning. SunTrust also launched a $1.4B common stock sale, although shares of the regional bank are down 2% on the dilutive news.
- In currencies, the strong risk appetite sparked by China and India's PMI data continued to build in the New York session, finally weakening JPY against its major pairs. EUR/JPY and GBP/JPY exhibited several hundred pip moves in the session on the returning risk appetite. Commodity currencies held onto most of their earlier gains despite some retrenchment in the energy and metals. Canadian GDP data was a bit better than expectations, but a slight back-month downward revision prompted a modest bout of profit-taking in CAD. There has been a degree of verbal intervention from some G20 central bankers. The South African Reserve Bank's Mboweni noted that the current level in the rand could mitigate inflation, but its strength was unwelcome for balance in the economy. The Russian Central Bank's Ignatiev said there has been excessive strengthening of the ruble from the real economy's point of view. However, he vowed to maintain volatility as the ruble moved toward a free-float regime. EUR/USD ended the NY morning around the 1.42 area. Dealers are pondering whether the "threshold of pain" around the 1.50 area discussed by the German Exporter Association back in the days prior to the global recession remains intact.
Published on Mon, Jun 1 2009, 15:13 GMT
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U.S Market Update
Fri, May 29 2009, 15:24 GMT
- US equity indices are trading sideways this morning as investors contemplate mixed economic data and an imminent bankruptcy filing by GM. The GDP numbers are offering some support for the "getting worse more slowly" theme, while the U of Michigan confidence data is all green shoots. The preliminary Q1 GDP reading was a hair worse than expected at -5.7%, versus expectations for -5.5%, although it was better than the advanced reading of 6.1% back on April 29th. The third and final reading is expected in late June. The second and final University of Michigan May consumer confidence reading was a bit above expectations and a whole percentage point above the preliminary reading two weeks ago, sending the index to levels from last September. However, the May Chicago Purchasing Managers Index indicated no positive trends, coming in significantly below expectations at 34.9 (v 42e) and well below the April's surprisingly strong reading. Front-month NYMEX crude is extending its streak this morning, hitting another six-month high above $66 while gold also makes new multi-month highs nearing $980 as the Greenback remains on the defensive.
- US Treasury prices are experiencing a late-week rally after yesterday afternoon's 7-year auction results seem to have calmed the markets. After the sharp move up in rates mid-week, the benchmark 10-year yield has drifted back below the 3.55% level it was trading at ahead of the 5-year auction. The curve has flattened substantially as well with the benchmark spread narrowing more than 15 basis points from the all time highs made Wednesday afternoon. Markets seem be taking some solace in reports the Fed was not nearly as concerned about this week's rate spike as many other were. The WSJ reported that Fed officials saw the move up in rates as more a factor of an improving economy and that they remain comfortable with the currently historically low level of interest rates.
- Morgan Stanley and Citi are outperforming the other tier-1 financials this morning as investors react favorably to recent bond sales. BoA/Merrill Lynch commented on Goldman Sachs overnight, saying they believe Goldman is headed for a strong Q2 as the firm benefits from weaker competitors. The analysts also said that only JP Morgan has improved competitive position relative to Goldman in the quarter. In a development that would affect the financials across the board, the FT reported there are growing concerns that triple-A-rated mortgage backed securities could face a "cascade" of rating downgrades following remarks from S&P that it may downgrade tens of billions of dollars in triple-A-rated securities backed by real estate loans.
- In earnings, PC powerhouse Dell reported Q1 results that were largely in line with expectations. CEO Michael Dell said indicators of global IT demand remain mixed, and the broader environment is still challenging, while the CFO said he does not believe IT spending has seen a bottom. Luxury retailer Tiffany's also met estimates, and also reaffirmed its 2009 forecast in line with analysts. On the conference call, Tiffany executives said they are seeing cautious consumer spending across sales units across the board, with high-end jewelry encountering largest declines. Elsewhere in retail J. Crew blew out analyst estimates for the quarter and said it sees a modest profit next quarter (versus an expectations for a loss).
- In currencies, traders continued to see the long-term dollar outlook at a critical technical level in the New York session, with the greenback showing more weakness against the major pairs, emerging market pairs and commodity-related pairs. Concerns that major central banks and large government-backed agencies might diversify away from the dollar weighed on sentiment. Overnight comments earlier from South Korea's Pension Fund that it was looking to diversify away from the dollar and more fallout from Thursday utterance from a Brazilian minister fueled the sentiment in today's session. Attempts by US officials to downplay USD depreciation have not calmed feelings. The Fed's Fisher commented during the Asian session that the AAA sovereign rating of the United States was not at risk. Dealers are noting that USD/RUB broke below 31.00 level, triggering fresh buying in the EUR/USD pair. The EUR/USD was moving toward the 1.4150 level as the NY morning ended.
Published on Fri, May 29 2009, 15:24 GMT
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U.S Market Update
Thu, May 28 2009, 15:37 GMT
- Pre-market buying lifted US indices before the open this morning after yesterday afternoon's late selloff, but more negative housing data knocked things into the red within the first hour of trade. Equities have recouped a bit, after GM's bondholders accepting the sweetened debt-for-equity deal. The third set of housing data this week showing nothing but yellow weeds dropped this morning, with April new home sales a bit below expectations, and supply in line with the NAR's data yesterday at more than 10 months. Mortgage delinquencies surged in Q1 to 9.12%, marking the fifth consecutive month of record highs. One ominous component of the delinquencies data indicated that nearly half of rise in foreclosure starts in Q1 were accounted for by prime, fixed-rate mortgages. Front-month NYMEX crude is pushing out to fresh six-month highs towards $65 after OPEC confirmed it was on hold and weekly gasoline and crude inventories declined.
- Treasury are attempting to consolidate the large move that occurred after yesterday's 5-year auction results. Early in the floor trading session yields looked to give back some gains from yesterday's surge but the buying as been tepid. The 10-year yield is down less than 10 basis points from yesterday's high remaining above 3.65%. The benchmark spread after widening out to an all time high of 275 basis points has narrowed to 268 basis points. BAC and MS both announced bond offerings today as they look to continue to sure up their balance sheet under the watchful eye of the government, while Citigroup was forced into another FDIC backed offering.
- GM's new offer for bondholders includes a 10% equity stake in "New GM," plus warrants to buy a further 15% stake in the reorganized company. The bondholder's committee has reportedly approved the plan, calling the proposal their best option, and also noting that bankruptcy litigation would be "costly and uncertain." The US Treasury is backing the sale of toxic GM assets with $50B in DiP support, up from the $30B figure that was making the rounds yesterday.
- Various macro stories are adding weight to financials. Overnight the WSJ reported that the Fed has quietly informed banks that they will have to rely less on future earnings when determining capital raising plans, with projected revenue permitted for covering no more than 5% of their capital shortfall. According to the Journal, some banks had been planning for improved revenues to cover as much as 20% of their shortfalls. Watch out for more capital raises out of the 10 banks the Fed said needed bigger cushions after the stress tests - Wells Fargo and Bank of America topped that list, with shares of both under performing peers this morning. Moody's said the April credit card industry charge-off rate was 9.97%, for its fifth consecutive all-time high, while the credit card delinquency rate of credit card delinquency rate of 6.34% was a hair lower m/m. Moody's said these trajectories are both consistent with its revised expectations for the charge-off rate index to peak in the second quarter of 2010 at about 12%.
- Consumer-facing names are front and center this morning, including plenty of earnings and conference comments. Procter & Gamble offered widely anticipated commentary on global pricing at an investor conference, saying that it would take a "highly surgical" approach to adjusting its prices. More specifically, PG said it would lower prices on fabrics and tissues, while leaving beauty and grooming alone. In addition, it said it would use cash to maintain its credit rating and pledged to maintain a healthy dividend, while curtailing buybacks. Competitor Colgate-Palmolive also said it would use its cash to maintain its credit rating.
- In earnings, Sanderson Farms is up more than 8% after blowing out earnings and revenue estimates. The company said much of the improvement is due to production cuts and resulting reduced supply of chicken in the market. Tyson was up 4% early on these comments, but is off its best levels. Heinz is around even after reporting Q4 results in line with expectations. Wholesale warehouse Costco missed earnings estimates for a second quarter, with same-store sales markedly worse over last quarter. Shares of COST are down 4%. Discount retailers Fred's and Big Lots met or exceeded analysts estimates. FRED reaffirmed its full-year guidance, while BIG upped its slightly, although shares of both names fell into negative territory after the open before recovering to around -3%. Trina Solar is up 6% after reporting a slim profit versus expectations for a loss.
- In currencies, yen weakness continued into the New York session, with the USD/JPY pair hitting its highest levels in eight weeks at 97.24. Other JPY-related cross pulled off even stronger rallies, with EUR/JPY testing above the 135 handle and GBP/JPY probing the 155 neighborhood. Dealers are noting that demand for overseas assets among Japanese investors has been growing. The GBP price action was choppy as rumors circulated that the GKF confidence data might be weaker than the expected -27 reading expected. GBP/USD was little changed as the New York morning ended at the 1.5950 level while EUR/GBP was 40 pips higher than its opening levels in Tokyo at 0.8735. Commodity currencies remained firm, with USD/CAD at the 1.1155 level and AUD/USD holding above the 0.78 handle following the OPEC's decision to maintain its current output production with the series of 4.5M bpd of cuts that were enacted back in the Sept to Dec period. New Zealand's dollar gained was also aided by an earlier comment from S&P, which raised its outlook on the countries sovereign debt rating to stable from negative.
Published on Thu, May 28 2009, 15:37 GMT
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U.S Market Update
Wed, May 27 2009, 16:01 GMT
- US equities are trading sideways this morning as another mixed batch of housing data and plenty of caution around the financials keeps things subdued. This morning's April existing home sales data offered a different take on housing to yesterday's cloudy S&P/CS home price index. According to the National Association of Realtors, sales of existing homes were up 2.9% m/m, although there is grist for pessimistic mills in the data as well, with unsold homes up 9% from March levels, with 10.9 months of supply in the pipeline. NAR's Chief Economist said most sales are in lower price ranges, with activity just beginning to pick up in the mid-price range and high-end sales still sluggish. Front-month NYMEX crude is off its overnight highs above $63, trading mid morning around $62.50.
- Treasury prices remain lower ahead of this afternoon's 5-year note auction. Yesterday's 2-year results were quite strong but yields still pushed higher as trepidation remains ahead of the longer dated paper set for auction the rest of this week and next. The 10-year yield has moved above 3.5% sending the benchmark spread above 260 basis points. Equity, bond and even currency traders are noting that spread is rapidly approaching the all time highs above 274 basis points made back in 2003.
- At a Sanford Bernstein conference this morning, JP Morgan CEO Jamie Dimon addressed emerging concerns about commercial real estate losses, calling commercial real estate "a shoe that's dropped" and warning that losses from this area are increasing. He also said JPM was done building credit card loan loss reserves and said the firms investment banking business is doing well. Bank of America has updated investors on its capital raising program, noting that it has placed $26B under its $33.9B plan, including the conversion of $5.9B of preferred shares into around 436M shares of common stock.
- The FDIC discussed the performance of US banks in the first quarter of 2009. Profits in the quarter were buoyed by revenues at a few larger firms, but overall the credit picture remained grim as the number of banks on the brink continued to rise and consumers and businesses increasingly fell behind on their loans. Net profit at US banks was $7.6B for the quarter was down y/y but much improved from the $36.9B loss in the final quarter of 2008. FDIC's Bair said that asset quality remains a major concern, troubled tier-1 loans continue to accumulate and costs associated with these impaired assets are weighing heavily on banks.
- GM confirmed that its exchange offers to bondholders for $27.2B debt have fallen flat. Yesterday there were reports that a paltry low single-digit percentage of bond holders accepted the auto maker's to convert the debt to a total 10% ownership stake in a reorganized GM. The company needed a 90% exchange rate to consummate the deal. Overnight the WSJ reported that secured lenders may get full recovery on their $6B in loans under a proposed bankruptcy plan, with the Treasury likely injecting $50B in financing to back a GM workout. Across the pond, the German government has paused the process of selling Opel, calling offers from Fiat and Magna insufficient while also saying that a bid for Opel from China's Beijing Automotive Industry Holdings was under consideration.
- In earnings, shares of Take-Two are on a tear, up 12% in early trading after the company reported in line with Q2 expectations and reaffirmed its full-year EPS outlook. Note that TTWO guided a huge loss next quarter and also trimmed its 2009 revenue forecast. Retail names in a broad range of businesses have reported this morning. Office supplies retailer Staples met estimates, and warned that it would not provide specific sales and earnings guidance for 2009 due to the ongoing slump. Car parts name AutoZone outperformed top and bottom line estimates and increased its quarterly same-store sales. Bookseller Borders Group reported half the expected loss. Apparel names American Eagle and Ralph Lauren did notably well, with shares of both names up 5% or so. AEO met Q1 estimates and guided in line, while RL reported twice the expected earnings and beat revenue targets as well. Executives from both firms were upbeat on conference calls, with AEO's CEO saying the slump from last fall has leveled off, while RL's CEO said that sales in the second half of the year would be dominated by promotional activities. Jewelry retailer Zales offered dismal results, missing estimates across the board, with shares of ZLC down 18%.
- In currencies, various cross currents were in play during the New York session, as central banker trend, economic data and bond auctions results battled it out to dictate the overall momentum. The USD price action was mixed by the end of the New York morning ended. Earlier the USD had fallen off its best levels on dealer chatter that the US might pursue a weak dollar policy to support manufacturing. EUR/USD probed the 1.40 area before retreating back below 1.3900. ECB member Provopoulos warned that the financial crisis was still unfolding and the US existing home sales failed to provide hard data that the worst was over, given that total supply rose to 10.2 months from 9.6 last month. Other players had a lot to say about the dollar as well: PIMCO's El-Erian said no other currency could replace the USD as world reserve currency but warned that various holders might diversify their basket of holdings, while the Russian Central Bank deputy chairman reiterated the bank had not discussed plans to change the compositions of the dollar/euro basket (currently 55% USD and 45% EUR). The GBP maintained its firm tone it garnered in both the Asian and European sessions. The EUR/GBP cross moved below the 0.87 level for the first time in three months.
Published on Wed, May 27 2009, 16:01 GMT
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U.S Market Update
Tue, May 26 2009, 15:00 GMT
- US equities are seeing something of a post-memorial day rally this morning, with investors pushing the three leading indices out to impressive gains on the back of strong consumer confidence data (ignoring another grim look at housing). The March S&P/CS Home Price index was in line with expectations, although the index has fallen more than 19% in Q1, its biggest y/y decline on a quarterly basis in its 21-year history. Home prices in the 20 cities tracked by the composite index fell by 18.7% y/y in March, which is a slight improvement over the February data, marking another faint sign that things are getting worse more slowly. Still, there are no signs home prices have hit bottom in the data. Consumer confidence is showing strong improvements, with the May reading soaring to 54.9 from April's 40.8 reading. Consensus estimates were for 42.6. Front-month NYMEX crude is back above $61 after dropping below $60 early in the session. Various OPEC figures have indicated no changes to production levels will be forthcoming at the organization's May meeting later this week.
- Treasury prices opened marginally higher before moving lower in tandem with rallying stock prices. The 10-year yield is back above 3.45% while the 2-year has regained 0.9%. Later this afternoon Treasury auctions off $40B in 2-year notes in the first of three notes auctions scheduled this week. This weeks auctions are likely to see some increased attention of a two week hiatus of new supply from the US government. Traders will also be focusing on the reverse action results of the Fed's TIPS purchase due shortly. The results could shed some light on any change in inflation expectations.
- News on individual equities has been rather thin, with good news for tech and pharma names helping the Nasdaq outperform, raising its price target to $180 from $105. Canadian Solar reported a smaller than expected quarterly loss, while its revenue was disappointing. In addition, the firm cut its 2009 shipments guidance for the third time. MAP Pharmaceuticals is up more than 170% today after the company said its Phase III trial of LEVADEX migraine product candidate met all four of its primary endpoints. The NASDAQ has been the leading index today after shares of Apple were raised to Overweight at Morgan Stanley. Analysts at the firm wrote that they expect demand for iPhone sales to beat expectations in the second half of 2009.
- In currencies, the greenback consolidated its session gains during the New York morning, benefiting initially from its safe-haven status as US traders returned from the extended holiday weekend. EUR/USD tested 1.3860 before retreating to 1.3920. The euro's overall tone was soft amongst the major pairs, with EUR/GBP tested below the 0.8760 level and EUR/JPY tested 131.45. But risk appetite found traction after the May consumer confidence index beat expectations, with the survey suggesting that consumers believe the worst of the recession is over, forcing the dollar to give up its earlier gains but hold below the 1.40 handle. Commodity currencies also regain some composure as oil firmed following the US confidence data, with USD/CAD around 1.1260 after testing 1.1355 earlier today and AUD/USD looking to retest the 0.78 cent level.
Published on Tue, May 26 2009, 15:00 GMT
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U.S Market Update
Fri, May 22 2009, 15:02 GMT
- US equity indices have see-sawed this morning as skittish investors continue talk about S&P's shot across the bow of Britain's AAA sovereign rating. In the premarket investors kept up the buying seen late in yesterday's session, with trade yo-yoing into and then out of negative territory in the first hour. PIMCO's El-Erian summed up the mood on CNBC, noting that market participants are concerned about the long-term sustainability of the Federal government's balance sheet, in the light of the government's short term goals. Front-month NYMEX crude is hovering around even for the session, at $61. Front month natural gas tested $3.50, off more than $1 from the multi-month highs made less than two weeks ago.
- The downside momentum in Treasury prices resumed following the open of pit trade in Chicago. The sell off that started yesterday just before noon sent the 10-year yield above 3.4% for the first time since last November. The benchmark spread continues to trade at the widest levels in more than 7 months moving above 250 basis points.
- Investors have been eying the credit card reform bill working it way through Congress over the last few weeks. Last night the Senate passed the legislation, with its associated credit card "Bill of Rights"; the next step is a conference committee to reconcile the bills, followed by the president's virtually guaranteed signature. The WSJ's Heard on the Street wrote today that the days of easy profits for credit card names are over, thanks to the legislation and accounting rule changes that will force companies to bring large amounts of off balance sheet loans back on the books. BofA/Merrill Lynch are not so downbeat, as analysts at the firm raised their price targets on AXP, COF and DFS (although they left the Underperform ratings on all three untouched). In a related story, JP Morgan shifted a portion of its debt card users to Visa from MasterCard, affecting more than half of MA's $59B portfolio of debit card users. A MasterCard spokesperson insisted the move would not have any material impact on revenue.
- Florida bank BankUnited was shut down by the OTS and handed over to the FDIC last night, making for the largest bank failure of 2009 and the biggest hit to the FDIC since IndyMac collapsed last fall. It has reopened as a newly chartered savings bank, owned by an investor group including the Blackstone Group, the Carlyle Group, Centerbridge Partners and WL Ross & Co.
- In earnings, apparel retailers Gap and Aeropostale reported in line with estimates. Guidance from Aeropostale, which continues to dramatically outperform other mall chains with positive double-digit same-store sales, was well ahead of estimates for next quarter. Foot Locker had an impressive first quarter, beating analyst estimates by a wide margin. FL and ARO rose 5% before the open and rapidly gave up their gains after the bell, with FL plunging as much as -10% before cutting its losses. Solar names LDK and Yingli both reported much larger than expected losses, and Yingli missed revenue targets significantly. Both firms have been hit hard by the crisis and the withdrawal of various government subsidies for buying solar panels. Shares of YGE were up 5% at the open but rapidly sunk to -5% early on. LDK opened down 5% and is presently around -15%. Shares of Salesforce.com are 10% despite a strong quarterly performance, with investors evidently unhappy about weak guidance for the coming quarter.
- In currencies, concern about the implications of a potential US sovereign rating downgrade continued to weigh on dollar sentiment. Dealers are saying that the size of next week's Treasury auction as well as the ratings fears are putting any prospect of a near-term dollar recovery on ice. One dealer noted that the recent equity-dollar correlation trend might drift toward a stronger bond/dollar correlation. EUR/USD tested above 1.4000 level during the session, a level last tested back on Jan 2nd.
Published on Fri, May 22 2009, 15:02 GMT
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U.S Market Update
Thu, May 21 2009, 15:30 GMT
- The sell-off that got started yesterday afternoon following the release of the April 29th FOMC minutes has carried over to NY morning trade, with US equity indices opening down and heading lower. The downbeat message of the Fed minutes, with its outlook for a steeper GDP decline and greater unemployment in 2009, has been compounded by yet another all-time high in weekly jobless claims. The May Philly Fed Index was slightly lower than expected (although employment and inventory subcomponents were markedly better than in April). The Congressional Budget Office added its two cents, noting that its March economic forecast was too optimistic and would be revised lower. On the brighter side, Radar Logic said in March home prices rose on a m/m basis in 11 of the 25 metropolitan areas it monitors in the RPX 25-MSA, while in six more areas prices decreased less in March than in February, marking at least a less bad if not better trend in home values. Last night, former Fed Chairman Alan Greenspan said things have unquestionably improved globally, with "extraordinary improvement" in the Libor-OIS spread. The US 3-month TED spread drifted below 50 basis points.
- Front-month NYMEX crude is come off the highs of recent days, falling nearly $2 to trade around $60 eyeing the weak stock action. June natural Gas is swooning 7% to trade at $3.66 down almost a full dollar from the May high made a little more than a week ago. Weekly inventories rose by a robust 103 BCF in the latest week. Other commodities are generally lower across the board as the selling the Dollar takes a breather. Copper -4% while Corn and Wheat give back 1.5%.
- US Treasuries were the early beneficiary of weak stocks and continued momentum from yesterday's FOMC minutes. Prices have moved lower though, since the Treasury said they would be selling another $101B in notes next week. The 10-year yield is just below 3.2%.
- In tech, strong earnings reports from Tech Data, Intuit and Brocade are helping these three firms buck the trend this morning, with shares of all three up around 10% in early trading, while shares of Suntech power are getting bogged down by the firm's 20M secondary offering (12.8% of shares outstanding) despite better than expected Q1 results. Suntech managed a $0.01 per share profit and guided moderate revenue growth next quarter, outperforming results from fellow solar names JASO and SOLF earlier this week. STP's CEO said that Europe continued to be the biggest source of solar demand in the first quarter, although it expect further market diversification due to recently introduced stimulus initiatives in high potential markets.
- Another round of retailers released varying first quarter results yesterday and today. Department store retailer Stein Mart is the standout, doubling its profit on a y/y basis and blowing out consensus estimates for the quarter, despite an 8% decline in same-store sales. Note that the firm's gross margins in the quarter doubled on a q/q basis, while its effective tax rate was down significantly thanks to the deployment of various deferred tax assets. Shares of SMRT are up around 50%. On the other hand, GameStop and New York & Co. are both down more than 18% after more or less in line results. GME's guidance for the next quarter was below consensus estimates, while NWY forecasted another big quarterly loss in Q2 (versus expectations of a small profit. Shares of Buckle, Ross Stores and Barnes & Noble are up 5-8% after strong quarterly results. Note that BKS managed to cut it loss to a much smaller figure, and expects to be profitable next quarter.
- In currencies, the economic data weighed on risk appetite with some retracement of earlier sharp moves during the New York session. Sterling managed to claw its way back to only small losses sustained against the major pairs after S&P's big call as UK officials and rating agencies did their best to reassure markets about Britain's budget situation. The euro saw some of its strength whittled away as dealers focused on press speculation that Spanish regional bank Caja Madrid might skip interest payments on two bonds due to rising defaults on mortgages backing the debt, the first halt in such payments by a Spanish bank during the financial crisis. EUR/USD moved off overnight highs of 1.3839 to test the 1.3730 area during the New York morning. EUR/GBP moved off its 0.8870 highs to drift back towards the 0.8865 area. CHF was softer on chatter the Bank of International Settlements (BIS) was "checking prices" in EUR/CHF. Commodity currencies moved off their best levels as oil retreated from its six-month highs on concerns over the 'shape' of any economic recovery. USD/CAD retesting its pivotal hourly level of 1.1480.
Published on Thu, May 21 2009, 15:30 GMT
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U.S Market Update
Wed, May 20 2009, 15:35 GMT
- US equities made up for yesterday afternoon's sell off in the pre-market this morning, with all three major indices opening stronger and extending gains in the early going. Equities turned over in the wake of a National Association of Realtors report, which indicated Q1 real estate activity was -12.9% y/y and -4.88% q/q, and forecasted a continued reduction in commercial real estate activity for next 6-9 months. Front-month NYMEX crude tested above $62 to hit six-month highs before trading off a bit with equities, while gold breeched $940/oz. Commodities are getting a boost from real weakness in the greenback, with the euro, pound, loonie and Swiss Franc all making fresh multi-month highs against the dollar.
- Treasury Secretary Geithner is testifying before the Senate this morning on the financial sector. This comes after the Treasury said the vaunted Public-Private Investment Program (PPIP) would commence within the next six weeks, in line with recent comments on timing out of the White House and the FDIC. Note that yesterday the FDIC had said it might go ahead with plans to float a "pilot sale" of toxic "legacy" assets without any government financing, implying that there could be a part of the program lacking a "public" component, although the Treasury has said nothing regarding this proposal today. Geither has also noted that there is $124B of funding left in TARP. In addition, the Wall Street Journal reports that the Obama Administration is working out plans to give a Federal agency authority to police mortgages and other consumer-oriented financial products as part of the broader overhaul of financial regulation.
- Shares of Bank of America are up 8% in the early going after the company confirmed that it has sold 1.25B shares since May 8th, or just short of 20% of its market cap, worth $13.5B, in its quest to satisfy government capital requirements that emerged from the stress test. The bank also said it is considering a conversion of preferred shares to common equity as the means to raise the rest. Citi has also risen somewhat in the early going, while the rest of the leading banks have dropped into negative territory.
- In earnings, Target outperformed in the first quarter, beating earnings expectations and meeting revenue targets. Executives displayed confidence on the conference call, noting that the credit card business is improving, economic conditions seem to be stabilizing a bit. Warehouse retailer BJ's came in more or less even with expectations and guided in line. TGT is up 6%, while BJ has steadily sunk into the red after making modest gains before the open. Manufacturing giant Deere was a bit ahead of the Street, although its sales guidance for the next quarter and the rest of the year still projects big double-digit declines. HP reported in line yesterday after the close. Shares of the tech giant are headed lower in early trading, down 5% as investors focus on the firm's weaker revenue forecasts. Troubled homebuilder Toll Brothers reported preliminary second-quarter revenue results, noting that revenue was running ahead of expectations. The CFO warned, however, that numerous other aspects of the overall economy are keeping the outlook unclear at this point.
- In currencies, higher commodity prices in both energy and metals fed into broad USD weakness during the New York session. The dollar was lower against its major European, Asian and North American counterparts as several critical levels were breeched. Market participants continue to believe that the worst of the financial and global crisis is over and risk appetite continues to rise. The Portugal Finance Minister shook things up this morning, stating that the EU has no concerns over stronger a euro, also forecasting that the EU economy would hit bottom in current quarter, helping to propel EUR/USD above the 1.3650 level to test just below 1.38, its highest level since the first week of the year. Dealers are now eyeing the 1.3740 as the key short-term pivot point for insight on the directional momentum in the pair.
- The GBP/USD hit fresh 6-months highs and broke above the 200-day moving average of for the first time last July as it tested 1.5625. USD/CHF dipped below the 1.0980 level during the course of the NY morning to also retest its lowest level since Jan 5th. The loony hit fresh seven-month highs against the USD as the USD/CAD pair kissed 1.1400. Looking ahead, the focus will turn towards the BoJ policy meeting later this week and to see whether it decides to accept foreign debt as collateral for its funding operations. The BoJ is expected to upgrade its economic assessment in the upcoming monthly report. USD/JPY was at 95.30 as the New York morning wound down.
Published on Wed, May 20 2009, 15:35 GMT
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U.S Market Update
Tue, May 19 2009, 15:33 GMT
- US equity indices have seen both positive and negative territory before noontime. Headwinds remain in place, as April housing starts and building permits were both weaker than expected, hitting lows not seen since the series began in 1959. Commentators are making the best of the news, noting that slowing multi-family building starts were the culprits behind the declines, while single-family starts rose slightly on a sequential basis. However, the figures are hardly the sort of green shoots anyone is hoping for. Investors should likely take note of comments from PIMCO's El-Erian, who called slower growth the "new normal." In any case, the flood of debt and equity secondary offerings continues, with companies from across the spectrum rushing to market to raise capital. Front-month NYMEX crude nosed above $60 briefly overnight, before trading off after the open of pit trading in NY. The June contract comes off the board after the close today.
- Treasury prices have been trading lower through the morning pushing the US benchmark yield back towards 3.25%. Interbank lending rates continue to come down with the US 3-month LIBOR fixing down at 0.75%.
- Stocks of the largest US banks are behaving variably after various press reports that the US will let five or six big banks pay back TARP funds. Bank of America and Citigroup have both made 4-5% gains early on, while most of the rest of the tier-1 financials muddled around in the red before heading higher. Goldman, JP Morgan and American Express are reportedly first in line to repay, according to the FT, followed possibly by Morgan Stanley, State Street and US Bankcorp. At the JP Morgan AGM this morning, CEO Dimon also said that the government would authorize "some" TARP repayments within weeks. Note that yesterday STT priced its equity offering and raised the total deal to $2B from $1.5B (to repay TARP) at $39, and shares of the bank are still trading between $41-42 this morning. The New York Times took a look at the effect of early TARP repayments and warrant repurchases on banks and taxpayers, noting that the government holds warrants in 579 banks that could be worth $5 to $10B, depending on market conditions. On a related note, FASB approved two rules yesterday (FAS 140 and FIN 146) that could force financial firms to bring more off balance sheet assets onto their books.
- Investors are digesting another cluster of retail earnings this morning. Home Depot followed up on Lowe's earnings performance from yesterday, beating earnings and revenue estimates by healthy margins, although its full-year forecast was decidedly weaker than Lowe's, with its numbers below analysts' estimates. On the conference call, an HD executive said there has been improvement in comp transactions despite soft February sales. Shares of HD fell before and after the open, to around -6% mid morning, while LOW was down 2%, near yesterday's lows. Discount retailer TJX reported in line and reported mildly positive quarterly same-store sales, while luxury retailer Saks trimmed its quarterly loss to a figure that was much smaller than expected, although its quarterly SSS remain dismal. American Apparel's loss was higher than expected. Shares of SKS+23% are rocking this morning, while APP-19% are not. TJX is up a modest 4%.
- In tech, solar names Solarfun and JA Solar continue to be hit hard by the recession, reporting quarterly losses. SOLF's loss was slightly better than expected, while JASO lost three times the expected amount. Both firms expressed nevousness about their outlook, noting that visibility is limited. JASO withdrew its full-year earnings guidance, while JASO said its previously planned capacity expansion is still on hold. Also note that Sprint said it would launch sales of the Palm Pre smartphone on June 6th, at a price of $199 with a two-year contract. Shares of Sprint are around even, while PALM is off its worst levels after losing nearly 10%.
- Currency trading hit some turbulence following the euphoric sentiment from the European session. USD and JPY moved off their worst levels, with EUR/USD back below the 1.36 level and USD/JPY back around 96.00 after testing 96.60 overnight. Several officials uttered cautious remarks despite the recent signs of stabilization in the global economy, with the IMF's Berger noted that emerging Europe growth would not return to pre-crisis levels. Commodities took different paths during the New York session, with energy related and basic metals retreating while the precious metals retained its luster. AUD and CAD currencies held on to most of their session gains.
Published on Tue, May 19 2009, 15:33 GMT
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U.S Market Update
Mon, May 18 2009, 15:17 GMT
- Strength from the Asian and European sessions prompted by the Indian elections carried over into pre-market trading in New York this morning. All three leading US indices made strong gains before the bell after three days of relative weakness, led by the DJIA and Lowe's strong quarterly earnings. Front-month NYMEX crude is making strong gains up nearly $2 while copper prices are up more than 2%. Treasury prices are a little lower following another coupon purchase from the Fed. The 10-year yield is hovering above 3.1%.
- Various analyst moves are helping the tier-1 financials outperform this morning, lead by impressive gains at Bank of America. Shares of BoA are on fire, up more than 10% after analysts at Goldman Sachs raised the name to a Buy. Goldman said that the bank's capital raise is about half over, noting that the impact on its shares should start to abate moving forward. Note that Fitch cut its ratings on BoA's preferred stock just before the open, warning the bank could face more mortgage and credit card losses over the medium term. Wells Fargo is off its best levels this morning, after opening up 5% on news that Warren Buffet's Berkshire Hathaway had raised its stake in the bank by 16M shares (to 6.4% from 6% prior). Golman Sachs is up 3% after ratings and earnings estimate upgrades by analysts at Citigroup and JMP Securities. Analysts at JMP Securities also raised their ratings and earnings estimates for Morgan Stanley, sending its share up 3% or so in early trading. Note that Regions Financial jumped nearly 14% on takeover chatter, before trading off somewhat.
- Over the weekend GM Vice Chairman Bob Lutz told German newspaper Sonnntag that the company will not meet the Obama Administration's June 1st deadline for completing its restructuring plan. Negotiations with the UAW continue apace, however. The union is not feeling cooperative, noting earlier this morning that it strongly objects to GM plans to close US plants and increase its imports of vehicles produced overseas.
- Lowe's reported first-quarter earnings that were ahead of consensus earnings and revenue estimates, and the home improvement giant also offered guidance for the year and the coming quarter that was well above targets. On the conference call, Lowe's CEO said there are encouraging signs that the worst may be over, although the macro headwinds facing the firm remain strong for the rest of the year. Shares of LOW jumped 10% before the bell, before trading off substantially by mid morning. Shares of HD were up 6% on the news. Textron cut its full-year forecast due to dilution from its recently announced public offering, although shares of the conglomerate are still up 2%. Carnival Cruise Lines said the impact of the Swine flu panic would trim its second quarter earnings by $0.05/shr, although share of CCL are steaming higher, up 5% in the early going. Shares of Dillard's are up 18% on an impressive Q1 showing, although the retailer's outperformance was buttressed by a one-time tax gain.
- In currencies, risk appetite kept USD and JPY pairs on the defensive. EUR/USD tested above the 1.35 level while USD/JPY probed the 96.00 neighborhood. IMF Official Morsink noted that it had agreed that Hungary could tap its second loan tranche of €1.4B to sooth over fears over the Eastern European region. GBP/USD led the way higher aided by the May Rightmove house price survey which registered its largest month/month gain since Feb 2008. GBP/USD tested the 1.53 level against the USD and probed the 0.8800 level against the euro. EUR/CHF cross was steady but unable to climb higher following the SNB intervention last friday after the European close. The pair ends the NY session at 1.5120 level. Higher energy prices aided the CAD and AUD related pairs.
Published on Mon, May 18 2009, 15:17 GMT
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U.S Market Update
Fri, May 15 2009, 15:33 GMT
- US equity trading got off to an inauspicious start by focusing on weakness in Europe following a slew of disappointing GDP readings. But a preliminary May University of Michigan Confidence reading picked things up mid morning. The Michigan reading came in higher than expected, and Fed Gov Stern appeared just after the data to say that the economy is near a bottom. Note that this morning's April CPI was flat on a m/m basis, although the y/y figure fell deeper into negative territory on the heels of March's watershed negative y/y reading. But overall the sentiment following the data seems to be positive, as hopes that a small amount of inflation is a good sign for growth recovery while the highest empire manufacturing reading since Oct 2007 could be yet another green shoot. Trading definitely feels a bit tentative heading towards equity options expiration this afternoon.
- Treasury prices are lower giving back some of the risk aversion gains seen early in the week. The benchmark 10-year yield has drifted back towards 3.15%, but is still close to 25 basis points below where it entered the week. Citigroup is just the latest major financial institution looking to flex some healthiness in front of the US government following reports of a sale of 10-year non FDIC backed debt. Front-month gold is back above $930, at levels not seen since late March.
- With only two weeks to go to the government's deadline for a restructuring plan, GM looks to be close to a key deal with the UAW to slash labor costs. The Wall Street Journal is reporting that a potential deal with the union would cut hourly labor costs by more than $1B/year and reduce its $20B pledge to the UAW to cover health-care obligations in exchange for a 39% equity stake in the reorganized company. Reportedly the plan is still in flux, but the two parties could finalize terms as early as next week. In addition, the Treasury hopes to short-circuit protests from creditors by lining up deals before GM enters bankruptcy proceedings; the company is expected to begin negotiating with secured lenders soon to restructure about $6B in debt. Also note that AutoNation's CEO told CNBC this morning that Chrysler's bankruptcy process is on track to finish up quickly.
- The Treasury has extended TARP funding to the insurance industry at long last. The industry had been left out of the program at first, but last night the Treasury confirmed that four names, including Hartford, Prudential, Lincoln National and Principal Financial have been granted access to TARP. So far Lincoln is the only insurer to have confirmed its participation in the program, noting that it has be granted $2.5B in funding. Overnight Keefe Bruyette raised Harford and Lincoln to Outperform. All four names opened higher this morning but have traded off in the early going, with HIG+8%, LNC+6%, PFG+2% and PRU-2%
- Another crop of retailers reported quarterly results this morning. JC Penny and Nordstrom offered solid results meeting or exceeding analysts earnings and revenue expectations. JCP's guidance for the coming quarter and the full year remained weak, however, well below estimates, while JWN raised its 2009 earnings guidance range. JCP noted that consumer spending and mall traffic would remain weak for the rest of 2009. Apparel laggard Abercrombie & Fitch also reported this morning, offering twice the quarterly loss expected. On the conference call, ANF's CEO called 2009 a "transitional year," and finally admitted that the company would undertake price cuts, which they have resisted throughout the crisis. Shares of JWN are up 6% in early trading, while JCP and ANF are both in negative territory mid morning.
- In currency trading, the USD and JPY have retreated from their best levels after the light risk aversion resulting from European data wore off. The better-than-expected US Empire Manufacturing data and Fed Gov Stern's comment that patches of green shoots were appearing everywhere helped tamp down risk aversion. Oil and metal commodities have managed to hold steady to positive during the NY morning while European and US equities markets climbed back from earlier lows. EUR/USD is hovering around the 1.36 level while USD/JPY is drifting back above its 100-day moving average of 95.15.
Published on Fri, May 15 2009, 15:33 GMT
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U.S Market Update
Thu, May 14 2009, 15:34 GMT
- Equity indices opened a bit higher this morning despite the absence of improvement in weekly jobless claims. Analysts estimate that auto layoffs (some temporary) were a big factor in higher-than-expected initial claims number, accounting for 27K of the 637K initial claims figure, which was in line when auto-related dismissals were factored out. Note that the continuing claims data hit their highest level on record once again. The Labor Department's PPI reading said prices rose at a brisk pace in April after March's decline, driven by a surge in food costs. Front-month NYMEX crude is well below $58 after the IEA cut its world oil demand forecast for the ninth consecutive month in its monthly report today.
- Treasury prices were higher again ahead of the open of pit trade in Chicago, but have since slipped into the red. Yields are only marginally higher ahead of the third and final NY Fed coupon purchase of the week. The benchmark yield is back above 3.1% while the long bond is approaching 4.1%. There was a noticeable jump in interbank lending rates overnight with the US 3-month LIBOR surging 5 basis points to 0.85% to match the yield of the 2-year Treasury note. It is worth noting though, that it did not translate into an upward move in the TED spread.
- Yesterday afternoon the Treasury and CFTC outlined their plan to regulate over-the-counter derivative trading. The plan would set capital, reporting and margin requirements, as well as position limits on certain instruments, with the Treasury handing most oversight to the CFTC. Under the plan, the CFTC would establish an "audit trail" for the derivatives and have "clear unimpeded authority to police fraud, market manipulation and other market abuses" involving derivatives. Shares of CME have run up 20% over recent days on speculation the company would be a direct beneficiary of the move, with CME+5% after the bell today, while ICE is up 4%.
- Wal-Mart's first-quarter results are apparently not having a big impact today, with shares of WMT down a hair in early trading. The worlds biggest retailer met earnings expectations and came in a bit under revenue estimates, and guided in line for next quarter. The company noted that the stronger USD reduced reported revenue by a considerable amount. Same-store sales grew by a healthy 3%. On the conference call, WMT's CEO said he is optimistic about the long term and realistic about the short term. Kohl's reported more or less in line with expectations and upped its full-year forecast a touch. Whole Foods' earnings outperformed analysts expectations, but same-store sales are still falling.
- Power transmission engineering name URS is up 8% after beating earnings expectations by a wide margin. Oil and gas services firm WSP jumped 20% before the bell before losing ground in early trading, to around +14%, after the firm significantly outperformed Wall Street's expectations. Shares of autoparts giant Lear have been all over the map, dropping 14% before the open, climbing quickly to +10% after the bell and then diving back deep into negative territory. The company's loss was much bigger than expected, thanks to restructuring costs and big sales declines. The tone of the conference call was grim, with the CEO insisting that Lear wants to restructure outside of bankruptcy.
- In currency trading, risk appetite reappeared following the weekly claims data. The USD saw its earlier gains against the European pairs erode, but maintained its recent overall weekly range for the most part. EUR/USD was holding around the 1.36 area and GBP/USD hugging the 1.51 neighborhood. The USD/JPY pair continues to gather some technical momentum below the 96.30/50 head & shoulders neckline on the charts that has developed since early Feb. Currently the 100-day moving average providing support at the 95.10 level. The Japanese press reported that the government would likely upgrade its economic assessment in May. If true, this would be the first upgrade in three years. Dealers are noting that any upgrade would be attributed to signs exports and production are bottoming out. Overall trading has been quiet, but some rumors of bank defaults did circulate. Dealers noting that a small Russian bank did in fact default but it had few repercussions on price action.
Published on Thu, May 14 2009, 15:34 GMT
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U.S Market Update
Wed, May 13 2009, 15:22 GMT
- The weak April retail sales data is weighing down US equity trading this morning as the rally continues to flatten out in the wake of earnings season and the stress tests. The Commerce Department reported that April retail sales declined 0.4%, while economists had been expecting them to be flat. Also note that the March figure was revised downward slightly. Front-month crude has been below yesterday's highs, around $59 after OPEC noted in its monthly report that members' compliance with output cuts has slipped to the 77% from above 82%. Energy products briefly rallied following weekly inventory data from both the API and DOE which showed surprising draw downs in both crude and gasoline inventories, but any gains have been muted thus far by the weakness in stocks.
- Treasury prices are rallying for the second straight session as traders unwind a portion of the recent rotation we have seen from bonds to stocks. With no Treasury auctions scheduled this week and a third Fed coupon purchase on tap for tomorrow yields have moved decidedly lower over the past two sessions. The benchmark yield is nearing 3.1% while the long bond is sub 4.1%. Corporate debt issuance continues to explode. JPM and AXP announced non FDIC backed offerings this morning in hopes that the door to pay back TARP money will be opening up soon. We have also seen a slew of lower quality higher yielding offerings come to market over the past few sessions.
- Shares of the tier-1 US banks slipped before the open this morning as the realities of the current market have begun sinking in on investors, now that earnings and stress tests are behind us. RealtyTrac offered a dose of dismal April data, noting that US foreclosures were +32% y/y and up one percent from the prior month, hitting their highest level since the data series began in 2005. More ominously, the organization said foreclosures should only grow given that temporary freezes on the practice ended in March. Citi expanded its program to convert preferred stock to common equity, adding another 1.6B shares to the effort. Citi now plans to exchange $33B in preferred shares, up from $27.5B. The WSJ reported that the US government is looking at ways to alter compensation across the financial industry, including legislation, SEC regulation or moral persuasion. And last but not least, Freddie Mac reported a $9.8B loss and said it will need another $6B in capital from the Treasury.
- The flood of secondary offerings continues, prompting many commentators to see in the offers more evidence of some kind of temporary top in equities. BB&T priced 75M shares at $20 last night; shares of BBT opened about -10%, right above the offering price, and have gained a little ground in mid morning trading. Ford's 300M secondary priced at $4.75, with shares opening -4%, dropping briefly below $4.75 before heading up toward the $5 handle.
- Chip maker Applied Materials met analysts' diminished earning expectations, and managed to outperform revenue targets. But the company's Q2 results were weak, with gross margin retreating to 15% versus 44% y/y and its forecast for next quarter's earnings well below expectations. Intel confirmed that it is being fined $1.5B by the EU Commission. Representatives of the company took strong exception to the move, noting that the ruling ignores the reality of a highly competitive industry. Clearwire formed an alliance with Cisco to develop 4G mobile internet services. And Verizon reached a deal to sell wireline phone service areas outside its main Northeastern and Californian territories to Frontier Communications for $5.3B in Frontier stock and $3.3B in other payouts. Shares of DPS and ANN are up 5%, while M is down 5%. LIZ is down -20%.
- In earnings, Doctor Pepper Snapple beat the Street and raised its full-year forecast. Macy's quarterly loss was smaller than expected, and the company said it could beat its fairly weak 2009 forecast if the economy picks up in the second half. Ann Taylor also offered some upbeat news, guiding its Q1 loss as smaller than analysts are predicting. Liz Claiborne is not doing so well, missing across the board as sales among all its major brands continue to decline at a double-digit pace.
- The news flow from both Europe and North American popped into high gear on Wednesday, with the USD recovering some of its recent losses against the European pairs aided by a renewed sense of risk aversion. Mixed Chinese economic data, soft Euro Zone Industrial Production data and weak US retail sales data help the USD and JPY firm up in early New York trading. Dealers said the shortfall in April retail sales coupled with the downward revision in prior month was a factor, noting that the data suggested rising unemployment was prompting consumers to save more.
- EUR/USD tested the 1.3570 level but was unable to garner enough strength to make fresh weekly lows. The 1.3550 level is proving to be formidable support in the pair. JPY was broadly firmer among the majors with USD/JPY hugging the 96.00 level for the bulk of the morning. The JPY's advance against its European counterparts was even more impressive, with EUR/JPY off 80 pips at 130.80 while GBP/JPY tested below 145 level before retracing. Sterling recovered from its losses earlier in the trading day after the BoE said any economic recovery would be weaker and slower than previously suggested. GBP/USD re-approached the 1.51 area after testing the 1.5090 level. Like the euro, GBP did not make any fresh weekly low in today's sell off against the USD.
Published on Wed, May 13 2009, 15:22 GMT
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U.S Market Update
Tue, May 12 2009, 15:58 GMT
- US equity indices opened higher this morning after yesterdays sell off, but rapidly headed into the red. The National Association of Realtors disclosed sale prices of existing homes declined in 134 out of 152 metropolitan areas in the first quarter of 2009 on a y/y basis (prices rose in the other 18 cities) and the Commerce Department reporting that the US trade deficit widened for the first time in eight months. Front-month NYMEX crude spiked to hit $60 earlier in the session for the first time since last fall before trading down to around $58.70.
- The financial sector continues to react to the stress test results and the recent flood of offerings over the course of the last few days. Last night Fed Chairman Bernanke complimented the banks, saying that he was impressed by their ability to raise funds so quickly and that many tested banks are well ahead of schedule on raising private capital. Bank of America has sold a portion of its 17.4% stake in China Construction bank to a group of buyers in its ongoing quest to satisfy the US Treasury. The Bank of New York became the latest of the "all clear" stress test candidates to announce its intention to sell shares ($1.2B worth, or 3.7% of shares outstanding) in order to pay back TARP funds. US Bancorp has priced its offering of $2.5B in common stock (7% of market cap) to pay back government funding.
- Ford has launched its own share offering, including 300M shares (about 10.7% of shares outstanding) to fund payments it is required to make to the UAW's Voluntary Employee Beneficiary Association (VEBA) retiree health care trust. Over at GM, a day after the bondholder's committee said GM's latest offer, of 10% equity, must be improved materially and CEO Henderson said bankruptcy is looking more probable, the FT highlights that holders of GM's CDS could make billions if the company does file for Chapter 11, giving certain bondholders owning CDS even less incentive to negotiate in restructuring talks.
- Alpha Natural Resources said it would buy Foundation Coal in an all-stock deal valued at $2B that would create the third-largest coal producer in the United States. The board of both companies have approved the deal, after which Alpha's current shareholders would hold 59% of the combined company. Shares of FCL jumped more than 30% before the bell, to just short of the $32.73/shr consideration offered to shareholders by Alpha. Shares of ANR are in the red.
- In earnings, engineering firms Fluor Corp and McDermott topped analysts' estimates and more or less met revenue targets, although Fluor trimmed its 2009 forecast somewhat. Full-year backlogs at both firms fell slightly from last year's levels. Shares of FLR+5% and MDR+3% were up slightly in early trading. Supermarket giant Winn Dixie came in above estimates, sending shares of WINN up 20%. Shares of Fossil were up 15% on a strong quarterly report. Foreign language teaching firm Rosetta Stone reported its first quarterly reports following its mid-April IPO, with shares down 5% on the news.
- In currency trading, the greenback extended its soft tone against all majors pairs in the New York session, as lingering concerns over the revised US deficit projections issued by the budget office on Monday weighed on sentiment. Dealers are noting that Bernanke's optimistic take on the USD during the Asian session was presumably to aid funding of the even more massive budget deficits projected by the budget office revisions. The USD rebounded from its worst level as traders unwound day positions and equity markets moved into negative territory. EUR/USD tested above the 1.3700 level to void any option barriers that might have lingered there. Dealers are noting that USD/CHF might hold the key to the overall trend in the dollar, eyeing the 1.1000 area as a key pivot level.
- Sterling has maintained its positive tone, with GBP/USD managing to pop up to test 1.5350. UK claimant data was rescheduled to come out during the New York morning after a reported leak. ILO unemployment came in at 7.1% and marked largest rise in that series since 1981 while the average earning (including bonus) registered its lowest reading on record with its -0.4% performance for March. GBP/USD retraced from its best levels to end the NY morning around the 1.5250 area. Note that sovereign ratings began to resurface as a potential issue after Moody's cut Ukraine's sovereign ratings by one notch to "B2" and Fitch placed Greece's "A" rating on watch negative due to the country's deteriorating fiscal situation
Published on Tue, May 12 2009, 15:58 GMT
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U.S Market Update
Mon, May 11 2009, 15:21 GMT
- Investors have begun the week selling equities, with US stock indices opening in the red and the DJIA and S&P500 staying there through mid morning. The Nasdaq has popped into positive territory as buyers step in looking for deals after three days of relative underperformance. Front-month NYMEX crude has regained the $1 it lost overnight to trade around $58. US Treasury prices are rallying with the first of three coupon purchases by the NY Fed scheduled for this week adding to the upside momentum.
- Capital One, US Bancorp and BBT Corp launched significant share offerings (COF 13% of market cap, USB 7% market cap, BBT 10% of market cap) this morning in order to pay back their TARP borrowing. All three banks had been declared "adequately capitalized" under the government's stress testing program. Morgan Stanley arranged another $600M in support via a common equity investment by Mitsubishi UFJ, after pricing around $3.5B worth of stock on Friday. MUFG is reportedly swapping some of the preferred stock it acquired earlier for common shares. This orgy of dilution comes after Richmond Fed President Lacker said over the weekend that the Federal government should limit its aid to financial companies, as the aid could prompt excessive risk taking. Warren Buffett's Berkshire Hathaway reported a $1.5B loss after the close on Friday, thanks to a write down of its ConocoPhillips investment and unrealized derivative losses. This was the company's first loss since 2001. Buffett had already acknowledged the mistake of buying COP stock when oil and gas prices were near their peak.
- Over the weekend the NY Times published a very cautious survey of the US credit card market. According to the recent stress test results, the 19 largest US banks could see more than $82B in credit card losses by the end of 2010 under what was classified as a "worst case" scenario. If unemployment moves above 10%, losses at some banks could far exceed that level. AXP and DFS were down 5%, while MA and V were down 2% on the news.
- In earnings, satellite TV names Dish Network and close partner Echostar offered diverging quarterly results. DISH is up 15% this morning after outperforming analysts' estimates, although it also said it lost 94K subscribers (with total subscribers of 13.6M at the end of the quarter). SATS reported a small loss, sending its shares down 4% in early trading. Shares of Virgin mobile are on fire, rising more than 25% before the bell and sustaining those gains in the early going, after the firm blew out earnings estimates. In other news, Agrium raised its offer for CF Industries by 14% to $40/shr, plus stock; CF said it is considering the offer.
- In currencies, the firmer USD and JPY pairs have maintained strength against their European counterparts in New York trading. After testing above the 1.3650 level, EUR/USD hovered below 1.3590 for the bulk of the New York morning. Dealers noted that the revised US deficit projections from the White House Budget Office curbed some of the dollar's upside momentum. Several factors were cited for the stronger JPY, including press articles from the weekend insisting that the crisis in financial markets was not over. In addition, there was continued chatter that Japan's FSA might amend the FX margin requirement to curb currency speculation. EUR/JPY tested 132.05 before consolidating its gains, while GBP/JPY lost around 350 pips at one point to test 146.75 area. EUR/GBP moved back above the 0.90 level in a trend that ensued following last Thursday's BoE and ECB monetary policy decisions on quantitative easing.
Published on Mon, May 11 2009, 15:21 GMT
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U.S Market Update
Fri, May 8 2009, 14:55 GMT
- Stress test closure and better than expected unemployment data energized early trading this morning, with the leading US equity indices opening higher and leading strong gains in early trading. But some of the optimism has evaporated, as indices have rolled over and given up most of their gains in mid morning trade, with the Nasdaq dipping into negative territory. The pace of job losses slowed in April, with the non-farm payrolls reading coming in below 600K for the first time in five months. The unemployment rate fell just short of 9%, still its highest level since late 1983. Front-month NYMEX crude continues to rise, just shy of the $58 handle in morning trading.
- Now that the results of the stress tests are out and digested investors are grappling with the multitude of offerings unloaded on the market. Nine of the 19 test candidate banks are said to have enough capital to withstand a deeper recession. The other ten need to raise a total of $75B in funds to withstand potential future losses under the 'adverse scenario'. Bank of America, Wells Fargo and Citi have been told to raise a total of more than $53B, with BoA alone requiring $33.9B. BoA CEO Lewis told CNBC this morning that his bank hopes to raise $17B in common equity over the course of next week, while also insisting that BoA's ability to raise capital is better than the US government thinks, further disputing the results (last night in its official statement, the bank said the Fed's income estimates for BoA were too low). Wells Fargo announced a $6B common stock offering before the test results were even released, expanding this amount to $7.5B this morning. WFC's CEO said the offering should satisfy the government's demands (note that yesterday regulators said WFC needs $13.7B). Citi said it would expand its previously disclosed public exchange offers by $5.5B, to $33B, fully satisfying government demands. Morgan Stanley also announced a $2B stock offering ahead of the test results, expanding the offering to $3.5B this morning. In addition, MS is selling $4B in non-government supported bonds, presumably to repay TARP funds and its obligations to the Citi brokerage transaction. Shares of the major tier-1 banks are performing well this morning, with the exception of MS, which is -4%.
- There have also been several notable quarterly earnings reports out of the financials, including another round of massive losses from wards of the state AIG and Fannie Mae. AIG managed to trim its loss down to the smallest seen in the last six quarters, to a mere $4.4B. Fannie posted a loss of $23.2B and requested $19B in additional government aid. Insurance firms Allstate and Genworth Financial reported operating profits that were well below estimates and big losses after accounting for investment losses and impairments. Revenues at both companies were also disappointing.
- In other earnings, CBS surprised investors with a quarterly loss, which it said was driven by lower operating income. CBS's CEO said that beyond the downturn unusual factors impacted the comparability of its results (including various special items in prior quarters) and insisted that its Q1 report is not indicative of its full-year performance. Chipmaker NVIDIA lost a bit less than expected and beat revenue targets, although its margins are still down on a y/y basis. Video game firm Activision beat estimates and raised its full-year forecast to meet analysts' improved outlook. Auto retailer Sonic blew out the Street's EPS view (but missed revenue target). Chemical manufacturer Huntsman (-9.5%) lost twice the expected figure and missed revenue estimates by a wide margin.
- In currencies, the greenback was weaker during the New York morning in the aftermath of the payroll report. Although the headline number was better than the consensus, currency dealers were focusing on the birth/death adjustment of the data (+226K), noting that it kept the data from hitting a -700K reading. EUR/USD tested above its 200-day moving average of 1.3456 for the first time since Aug 8th. The question remains whether the pair can close above this level by the end of trading today. EUR/USD tested 1.3520 at one point this morning. CAD was firmer following the Canadian employment report, which saw almost 36K jobs created in April; in addition to stronger crude prices. Canadian PM Harper commented that there were signs that the economy might be near a "plateau" but was unsure whether additional stimulus spending was necessary. USD/CAD retested the 1.1555 level, up over 120 pips in the session
Published on Fri, May 8 2009, 14:55 GMT
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U.S Market Update
Thu, May 7 2009, 15:27 GMT
- Much like yesterday, equity indices made strong gains before the bell this morning and then traded off from the open before finding a floor. This afternoon will see the official public disclosure of the stress test results, although at this point most of the results have already leaked out in one form or another. Last night, Treasury Secretary Geithner told PBS that none of the banks being tested are at risk of insolvency, and insisted that the results to be "reassuring." Same-store sales showed some improvement among selected retailers, although commentators debate whether these count as green shoots or not. The weekly initial jobless claims were a bit lower than expected; together with Wednesday's ADP surprise, the claims data may indicate positive news in tomorrow's April payrolls reading. However, investors may be looking for "much better" rather than "less bad" from data at this point. Front-month NYMEX crude is extending the strong gains of the week, up another $1.20 in the $57 handle.
- US Treasuries continue to be at the mercy of the unwinding of previous flight to safety trades. Yesterday's strong 10-year note auction results on the back a Tuesday's decent auction have not sparked much enthusiasm surrounding demand's ability to absorb oncoming supply. Instead the benchmark yield has moved out to new 2009 highs at 3.25% as investors scramble to add risk to their portfolios. T-bill yields have also been inching higher while interbank lending rates steadily improve. The long bond is down nearly a full point yielding 4.14% ahead of this afternoon's $14B auction. Bund and Gilt futures are also lower despite the ECB's announced rate cut/new repo operations, and the BOE announcement that would be purchasing another £50B worth of assets under their QE mandate.
- General Motor coughed up a $6B quarterly loss this morning, which is at least a bit better than its $9B+ loss last quarter. But that is about the only good news for the crippled automaker, which burned through $10.2B in cash in the quarter and saw revenue fall 47% y/y. Keep in mind that the firm has already been given $15.4B in federal loans and recently asked for another $11.6B more. Bankruptcy is looking more and more likely, with the June 1st restructuring deadline around the corner, although on the conference call one exec insisted the company had to get "bankruptcy speculation behind it." GM's sorry results contrasts markedly with Ford, where CEO Mulally, who launched a major electric car initiative yesterday and said his company has sufficient resources to fund its own restructuring.
- Network hardware giant Cisco offered a solid quarterly report yesterday afternoon, with earnings and revenue slightly ahead of analysts' estimates. CEO Chambers noted that Cisco's customers are seeing stabilization in their businesses for the first time in many quarters, but also called the level of stabilization disappointing. Investors are not impressed with the results, with CSCO opening in the red and falling further in early trading. Symantec reported solid results, ex a $413M goodwill write down. The latter prompted a round of analyst ratings cuts, sending shares of SYMC down 16%, which with CSCO are dragging down the overall tech sector. Like competitor Time Warner Cable last week, Cablevision and DirectTV missed Q1 EPS estimates. But CVC opened higher and extended its gains in mid-morning trading after the company said it was mulling a spin-off of its Madison Square Garden business, with shares of CVC up 16%. Shares of DTV are in the red mid morning.
- In line with many other economic indicators, April same-store sales are showing a few green shoots of their own, with some retailers outperforming analysts estimates thanks to the warmer weather and glimmers of economic improvement. Wal-Mart led the pack, reporting April SSS of +5%, nearly twice estimates, with Costco reporting flat comps versus -6.5% estimates. Several mall chain apparel retailers also exceeded estimates (GPS -4% v -7.2%, AEO -5.0% v -7.6%e, ANF -22% v -26.5%e). However, commentators are noting that estimates were badly beaten down in the wake of all the pessimism in the first quarter, making it easy for some retailers to outperform. Luxury retailers still struggled with sharp sales drops. Shares of many retailers made gains before the open (ANF was up 12% at one point), but are generally loosing ground mid morning. Note that WMT will no longer report monthly same-store sales figures from now on; the firm plans to offer quarterly comps with earnings.
- Currency trading has hinged on European central bank decisions this morning, with dealers highly focused on more information about quantitative easing. The Bank of England left its key interest rate unchanged at 0.50%, as expected, and increased its quantitative easing spend to £100B from the £75B prior. The GBP saw significant weakness in the aftermath of the announcement, with GBP/USD falling from the 1.5170 level to test 1.5030 and EUR/GBP moving back above the 0.8800 key intra-day chart level. Over on the Continent the ECB lowered its refi rate by 25bps to 1.00%, as expected, and said it would begin purchases of euro-denominated covered bonds. EUR/USD tested lower toward the 1.3280 level following this initial round of QE, but bearish euro sentiment quickly eroded gains when the bank admitted the operation would only be €60B for now. This compares to the Fed's $300B QE spending and the BoE's £125B operation. On the press conference, ECB President Trichet stressed that the bank is "not embarking on a quantitative easing policy." After these comments the EUR/USD proceeded to test its 200-day moving average of 1.3466 before consolidated and EUR/GBP moved above the 0.8930 level. Also note that today's rotation into equities and out of bonds helped to weaken the JPY against its major pairs. The unexpected drop in US new jobless claims ahead of tomorrow's key non-farm payroll report helped increase in risk appetite.
Published on Thu, May 7 2009, 15:27 GMT
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U.S Market Update
Wed, May 6 2009, 15:42 GMT
- Equity indices opened sharply higher this morning as investors shrugged off widespread reports that the government would ask Bank of America to raise billions in additional capital and concentrated on the much better-than-expected April ADP employment reading. With the ADP small and medium-sized business sub-indices showing less weakness than expected, commentators are fixing on the report as just one more sign that the sharp declines of Q1 are moderating. However, equities traded off from the open, with some caution in the wind ahead of the expected release of stress test results as well as the government's conditions for banks to repay TARP funds. Note that tech stocks have been hit especially hard in early trading, forcing the Nasdaq into negative territory led by declines in Amazon. Front-month NYMEX crude continues to gain ground, up more than $2 to trade near the 2009 highs of $56 a barrel.
- Treasury markets remain fairly quiet with prices and yields settling into the new trading range. The 10-year note if marginally lower with yields just a few basis points from 2009 highs ahead of a $22B 10-year auction this afternoon. Both the BOE and Fed continued to buy up government bonds in two more reverse auctions this morning. Lots of trader talk is focused on the $10.6B TALF loans requested in last night's third round of auctions. That was more than the first two TALF auctions combined. Credit markets are also focusing on the increased issuance of junk paper and continued improvements in interbank lending rates as hope the government policies are continue to have the desired effects.
- Earnings season is slowly winding down, with the bulk of the most watched large- and mid-cap firms having already disclosed their quarterly results. Oil services leader Transocean missed earnings targets thanks to the overall weakness in the energy sector, although utilization and day rates held up on a q/q basis. Engineering firm Foster Wheeler came in below analysts estimates, hurt in part by FX impact. Cooper Tire's loss was smaller than expected, although tire revenues still not growing, demand remains weak and overcapacity still an issue. Canadian fertilizer maker Agrium is still getting hit by the overall collapse in demand for its products. AGU reported a small profit ex hedging losses, write downs and compensation expenses, significantly below expectations. Agrium said it remains committed to the CF Industries acquisition.
- Gaming names Las Vegas Sands and Boyd both beat earnings expectations. LVS eked out a $0.01 per share profit on an adjusted basis (-$0.14 unadjusted), and said it was still looking to sell assets to shore up liquidity. BYD reported twice the expected amount, before a big write off for acquisitions. Disney offered solid quarterly results, a bit ahead on the bottom line and a bit behind on revenue. The CEO did admit results have been impacted by the weak economy. Tech darlings Garmin and Electronic arts offered lackluster earnings; GRMN missed estimates, while ERTS's quarterly loss was smaller than expected. Revenue lagged at both firms. Shares of GRMN are down a whopping 16%, while ERTS is down 3%. Also note that Amazon's is launching its new large-screen Kindle device in New York this morning.
- In currency trading, risk appetite returned in the New York session following the better-than-expected ADP employment report. EUR/USD rebounded to move to 1.3370 before consolidating. Scandinavian currencies were firmer in the NY morning after the Norwegian Central Bank cut their deposit rate by 50bps to 1.50%, as expected. EUR/NOK was lower in the aftermath of the rate decision. Sweden's Riksbank commented that it could stimulate the economy further without cutting the repo rate to zero and noted that it would not intervene to weaken its currency.
Published on Wed, May 6 2009, 15:42 GMT
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U.S Market Update
Tue, May 5 2009, 15:16 GMT
- Equity markets are giving up a small portion of yesterday's gains as doubt creeps in ahead of Thursday's stress test disclosures. Rhetorical hedging out of Fed Chairman Bernanke also seems to be a factor; Bernanke noted that he sees a recovery coming in late 2009, but warned that even then growth would remain below potential. Spot gold tested above the $915 level for one-week highs, with dealers calling for more upside momentum if gains above the $930/oz level are sustained. Front-month NYMEX crude is struggling to maintain the $54 handle but still well within reach of 2009 highs. Treasury markets are quiet ahead of this afternoon's 3-year not auction, with prices and yields little changed.
- Financial stocks are all over the map this morning in the wake of the Wall Street Journal's front-page assertion that 10 out of 19 banks undergoing government stress tests may need to raise capital. This news comes two days before the results of the testing are due. Topping the WSJ's list of banks in need of a bigger cushion are Bank of America, Citi, Wells Fargo and a handful of regional banks. After the open this morning CNBC reported that banks would have one month to come up with a plan for raising the needed capital (which officials have said needs to come from private sources). Note that yesterday afternoon S&P put BoA, Citi and Wells Fargo on Watch Negative, along with ratings from a raft of other tier-1 and regional banks. S&P also warned that Citi and BoA would likely need more capital. Oppenheimer is damming the torpedoes this morning, choosing to upgrade Wells Fargo to outperform.
- In earnings, consumer-facing names continue to either meet or beat expectations. Retail powerhouse CVS reported Q1 results more or less in line with the Street, and said it was firm quarterly same-store sales growth as well. CVS's 2009 forecast was up a hair over last quarter's outlook. On the conference call, CVS's CEO said its retail business continues to perform at the top of the industry, but warned it is "not entirely recession-proof." Kraft Foods beat earnings estimates and miss a bit on the top line, but reaffirmed its solid full-year outlook. Executives at KFT said they are starting to see some signs of economic recovery but expect to continue seeing weakness in Central and Eastern Europe. Molson Coors destroyed earnings estimates, doubling its quarterly profit y/y, before the JV arrangement with SABMiller.
- Two of the gaming world's biggest names, Wynn Resorts and MGM, are both up substantially despite fairly weak earnings reports. Wynn slipped to a quarterly loss due to softness in its big Macau play. MGM's travails in the quarter are well known, although it chalked its quarterly loss up to double digit declines in slots and table games, with total casino revenue -16%. Occupancy was also "unusually soft" in the quarter. On the conference call, MGM's CEO said the quarter was "quite brutal" in Vegas, noting that he expects the convention business to be down 25% in 2009.
- Unlike its larger brethren last week, mid-cap healthcare are companies are outperforming. Managed-care name Health Net beat analysts' expectations and reaffirmed a 2009 forecast that was well above target. HealthSouth also beat earnings expectations and guided to the high end of its 2009 range. Two big pharma names were mixed, however. Drug distributor McKesson exceeded earnings estimates (ex a $0.22 investment write down) although revenue was a bit behind. Guidance for the full year also fell short of expectations. Generic drug power Teva's earning were in line, while revenues fell short of expectations.
- In currencies, EUR/USD moved back to retest highs from Asia around 1.3420, with risk appetite was behind the support for weaker USD and JPY, not to mention strength in energy and metals. Sterling continued to maintain a firm tone throughout the New York session, initially helped by the better-than-expected PMI contraction data for April. Additional GBP strength was attributed to a rumor circulating that UK consumer confidence would hit 50 (the consensus expectation is for 43); the data is scheduled to be released later today at 7pmET. GBP/USD tested above the 1.5160 level for the first time since early January, while EUR/GBP probed closer towards the key technical level of 0.8800 as it printed 0.8846 in the session. Take note also that the ECB's Nowotny cited "clear signs of improvement" in Eastern Europe, saying that the region would benefit from continued support from the IMF. CAD and AUD-related pairs were firmer on steady to higher energy and metal prices.
- Economic data will really pick steam up as the week progresses, especially with rate decisions on tap from the BoE and ECB on Thursday and key US employment figures coming out in the Wednesday through Friday period. The banking sector stress test results are expected to be made public on Thursday.
Published on Tue, May 5 2009, 15:16 GMT
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U.S Market Update
Mon, May 4 2009, 15:07 GMT
- Equity prices are surging higher to begin the week, with the three leading US indices making strong gains in the wake of much stronger than expected homes sales and construction spending data. The March Pending Homes Sales index rose 3.2%, making for two straight months of advances after it hit a record low in January. March Construction Spending grew slightly after five straight months of decline. Front-month NYMEX crude has sustained the big run-up seen on Friday, with prices just shy of $54. Treasury prices are slightly lower as yields begin the week finding traction above key levels for both 10 and 30-year paper. The calendar is full with 3 auctions scheduled this week as well as continued coupon purchases from the NY Fed.
- More stress test related rumors made the rounds this weekend, with the financial press reporting that Bank of America and Citigroup will raise around $10B a piece in response to the test results. Bank of America denied the reports this morning, although its denial seemed somewhat revealing, as it noted that it has not "been given a final number by the Federal Reserve." In a certain light that could mean the bank will need to raise some amount of capital. Not a word has been heard from Citi in response to the reports. Warren Buffet has been making comments about selected banks this morning, complementing BoA for its "very good" deposit collection system and saying that he expects to own Wells Fargo in five or ten years. Share of the tier-1 banks are strong, led by WFC+9%.
- In earnings, Sprint surprised investors with a small quarterly profit, against expectations for a slight loss, although the company also announced its biggest ever quarterly net loss of wireless customers. Sprint warned that an increasing number of customers may choose pre-paid services like the company's Boost Mobile product, rather than post-paid monthly wireless bills. Sprint lost a net 1.25M postpaid customers in the quarter, with executives blaming the economic pressure in its business segment for some of these losses. Cosmetics maker Estee Lauder also surprised markets, earning nearly three times the expected amount in its Q3, although its guidance was a bit more pessimistic. While executives note they are beginning to see economic improvements in the US, they expect current trends to hold through the rest of 2009. Earnings from foodservice giant Sysco and Tyson Foods were more or less in line, while the companies' revenue performance lagged expectations.
- In M&A action, Liberty Media is planning to split off its Liberty Entertainment unit and combine it with DirectTV. The unit controls assets such as the Game Show Network, FUN Technologies and three regional sports networks; the new company will be called DirecTV Group. Existing DTV holders will receive one share of DirecTV Class A stock for each share they already own. Holders of Liberty Entertainment shares will receive 1.1111 shares of DirecTV Class A for each share Liberty Entertainment. Pepsi Bottling Group rejected PepsiCo's $29.50/share acquisition proposal, calling deal "grossly inadequate."
- Currency price action was whippy in the New York session as thin conditions, lots of data and various speakers prompted a certain amount of volatility. Initially, the dollar started the New York morning on a firm footing after the ECB's Weber commented that any recovery in Germany would not arrive until the second half of 2010. These remarks followed the EU Commission's downward revisions of 2009 & 2010 GDP forecasts for the entire union as well as the smaller Euro Zone. However, continued improvements in economic data from emerging market countries helped risk appetite take the upper hand, with improving PMI data in Europe and Asia aiding the cause of risk (China and India PMI data moved above 50, suggesting growth). In addition, Brazil's April trade balance beat expectations with exports rising more than expected. Commodities were firmer across the board in both metals and energy and the CAD and AUD pairs reflected this strength. EUR/USD tested the 1.3211 level in early New York trading before moving back towards its Asian session highs of 1.3347. USD/CAD was set for its first daily close below its 200-day moving average in almost 12 months, around 1.1770.
Published on Mon, May 4 2009, 15:07 GMT
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U.S Market Update
Fri, May 1 2009, 15:27 GMT
- US equity trading was mixed this morning after a notably lower session in the early going. Things picked up more or less where they left off yesterday afternoon, continuing the post-Chrysler bankruptcy slide to the downside. More green shoots seen in data momentarily took things higher, with better-than-expected final University of Michigan Confidence and April ISM Manufacturing numbers. Traders are paying attention to the much improved new orders component of the ISM data. Note that the U of Michigan Confidence index registered its largest one-month increase since October 2006. Then mid morning CNBC announced that the Treasury had pushed the release of the stress tests back to May 7th, noting that the publicly available information will include capital needs for each bank and estimated losses for certain loan categories, which has helped the DJIA nearly recoup its losses for the day. Front-month NYMEX crude is pushing out to its highest level of the week, gaining a $1.50 to test over $52. Yesterday closed out a very strong month of trading, with the DJIA up 685 points (+9%) in April, the Nasdaq up 212 points (+14%) and the S&P500 up 79 points (+9.9%).
- Citigroup has finally chosen a buyer for its Japanese retail brokerage operation, Nikko Cordial Securities, ending its attempts to build a full-service operation in Japan. Sumitomo Mitsui will buy the unit for ¥774.5B ($7.9B) and also tie up with Citi in a wholesale and investment banking alliance. The deal is expected to close at the beginning of October.
- Earnings from insurance giants MetLife and Hartford Financial fell short of expectations, with both names missing estimates on the bottom line as weaker markets cut into their businesses across the board. Hartford has been much harder hit than Met, with the firm reporting its third consecutive quarterly loss and slashing its full-year forecast to a broad range that's just above breakeven at its lower end. The company is severely limiting its overseas activities, suspending writing new business in Japan and the UK, and putting on ice plans to launch sales in Germany. Note that MasterCard's earnings were better than expected, although on the conference call an executive did warn that the firm's 2009 revenue growth would fall short of its annual long-term growth target of 12%.
- Dow component and second-largest US oil company Chevron beat the Street this morning, with revenues well ahead of estimates. Quarterly profit was down 64% y/y, making for an even steeper drop than Exxon's 58% y/y profit drop yesterday. Like the rest of the energy sector, the firms are dealing with what various OPEC officials refer to as the reality of $50 crude. Note that Reliant Energy is down more than 15% after completing the sale of its Texas retail business to NRG.
- In other earnings, consumer names Dean Foods, Fortune Brands and Chiquita offered strong quarterly earnings, with all three firms beating analysts' EPS expectations. Full-year guidance at the three was firm and without surprises. Shares of DryShips are up 14% after the firm exceeded expectations and provided insight into their operations. Shares of Manitowoc have been hoisted up 20% on a very mixed earnings report, with the firm beating on an adjusted basis (and in the red thanks to hefty impairment charges).
- International data is aiding the climate of risk appetite: China's April PMI Manufacturing came in at 53.5, compared to the prior reading of 52.4, for its highest level in a year and the second consecutive month of expansion. European PMI readings in Ireland, UK and Denmark also improved on prior readings. Note that the US PMI manufacturing continued this trend as well, with a 65.1 reading above the 61.9 estimate. But these hopeful figures are being balanced by chatter that the EU Commission will forecast a 6.0% deficit-to-GDP for EU bloc for 2009, with a forecast of 3.9% for Germany and 8.6% for Spain. The Maastricht Treaty binds most EU member states to maintain debt-to-GDP ratios of 3.0%. EUR/USD ending the NY morning at 1.3250 area and little changed from opening levels in Tokyo. USD/CAD is again testing its 200-day moving average at 1.1855, failing to sustain any momentum below that level. That specific moving avg has not been breached since late May 2008.
Published on Fri, May 1 2009, 15:27 GMT
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U.S Market Update
Thu, Apr 30 2009, 17:32 GMT
- Equities are advancing in part thanks to positive data and a flood of earnings reports to decipher. The Labor Department said initial jobless claims fell to 631K last week, down from the prior week's 645K, providing more evidence that declines are at least pausing. Note that continuing claims surged to their highest level since 1982. The Chicago purchasing data was also much higher than expected, with big gains in both the new orders and employment components.
- While the any official announcement on Chrysler is is not yet out, President Obama is expected to speak on the auto sector at noonET, with hardly anyone doubting that Chrysler will enter bankruptcy today. Chrysler executives struggled to extract an agreement with its lenders until the very last minute, trying late yesterday to get its lenders to accept around 30 cents on the dollar for their collective $6.9B in debt, but apparently the bondholders see better chances in court. White House aides have indicated that the bankruptcy would be a brief affair, lasting only one or two months. There were also reports circulating yesterday that Fiat would sign its alliance deal with Chrysler today, with an Italian newspaper reporting earlier this morning that the deal had already been signed. Fiat has denied these reports, however. Negotiations with the UAW and bondholders continue over at GM. This morning the bondholders countered GM's latest offer (involving a debt for equity swap and the UAW owning 39% of the company), calling for an allocation of new GM equity equally across the board to union VEBA and GM bondholders, pro rata to the level of financial obligation owed to each by GM, with no cash component and no government equity stake.
- Shares of the leading financials made modest gains but have been losing ground early on. Bank of America's Ken Lewis has managed to keep his position of CEO, although shareholders stripped him of his title of chairman. Note also that the FBI is probing possible accounting violations at Freddie Mac, examining whether the firm delayed the recognition of billions of dollars of losses. Visa is up 5% after coming in ahead of analyst estimates and reaffirming its 2009 forecast.
- Major health insurance name Cigna missed on earnings and revenue this morning, sending its shares down 4% in early trading. General insurer Travelers' revenue came in below par, and the firm's full-year forecast was disappointing, sending its shares down 5%. Cardinal Health is trading around even after reporting in line with expectations.
- Dow Chemical is up nearly 20% after surprising investors with a quarterly profit of $0.20/shr (ex items), against analysts projections for a $0.21 loss, although revenue was well below estimates. The CEO noted that there are some signs that the pace of global economic decline is moderating, but still expects the global economy to remain in recession all year. Energy titan Exxon is down a few percentage points after reporting a 58% y/y decline in net income and missing earnings estimates, thanks to the global slowdown and sharply lower commodity prices.
- A handful of major consumer-facing names reported yesterday and this morning, including Kellogg, Colgate-Palmolive, Procter & Gamble, Safeway and Starbucks. Dow component PG is under pressure this morning despite a more-or-less in line earnings report, including a much improved revenue outlook for the year. On the conference call, executives said destocking has been a factor and should continue to be for another quarter. Competitor Colgate is also down slightly after an unremarkable quarterly report. Kellogg and Starbucks are both up around 10% after outperforming the Street by slight margins. Shares of supermarket giant Safeway are down nearly 10% after the company missed estimates and cut its guidance. Also note that Revlon was up as much as 25% before the open before it fell to around +10%, thanks to an unexpectedly large quarterly profit (versus a projected loss).
- In currencies, dealers noted a change in sentiment as the New York session commenced, with the euro turning softer in the wake of the April Euro-Zone unemployment data, which hit its highest level in 2-1/2 years, at 8.9%. EUR/USD retested the 1.3200 level after probing near 1.34 earlier today. Employment should remain the Achilles heel of the euro, given that it is considered a lagging indicator. Some of the Euro retracement was also attributed to rumors of discord inside the ECB ahead of its May 7th policy meeting. Dealers were discussing word of bickering over which non-standard measures should be implemented. Trichet has reportedly imposed a vow of silence on Governing Council members ahead of the meeting. Around the globe the rhetoric from both government and central bank officials has been more upbeat, with plenty of assertions that the worst of the global recession is over and that green shoots are appearing. The GBP/USD fell short of retesting the 1.50 handle, where some considerable GBP selling emerged earlier this month.The USD/CAD bounced off support seen around its 200-day moving average of 1.1847 (last violated back in early Jun of 2008). Currently the pair is seen consolidating with resistance pegged at 1.1970/90 level. Weaker energy and metal price action did little to derail the recent positive momentum for the commodity-related currencies.
Published on Thu, Apr 30 2009, 17:32 GMT
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U.S Market Update
Wed, Apr 29 2009, 16:40 GMT
- Investors are looking beyond today's GDP reading, with all three leading US equity indices opening higher for the first time this week and pushing out to two-week highs in early trading. Risk appetite seems to be building ahead of this afternoon's FOMC decision as well. The advance Q1 GDP reading was worse than expected, at -6.1% versus -4.7%, though notably it is only the first and least complete of three GDP readings for Q1. Investors are apparently taking the good news where they can find it, focusing on data from the reported showing 2.2% growth in customer spending and a 3.4% decline in inventories. Note that front-month NYMEX remains around $50.80, well above yesterday's lows.
- Executives from Bank of America and Morgan Stanley are facing off with investors at annual general meetings this morning. Both Morgan Stanley CEO John Mack and BoA CEO John Lewis have been under fire from various quarters for their performance during the crisis; the media has widely speculated that shareholders will try to strip Lewis of his chairmanship or even his place as CEO. So far this morning, Lewis has defended the Merrill Lynch and Countrywide acquisitions, reiterating that they were not missteps. At Morgan Stanley, CEO Mack said the firm had reduced leverage to 11.4x from 32.6x and reduced balance sheet by close to $350B. Note that Wells Fargo's AGM was yesterday evening, during which shareholders rejected proposal in to require an independent chairman. WFC's CEO insisted the firm is not a "zombie bank." In other finance sector news, analysts at Fox-Pitt Kelton raised US banking sector to neutral from sell, citing improving valuations, better loan loss reserves and fewer non-performing assets. And Moody's reported better-than-expected earnings and revenue, and reaffirmed its 2009 earnings guidance.
- Health insurance giant Aetna and pharmacy benefits manager Medco Health reported solid quarterly results this morning. Both firms met earnings estimates and reaffirmed their 2009 forecasts, while Aetna beat revenue targets. But Medco warned that rising job cuts among its employer customers is still a concern, while Aetna said layoffs and increased Cobra membership were a threat. Shares of MHS are down 4%, while AET was making fresh lows around -9%. Pfizer takeover target Wyeth had a good quarter, with Q1 earnings better than expected and revenue just a hair below targets. Wyeth noted that integration with Pfizer is on track.
- Consumer-facing names Burger King and tobacco firm Reynolds American offered quarterly results in line with expectations. However BKC missed estimates in its guidance for next quarter and trimmed its full-year forecast a bit, noting that worldwide sales rapidly decelerated in the month of March. Reynolds discussed the impact of new excise taxes, noting the big increases that took effect April 1 disrupted shipments in the quarter, leading to significant reductions in wholesale and retail inventories and higher-than-usual industry volume declines. BKC is up 4% mid morning, while RAI is up 2%.
- The recession is taking its toll on big media, as seen in results from IAC/Interactive and the Time Warner companies. IACI swung to a loss in Q1 after Q4's solidly profitable results. The firm's media and advertising revenue fell 22% y/y, in line with the broader industry. Time Warner was firmly ahead of the Street on the bottom line in Q1, despite big declines at AOL and overall weakness in the sector, noting that better results at its cable properties offset other losses. Time Warner Cable missed on earnings but met revenue targets, and affirmed it would earn $3.00/shr this year, firmly in line with expectations. The company is still evaluating its options for AOL, noting it will most likely spin off parts of the unit over time.
- In currency trading, the price action seen in the European session extended into the New York morning. One dealer observed that the yield on the US 10-year bond and GDP price index are morphing together at 3%. The EUR/USD continues to be attracted toward its key resistance level of 1.33. For the time being the market is discounting the cautious growth comments out of the Euro-Zone. ECB's Weber reiterated the view that Q1 GDP for the region was likely to be worse than the -1.5% reading seen back in Q4. He did note that the pace of economic deterioration was likely to slow. Germany officially cut its GDP estimate for 2009 and now sees growth contracting by 6% from it prior forecast of a 2.25% contraction. Germany also commented that it saw its economy stabilizing later this year. UK's Chancellor Darling said the UK economy seen growing by end of year and complemented with modest growth in 2010. Commodity currencies are maintaining a firm tone, with USD/CAD moving back towards the 1.20 handle and AUD/USD back above the 0.72 cent level.
Published on Wed, Apr 29 2009, 16:40 GMT
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U.S Market Update
Mon, Apr 27 2009, 15:09 GMT
- Equities began the morning with a touch of Swine Flu, as nervousness over a potential global pandemic spread from trading in Asia and Europe to the United States. The major US indices opened lower on the flu news but quickly managed to move back into positive territory as investors focused on the morning's decent corporate earnings. The World Health Organization (WHO) moved forward an emergency meeting about the flu to today from Tuesday. Note that travel and tourism stocks have been hit especially hard in early trading, with the major US airline stocks down around 15%, hotel names Marriot and Starwood down 6% and 10%, respectively, and Royal Caribbean is down 16%. Front-month NYMEX crude has erased Friday's gains to trade around $49. Treasury prices opened firmer on the equity weakness and concerns surrounding the Flu breakout, but yields have been trending higher following the open of pit trade. The benchmark is moving back towards 3% post the latest reverse auction results from the NY Fed and ahead of this afternoon's $40B 2-year note auction.
- GM announced yet another round of restructuring plans this morning, including more plant closures and a renewed offer for the company's bondholders. This is apparently the last stop for bondholders, with GM offering 225 shares for every $1,000 in notes and warning that if 90% of bonds are not tendered by June 1, it will file for bankruptcy. Note that at GM's current share price of $1.80, the offering would make for a haircut of approximately $0.60 on the dollar for bondholders. The plan includes closing at least six plants, reduce U.S. hourly employment to 40,000 in 2010 and Canadian hourly workers to 4,400 by 2014. But even then, GM would still need another $9B in Federal funding after June 1.
- Earnings from Verizon, Humana and Corning have been better than expected. Verizon came in a bit ahead of analyst estimates, and reported strong gains in wireless and FiOS subscriber additions on a q/q basis. On the conference call, Verizion's CFO expressed strong optimism regarding future performance. There had been reports overnight that Apple was talking with Verizon about launching iPhone service as soon as 2010, but executives refused to confirm or deny the reports. Humana also beat earnings and revenue targets slightly, and also raised its 2009 forecast. Corning reported very strong earnings, and said volumes would increase with strength next quarter. Qualcomm reported a loss due to litigation and various other charges. But the tech firm's guidance for the coming quarter and the full year was very strong, helping the name rise 7% in early trading.
- In currency trading, the USD and JPY consolidated earlier gains during the NY morning in an environment of risk aversion thanks to the Swine Flu. Dealers took noting of some EUR/JPY charting opportunities and saw a potential H&S top formation developing. Dealers are eyeing the key support and neckline at the 126.00 level with measured move objective of some 800 pips. CAD is firmer in the session despite lower energy and commodity prices, making it way back toward the lower end of the 1.20 handle.
Published on Mon, Apr 27 2009, 15:09 GMT
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U.S Market Update
Fri, Apr 24 2009, 15:42 GMT
- Investors seem to be shrugging off the indecision seen through most of the week and bidding up equity markets with strength this morning. With more clarity on the bank stress tests due later this afternoon and higher-than-expected March New Home Sales, there are some reasons for optimism. And while home sales returned to a sequential downtrend after February's uptick, investors are focusing on the data showing falling inventory levels in the report. Crude moved through the $51 barrier for the first time all week earlier in the session. Note that overnight OPEC Secretary General El-Badri said he is not expecting new production cuts in May, stating that OPEC needs full compliance with past cuts before new ones are instituted. In addition, the Kuwaiti Oil Minister affirmed his preference for oil in the $50-$70/bbl range.
- Ford surprised everybody this morning, reporting higher than expected revenues and a much smaller loss than projected, and nearly cut its cash burn in half in the quarter. Shares of Ford jumped 20% before the bell, trading off to around +15% by mid morning. The company reiterated that it won't need US government aid to get through the year, and said it is on track with its plan to break even in 2011. Ford also optimistically insisted that it does not expect to be hurt by potential GM or Chrysler bankruptcy, but also warned that the health of the supply base is critical. Bankruptcy is looking increasingly unavoidable for Chrysler, whether the company manages a deal with Fiat or not. Overnight the WSJ reported that Chrysler could file for bankruptcy as early as next week, while this morning the Canadian finance minister said liquidation is a possibility. And as GM's negotiations with bondholders and labor drag on, there have been press reports that a new debt-for-equity offer (composed almost entirely of equity) could come on Monday.
- The Treasury is due to disclose its assumptions for stress testing to the 19 banks undergoing testing this afternoon at 2pmEST. FDIC Chairwoman Bair said that some banks will need to encourage preferred shareholders to switch to common shares/equity, and reiterated that the administration won't likely have to ask for more TARP funding. Most of the leading US banks opened marginally higher this morning. AmEx offered stellar first-quarter results although revenues were light. The company cautioned that while it did see some recent improvement in early delinquency rates, overall credit indicators reflected rising unemployment levels and the broad-scale weakness in the economy with card members across most units reducing spending y/y.
- Mid-cap industrials Honeywell, 3M and Xerox reported at or a bit below expectations and cut full-year forecasts, offering quarterly performance that trailed large-cap competitors. Honeywell noted on the conference call that it is not counting on any big macro improvements in 2009 although it does see the rate of economic decline stabilizing. 3M was a bit light on the top and bottom lines, noting that it expects two more quarters of economic decline and warned it would not return to 2007 levels of business until 2011. Oil services giant Schlumberger exceeded estimates by a hair, noting that the company does not see any significant recovery in North American gas drilling before 2010
- Shares of Microsoft are up 8% after lackluster quarterly results yesterday evening. Note that on the conference call, Microsoft's CFO said that the economy is the most challenging in the company's 30-year history, saying there were no signs of a bottom in the quarter and that next quarter would remain difficult, with shipments of PCs (ex netbooks) expected to be weak. These comments echo the pessimism heard from the likes of TXN and IBM earlier in the week. Consumer-facing Nasdaq components Amazon and Netflix offered positive quarterly results, beating earnings expectations. Both companies offer cautious forecasts for the next quarter, however. AMZN was up 6% and NFLX was off its worst levels around -4% mid day.
- In currencies, the greenback maintained a soft tone ahead of the G7 finance minister meeting this weekend in Washington DC, with concerns of Chinese FX reserve diversification weighing on the USD sentiment. ECB's Nowotny commented that the US economic measures were starting to take effect, maybe faster than European efforts. EUR/USD rose toward 1.33 in New York trading, while GBP/USD rebounded after Moody's said the UK's AAA sovereign were stable and not under review. Dealers are noting good continental European names (particularly German banks) buying GBP aggressively from 1.4630 to 1.4680. The pair proceeded to test 1.4750 by mid-NY morning. The CAD continued its firm tone that emerged yesterday, with USD/CAD moved towards the 1.2100 after gaining technical momentum below the 1.2230 level seen in the aftermath of the BoC monetary report on Thursday.
Published on Fri, Apr 24 2009, 15:42 GMT
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U.S Market Update
Thu, Apr 23 2009, 15:26 GMT
- Corporate earnings and housing data continue to buoy equity volatility in the early going. The major US indices are bouncing in and out of negative territory as selling pressures seem to be mounting and investors look for a theme to hold on to. The NAR's Existing Home Sales index fell 3% over last month's levels, below expectations. NAR's President indicated that first-time buyers are driving the market. Front-month NYMEX crude made a run for $50 earlier this morning, but is a bit off its highs around $48.50 in mid day trading.
- The US benchmark 10-year yield continues to bump its head just below 3%, trading at the highest level in more than a month. The US Treasury announced $101B in new 2-, 5-, and 7-year supply to be auctioned of next week, exceeding many analyst forecasts.
- FDIC's Bair hopes to have an initial plan for selling legacy assets in place by June, noting that her agency has the potential to become the "resolution authority" for systemically risky companies. Wells Fargo is strong this morning +8% despite warnings from "Heard on the Street" that it may need more capital than competitors, given the conspicuous absence of any statement of intent to repay $25B in TARP loans in its Q1 report. The article highlighted the bank's lower-grade loan portfolios eroding its "relatively thin capital base." And there has been a flurry of gossipy commentary over BoA's Ken Lewis, who told the WSJ that Ben Bernanke pressured him to "keep quiet" on loan losses at Merril Lynch, a claim that was predictably denied by the Fed.
- Another batch of tier-2 and regional banks have reported earnings yesterday and today. Quarterly losses at major regionals SunTrust Banks and Fifth Third Bancorp were smaller than expected, but neither bank is out of the woods as of yet, with ROE and ROA still weak and non-performing loans still rising. STI was up as much as 6% early on, but has dropped to around even mid morning. Share of FITB are up 10%. PNC Financial did very well, crushing analyst estimates. But like the former two firms, PNC is still facing rising non-performing loans and credit deterioration. PNC is up 8%. The situation at deeply troubled CIT looks to be worsening, with a quarterly loss three times the expected amount. CIT also suspended it dividend, sending shares of CIT down 6%.
- Shares of tech darlings Apple and eBay are up 10% and 4%, respectively, after the firms offered strong quarterly results yesterday evening, with both firms beating Wall Street's targets by healthy margins. Apple's guidance for next quarter fell notably short of expectations, however, and the CFO warned that investors shouldn't count on the high gross margins seen in the past. iPhone shipments were up 123% y/y, but were only just in line with analyst estimates, disappointing some commentators. AAPL benefited from plenty of price target and analyst ratings hikes overnight, with the exception of Collins Stewart, which cut the name to neutral from a buy. EMC reported in line with the Street. EMC's CEO said global IT spending is at or near a bottom and expects things to improve in the second half of the year. Chip maker Xilinx came in ahead of estimates and guided strongly for next quarter.
- Shipping giant UPS offered lots of pessimism this morning after missing expectations and guiding lower for next quarter. Considered a major bellwether, the company believes the recovery in the US might begin late this year, but more likely not until 2010. Other consumer-facing names have had a better Q1, with fast-food king YUM! Brands ahead on the bottom line and in line on the top, with same-store sales remaining just in positive territory. The company forecasts Q2 to be its most challenging quarter and the low point of its year, but still plans to expand in China with over $1B new capital investment over three years. Hotelier Marriot and cruise line Royal Caribbean did substantially better than expected, and managed to at least not cut guidance.
- Mid-cap steel makers Nucor and Reliance Steel reported weaker-than-expected earnings and revenue in the first quarter. Reliance's CEO said that business remains difficult across all products, with no geographic region that is significantly better or worse than any other. Nucor's mill utilization rate fell to 45%. Steel Dynamics did better, cutting its expected loss in half. The company expects Q2 results to improve, with a "small profit" possible in Q2.
- In currency trading, EUR/USD has consolidated earlier gains but failed to advance above the 1.3070 pivot point. Note that the Belgium Business Confidence index fell more than expected this morning; the data is usually seen as an good indicator of German IFO data, which is expected to be released on Friday. The Bank of Canada failed to make any specific commitments on quantitative easing (QE) after cutting its interest rates to 0.25% earlier this week. However, the BoE did set up a framework in which QE could be implemented. The CAD was broadly firmer following the remarks, with USD/CAD at 1.2250, down 150 pips in the aftermath of the BoC comments.
Published on Thu, Apr 23 2009, 15:26 GMT
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U.S Market Update
Wed, Apr 22 2009, 15:36 GMT
- Equity indices opened lower for the third morning in a row after Morgan Stanley spooked investors with its Q1 results. But the focus swung quickly to stronger results from Wells Fargo, AT&T and McDonalds, helping the DJIA and S&P500 test Monday's opening levels. The Nasdaq is relatively strong this morning thanks to Yahoo's results and bidders in Apple ahead of this afternoon's Q1 results. Money also flowed to the financials in the early going sparking the broad rebound following reports that stress tests will penalize troubled loans more than asset backed debt securities. Energy prices are holding near unchanged consolidating recent losses despite weekly DOE inventory builds across all products.
- US Treasury prices have slipped as stocks gained traction. The 10-year yield has climbed back toward 2.95%. US yields also moved higher while eyeing the GILT market across the pond. UK's Darling announced the DMO intends to issue £220B in GILT debt this year sending prices lower and the curve steeper. GILT futures are down 145 ticks pushing the 10-year back above 3.45%.
- Wells Fargo and Morgan Stanley were the last of the most highly anticipated financials to report their Q1 results. Morgan Stanley has fallen far behind the other leading US banks, offering dire Q1 results that included a much larger-than-expected loss and revenues well behind analyst targets. The firm cut its dividend steeply to $0.05 from $0.27. The CEO said the firm would have been profitable if not for the dramatic improvement in credit spreads, which is a positive development but one that had a negative impact on revenues. In a press interview ahead of the conference call, Morgan's CFO said real estate is the firm's "single biggest worry" and noted that it may issue non-guaranteed debt. Wells Fargo followed in the footsteps of Citi, BoA and Goldman, beating earnings and revenue estimates, although by narrower amounts than other big banks. Nearly all of the bank's key metrics saw substantial improvement, and on the conference call executives said the integration of Wachovia is going well and should not lead to further losses. Elsewhere among the financials, Capital One bombed in quarterly earnings, reporting a huge loss and missing revenue estimates by almost half. Shares of the tier-1 banks are making steady gains mid morning, with shares of WFC up 8% and MS well off its opening levels around -2%. COF has been volatile, opening down 7%, rising to +6% and continuing to pivot in and out of the red.
- Major Dow components AT&T and McDonalds reported strong earnings, although both missed a bit on revenue. Both companies reported healthy growth in sales metrics and emphasized that they are working to prepare themselves for strong growth upon the arrival of economic recovery. AT&T's iPhone business was especially strong, with more than 1.6M activations in the quarter, boding well for Apple's results today after the close. Dow component Boeing missed the Street's estimates slightly and lowered its EPS forecast for 2009. The aerospace giant's order backlog and operating margin both fell on a q/q basis. Shares of BA and T are up around 3.5%.
- Yahoo is helping prop up the Nasdaq this morning after a big earnings win in the first quarter, with profits twice the estimated figure. But Yahoo's CFO warned that "dark clouds" remain on the horizon, noting that the difficult economy impacted "all aspects" of business. Also note that various press reports are claiming that talks over some kind of search/ad partnership between the two keep rolling on and on and on, prompting a denial from Microsoft's CEO this morning. Quarterly losses at chip maker AMD and memory manufacturer SanDisk were smaller than expected. SanDisk cited improving demand and lower operating expenses, while AMD benefited from a big jump in margins. On the conference call, AMD's CEO said that the inventory contraction should end in Q2, but warned that consumers are now only paying for what they need. Hard disk maker Seagate had a larger-than-expected loss, and expects losses to be worse than estimates next quarter. Shares of SNDK and STX are up 12% and 8%, respectively. AMD is around even.
- Sterling has been the focus of currency trading this morning, following the unveiling of the UK budget by Chancellor of the Exchequer Darling. The proposed UK deficits would total £703B during the five fiscal years through April 2014 compared with £434B forecasted back in November. For the 2009 year, the £175B deficit would equate to 12.4% of GDP, which would be the biggest in the G20 nations. The pound exhibited weakness after Darling announced a 50% tax bracket for incomes greater than £150K, effective April 2010. The UK is also raising tobacco duties by 2%, effective immediately. The Department of Debt management (DMO) stated that the UK Government would now issue £220B in Gilts during 2009 period, above £200B the market had expected. GBP/USD fell 250 pips to test below the 1.44 level before rebounding back above the 1.45 handle. EUR/GBP drifting back toward the 0.90 neighborhood.
- The USD price action saw some earlier risk aversion flows evaporate despite cautious GDP remarks from the IMF, which has once again revised its 2009 global growth outlook lower, to -1.3% compared to the -0.5% forecast back in January. The IMF also noted that financial stabilization would take longer than expected and that interest rates would likely stay around 0%. EUR/USD moved back above the 1.30 area with euro strength attributed to buying in the EUR/GBP cross coupled with interbank stop hunts above 1.3000 level. The 1.3070 area was cited as a key hourly resistance level in the pair. Note that both the USD and JPY seemed back in sync with equity price action as US indices managed to reverse earlier weakness to probe into positive territory in the mid-NY morning.
Published on Wed, Apr 22 2009, 15:36 GMT
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U.S Market Update
Tue, Apr 21 2009, 16:07 GMT
- Investors seem to have halted yesterday's big slide and are working hard to push US equity indices higher in mid-day trading after opening lower. Mixed earnings from regional banks and plenty of caution in the face of decent Q1 results from the likes of Caterpillar and United Technologies had things lower early on, however. Fed's Kohn offered some hope last night, noting that he expects a modest recovery, with chance of a strong one, and sees GDP stabilizing later this year. Treasury Secretary Geithner is testifying before Congress, defending the TARP and his department's handling of the financial bailout, indicating that the health of individual banks will not be the sole criterion for whether firms can repay TARP funds. This comes the morning after the TARP Watchdog called for better oversight of the program. Meanwhile, Fed Governor Hoenig repeated that firms that are too big to fail must be allowed to fail.
- US Treasury prices have moved lower as stocks have rebounded. The benchmark yield rallied some 8+ basis points from session lows back to 2.88%. Selling only intensified after the NY Fed bought $7B in 2016-19 coupons. In a reversal from yesterday's trade, GILT futures sold off following the latest reverse auction results from the BOE.
- Many of the leading second-tier financial firms and regional banks have reported earnings. State Street and BlackRock reported solid first quarter results, although State Street missed revenue targets by around 10%. Note that assets under management at both firms fell on a q/q basis. State Street's CEO said he would like to pay back TARP funding, and noted that funds are flowing from prime brokers to independent carriers. BlackRock's CEO stated that more firms will be getting involved with the PPIP program than is currently anticipated. US Bankcorp reported a bit ahead of targets, with its ROE and ROA up strongly on a y/y basis, in line with the tier-1 firms. USB's CEO also said he hopes to arrange a TARP repayment deal with the government soon. Zions Bancorp's quarterly loss was much smaller than expected, while KeyCorp's loss was considerably larger than anticipated. KEY also steeply cut its dividend. Regions Financial was in the black (ex items) and revenue was strong, although returns on equity and assets were down sharply. Bank of New York missed earnings and revenue expectations, and cut its dividend. All of these names deep in the red in early trading, with the exception of USB, which is up around 8%. ZION is down 25%.
- Tech titans IBM and Texas Instruments earned more than expected in Q1, although IBM's top line lagged the Street by a bit. TXN's buidance for next quarter is bullish, with earnings seen as much as ten times estimates at the top end of its range, while IBM simply reiterated its 2009 forecast, although Big Blue's CFO did note that the firm is more confident on outlook than it was a quarter ago. Interestingly, TXN's CEO does not believe sales will really grow in 2009 but believes that the firm can expand its market share. IBM is around even, while TXN has plummeted from +5% at the open to -4% mid morning. Healthcare giant UnitedHealth had excellent earnings and reaffirmed its 2009 outlook. Dow component Merck & Co. came in below par, thanks to FX losses and Fosamax going off patent. Merck merger partner Schering-Plough said the tie-up is on track, and reported solid first quarter results. All three of these healthcare/pharma names are down around 3-5%. -
-Several leading industrial names reported, including Dow majors United Technologies and Caterpillar. UTX's Q1 earnings exceeded expectations, while revenue was just a hair short of targets. The conglomerate also narrowed its 2009 EPS forecast. Cat blew out estimates but issue extremely cautious guidance for the year, reducing its outlook and noting that the US "missed an opportunity" with its "disappointing" stimulus plan. Lockheed Martin reported more or less in line with expectations and reiterated its full year guidance. LMT's CFO said the 2010 Pentagon budget would have no affect on its guidance. Dow member DuPont met EPS targets, although it missed on the top line by nearly $1B. Autoparts suppliers Autoliv and Johnson Controls both met their dismal loss expectations and missed revenue expectations somewhat. ALV's guidance was catastrophic, projecting sales next quarter that were up to 45% below expectations, while JCI optimistically projected plenty of earnings accretion from restructuring plans.
- In currencies, dealers continue to see consolidation continuing after some big moves. The greenback remains a softer against the European pairs, with a better-than-expected ZEW survey helping the EUR/USD to move back toward the 1.30 area. But the 1.2950 option expiration point continues to act like a magnet ahead of numerous expirations due this week, while weak Irish bond auction results tempered the euro's upside momentum. Dealers are noting that Ireland's 2018 auction had a bid-to-cover of only 1.1x. Some risk aversion seeping back into the sentiment following US earnings this morning, many of which suggested that stiff headwinds remain when it comes to escaping the recession. Vague chatter circulated of a European retail bank in trouble, helping spot gold move to session highs; dealers were noting that there was a German meeting today about that country's good bank/bad bank program.
Published on Tue, Apr 21 2009, 16:07 GMT
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U.S Market Update
Mon, Apr 20 2009, 15:50 GMT
- Observers are wondering whether the financials-driven rally has hit a wall this morning as equity markets sink despite Bank of America's impressive Q1 earnings performance. Various commentators have offered cautious comments this morning, with Fed Chairman Bernanke noting that the global economy is still facing usual turbulence and the Obama Administration's Larry Summers saying that "substantial risks" remain in the economic recovery process. In a sign of extreme skittishness, dodgy dealer chatter circulating before the bell saying that an unknown blog had obtained published results of the stress tests actually prompted a rebuttal from the Treasury. A Treasury spokesperson said the results of the testing aren't in yet, even though the integrity of this blog source was severely doubtful. Concern over the global outlook weighed on NYMEX crude, with the front-month contract down nearly $4/barrel, around $46.
- Treasury prices are rallying on risk aversion bids pushing the 10-year yield back below 2.85%. GILT prices surged following the BOE's latest reverse auction results which showed a paltry bid-to-cover ratio of 1.83 times. Two-year swap spreads in the US moved out to their widest level in a month while EuroDollar futures were also under some pressure early as concerns swirled ahead of the stress test details scheduled for release on Friday.
- Bank of America improved on the performances from competitors JP Morgan, Goldman Sachs and Citi last week, reporting Q1 earnings that were an order of magnitude better than expected and blowing out revenue targets by nearly $9B. But analysts are focusing on other aspects of the bank's performance, such as its hefty $13.4B provision for credit losses, rising net charge offs and a big gain in non-performing assets. And on the conference call CEO Lewis was hardly positive, noting that credit is bad and credit conditions are expected to get worse. Lewis warned the bank's reserves will keep building over next few quarters, an expensive choice in the short term that will pay long term results. Note that overnight Citi confirmed it is closing bidding for its Nikko Cordial unit today, with bids in from Mitsubishi, Mizuhi and SMFG. Teh sale of Nikko Cordial includes part of Nikko Citigroup, but Nikko Asset Management is not part of the transaction. Overnight the WSJ reported that lending from top US banks has continued to decline, with February loan and refinancing activity from the largest TARP recipients down around 23% from October levels. Shares of Citi and BoA are down 14% in early trading.
It's been a big morning for M&A, with a couple of headline deals moving markets. Oracle surprised observers (and likely blindsided IBM) by offering $9.50/shr in cash for Sun Microsystems in a deal valued at $7.4B. Oracle expects the acquisition to be accretive in the first full year after closing; both boards have unanimously approved the transaction and the deal is anticipated to close this summer. The pharma tie-up dance continued, with GlaxoSmithKline buying the privately-held Stiefel Labs for $3.6B in cash, debt and other payouts. Siefel, which is partially owned by the Blackstone Group, had been reportedly pursued by several other major drug companies such as Johnson & Johnson and Novartis. The biggest deal of the day is a family affair, with PepsiCo offering to buy up its bottling partners Pepsi Bottling Group and PepsiAmericas, for $29.50/shr and $23.27/shr, respectively. The two deals, which would give PepsiCo control of 80% of its North American distribution volume, are worth a total of around $9B. Also note that Chesapeake Utilities signed an all-stock deal to pick up Florida Public Utilities for $12.20/shr.
- In other earnings news, PepsiCo beat Q1 earnings estimates and reaffirmed its full-year forecast. The company noted that carbonated drink sales improved on a sequential basis and expects operating profits to improve in the second half of 2009. Oil services major Halliburton offer solid Q1 performance, a bit ahead on the bottom line and a bit behind the Street on revenue. Executives warned it remains unclear when the continuing decline in industry activity will bottom out. Toymaker Hasbro was also in line with EPS estimates and a bit behind on revenue, but noted that it is on track to grow both in the rest of the year.
- In currency trading, risk aversion came on strong in the New York session as the USD and JPY firmed against their respective majors, with the EUR/USD finally breaking through the 1.2950 support level seen earlier today to test below 1.29. The EUR/JPY cross was off over two big figures at 127.00, while GBP/JPY was off 400 pips at 142.80 by the mid-New York morning. The risk aversion theme was set in motion by a interview with IMF Director Strauss-Kahn published in German newspaper Handelsblatt. Strauss-Kahn said the global growth forecast due from the IMF later this week would be worse than the 0.5% contraction seen in the prior report. The dealer chatter regarding the spurious bank stress test blog posting didn't help either. USD/CAD was around 1.2360 as a result of lower energy prices. AUD/USD is hovering above the 0.70 area. Note that GBP continued to be hampered by its upcoming budget release on Wednesday; GBP/USD is around 1.45.
Published on Mon, Apr 20 2009, 15:50 GMT
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U.S Market Update
Fri, Apr 17 2009, 15:48 GMT
- Equity trading is struggling to latch on to a theme this morning as equity indices bounce in and out of negative territory. Investors are mulling over the Q1 results from Citigroup, General Electric and Google. Similar to other large-cap reports over the last week or so, the companies offered plenty of positive news laced with darker notes. With no firm resolution of Detroit's woes in hand, the automakers continue to weigh on many minds. Comments from NYSE Euronext CEO Niederauer that trading volumes indicate that the current rally won't last are not helping either. NYMEX crude regained the $51 handle this morning but is losing ground in mid-day trading.
- General Electric beat Q1 earnings estimates while missing revenue targets, reporting net income that was down more than 30% over last quarter's results. In line with quarterly results from other leading financial firms, GE Capital made a profit in the quarter, and GE executives affirmed expectation that the division would be profitable for the full year. Order backlogs held steady, while revenue at most units fell slightly over last quarter. CEO Immelt estimates that in-house stress tests indicate GE doesn't need more capital, and also said he does not see GE Capital being subjected to government stress testing. After a 4% drop after the bell, shares of GE are around even.
- Citigroup's quarterly loss was nearly half the expected amount and the firm outpaced expectations on the top line by around $3B. The results certainly color CEO Pandit's rally-sparking comments back in early March that Citi was “profitable” in the first two months of the year, but on the conference call Citi's CFO still insisted that the quarter was the bank's strongest in over a year, calling the trading environment "unusually favorable." Citi said its consumer banking unit saw unusually strong activity driven by increases in volume and demand but continues to see economic headwinds in the market. In a spot of good news for markets overall, the CFO also noted that Citi has begun to see moderations in 30+day delinquencies in North American credit cards, with losses apparently breaking their prior correlation with unemployment. Shares of Citi fell as much as 10% early on, before recovering to -6%.
- Google reported its first q/q revenue decline in revenue since the company went public five years ago, coming in a hair below estimates. Earnings were better than expected. Paid clicks continued to rise, although there was a decline in advertising revenue on q/q basis on Google-owned web sites. Google's CEO said that the company is feeling the impact of the tough economic environment, but optimistically insisted that Google is well-placed to take advantage of the eventual economic recovery when it comes. Shares of GOOG are up 2%.
- In other news, two regional banks, BBT and Regions Financial, followed in the footsteps of the big financials by offering solid Q1 earnings news. BBT exceeded earnings and revenue estimates, while RF's CEO said the bank would be profitable in the quarter (analysts expected a $0.42 loss) and said he wants to pay back Federal TARP funds ASAP. Takeover rumor favorite BIIB offered solid earnings and reaffirmed its full-year forecast. Toy maker Mattel missed targets slightly on slumping sales. Also note that Japanese newspaper Nikkei reported overnight that the US government is planning to classify the 19 banks undergoing stress testing into four categories (A, B, C and D), with “D” indicating the institution is unable to stay in business.
- The currency market is digesting a slew of central banker speak from the last 12 hours. Dealers are focusing their analysis on ECB Governor Trichet's comment that the ECB wants a weaker euro. One dealer noted that the EUR/USD was around 2% below its 200 week (or four-year) average and noted that the currency could hardly be seen as weak these days. Fed Governor Fisher commented in Asia that the challenges faced by the Euro Zone exceeded those in US. Moody's placing of Ireland's AAA sovereign ratings on review for possible downgrade also weighed on euro sentiment. Dealers are suggesting that the market would likely see selling of euros to continue on any rallies. EUR/USD did manage to break below the 1.3070, to its lowest level since its March 18th, pre-Fed quantitative easing position. The EUR/JPY pair retested below 130 as chatter again circulated regarding €45B in eurobond redemptions today. CHF was softer after the SNB's Roth reiterated that "currency intervention has become necessary as the rise in the CHF threatens to offset rate cuts.” Sterling was softer following comments from the UK trade minister that he was not concerned over further declines in GBP.
Published on Fri, Apr 17 2009, 15:48 GMT
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U.S Market Update
Thu, Apr 16 2009, 15:26 GMT
- Equity indices opened higher this morning for the f