European Peripheral Worries End Risk-On Rally (Mon, Jul 23 2012)

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DJIA -72 S&P 500 -7.7 Nasdaq -17

Economic Data

- (IN) India Forex Reserves w/e July 13th: $286.7B v $287.6B prior

- (BR) Brazil July IBGE CPI IPCA-15 M/M: 0.3% v 0.2%e

- (PL) Poland Jun Core Inflation M/M: 0.1% v 0.2%e; Y/Y: 2.3% v 2.4%e

- (CA) Canada Jun Consumer Price Index M/M: % v -0.2%e; Y/Y: % v 1.7%e; CPI Index: v 122.1 prior

- (CA) Canada Jun CPI Core M/M: % v -0.1%e; Y/Y: % v 2.3%e

- (MX) Mexico Jun Unemployment Rate: 4.8% v 4.8%e

- (MX) Mexico Central Bank leaves the Overnight Rate unchanged at 4.50%

- A fresh case of euro zone jitters ended the brief risk rally propelled by US corporate earnings this week. The silence on the European front was broken by rumors German political forces were backing a Greek exit from the euro zone, one day after the head of the Greek privatization agency resigned over the utter failure of his organization to privatize anything. In addition, Spain's Valencia region is asking for aid from Madrid, further shaking confidence. EUR/USD plummeted to fresh two-year lows this morning, while EUR/JPY sank back to lows last seen in late 2000. General Electric and various tech reports were pretty decent but not outstanding, and lacked the ability to distract investors from the situation in Europe. Note that in earnings season to date 20% of S&P 500 companies have reported, and 65% of them have beaten expectations, which is slightly better average for this point in the cycle.

- General Electric reported modest y/y gains in earnings and maintained its FY12 outlook, meeting market expectations. Revenue was a bit soft. The firm said that strength in domestic sales and emerging markets helped offset declines in its European businesses. Shares of GE are flat on the session. Oilfield services names Schlumberger and Baker Hughes both topped consensus profit estimates on modest growth. Both firms talked about slowing drilling activity in North America, and both said that drilling activity in Africa and the Middle East continues to see very good growth. Shares of SLB are up 2%, while SLB is up 8%, well off the 12%+ gain seen in the premarket.

- Tech heavies Google, Microsoft, AMD and SanDisk reported Q2 results yesterday afternoon. Shares of Microsoft are more or less unchanged on a solid, in-line performance. Executives offered little color in the release or on the call, except to cheer Windows 8 and say momentum in the enterprise upgrade cycle will continue over the next couple of years. GOOG is up 3% or so thanks to a very strong revenue showing. Both gross ad revenue and paid clicks continue growing at a healthy rate. Shares of AMD are down more than 10% on a very weak forecast for Q3. Note that the firm's inventories jumped significantly on a sequential basis. SanDisk is up 15%, however its Q2 results and Q3 guidance only just met expectations.

- The euro was under constant pressure throughout the US session, finally breaking below pivotal support around 1.2160 to elect sell stops. Peripheral spreads widened as vague dealer chatter made the rounds asserting that the German government's CSU coalition partner was backing a Greek exit from the euro zone. Later reports that Spanish region Valencia would ask for financial aid from central government to help repay debt accelerated the sell-off. Note also that the ECB ruled that Greek government bonds are ineligible for use as collateral for the moment. The 10-year Spanish/German bond spread hit a fresh record level above the 600 bps level.