- Traders are shrugging off the negative data this morning and pushing up US
equity indices higher after opening in the red. In what has become somewhat
routine at this point, the ADP employment report was significantly worse than
expected and the ISM non-manufacturing composite index yet again hit all-time
lows, with the prices paid component showing particular weakness. Deteriorating
commodity prices are also in focus, especially front-month copper, which is
approaching the key level of $1.50 not seen since May 2005. Front month crude
is also weaker also approached $46 before getting a boost from weekly oil
inventory data. Treasury yields have ticked bounced slightly with the curve
continuing to compress. The 10-year has climbed back to 2.75% while the long
bond is approaching 3.25%. Regardless PIMCO's Bill Gross noted that he still
sees the 30-year mortgage rates falling another 50 to 100 basis points towards
4.5%. Hopes continue for aggressive central bank action later this week and
this month. The ECB and BoE meet tomorrow while the Jan fed fund future is
currently pricing in better than a 60% chance of a 75 basis point cut at the
FOMC meeting in two weeks.
- Goldman Sachs is back in the headlines this morning, as the Wall Street
Journal reports the freshly minted bank holding company may launch an online
banking business to expand its sources of funding and bolster its balance
sheet. In addition, Goldman may name former New York Fed President Gerald
Corrigan as chairman of its bank holding company. Merrill cut its price target
and Q4 EPS estimates (to -$2.97 from -$0.36) overnight. JP Morgan also cut its
Q4 estimates for Goldman and Morgan Stanley. Morgan was down more than 6% and
Goldman fell more than 3.5% just after the bell, but both are well above +2%
hand in hand with the overall equity rebound.
- A trio of headlines are roiling commodities-related names, with the economic
crisis continuing to wreck havoc in equities. After a day of rumors regarding a
Total bid for Nexen, the London Times reported earlier this morning that Total
has dropped the potential $15B deal due to the risky overall environment. Oil
services leader Schlumberger warned that its FY08 profit would be below estimates
(currently at $4.76e), citing the overall economic slowdown. Schlumberger's CEO
insisted that the company has been ‚Äú‚Ä¶consistent in our view that our results
would be affected in the event of a severe global economic downturn, which we
are now facing.‚ÄĚ Fellow oil services firms HAL-7% and APC-5% are down
significantly on the news, with the OIH down around 5%. Freeport McMoRan said
it would cut copper production and suspend its annual dividend due to the sharp
decline in copper and molybdenum prices. FCX's CEO said that the company has
‚Äúcontingency plans in place‚ÄĚ if copper drops below $1.50/lb, although the firm
sees substantial writedowns ($6B) in goodwill likely if current metals prices
continue. Coal name ANR also warned that it sees its 2008 revenue falling below
its prior guidance.
- In other equity news, GM fell as much as 6% in the early going before
returning to positive territory mid morning while Ford has stayed in the black
all morning, as investors barely flinch at the automakers' massive November
sales declines. Del Monte Foods is up nearly 18% after reporting quarterly
earnings and guiding FY09 EPS ahead of estimates. The firm noted that its key
businesses, including consumer and pet products, showed robust growth in the
quarter. Proving that death may be a recession-proof business, Hillenbrand
offer strong FY09 EPS guidance, comfortably above consensus views. On the other
hand, the bad news keeps coming home for semi names, with Taiwan Semi lowing
its 2009 CAPEX outlook citing economic weakness, noting that it expects
economic hardships to persist for some time. And SpendingPulse officially
confirmed that November retail sales declined sharply, below October's big
declines, but also noted that all sectors studied saw a 2-5% sales improvement due
to the Black Friday weekend.
- In currencies, the greenback was firmer against the European pairs but
remained steady during the NY morning. The lows in the ADP employment report
and ISM non-manufacturing index are driving home concerns over the global
economy, providing the catalyst for safe haven and risk aversion plays into the
short end of the Government curve. The EU's Almunia noted that the financial
market crisis was having a severe impact on emerging economies, adding that the
economic situation was deteriorating rapidly. Meanwhile, the EU's Barroso
bluntly stated that this is not simply a regular downturn and that action is
required to prevent the recession from slipping into depression. As a measure
of stress, the iTraxx crossover index broke above the 1,000bps level for the
first time in its history.
- CAD continues to express weakness on the back of the commodity outlook and
coupled with political concerns at home. Some displaced merger flows also
hurting CAD sentiment after UK
press reports that Total had dropped its bid for Nexen. EUR/USD continues a
consolidating pattern ahead of Thursday's central bank meetings with the 1.24
to 1.29 range basically intact. Market participants awaiting to see if the BoE
and ECB make more aggressive interest rate cuts currently anticipated. The BoE
is seen lowering rates by at least 100bps to 2.0% while the ECB is expected to
cut by 50bps to 2.75%. The JPY was firmer on the risk aversion theme. USD/JPY
tested the 92.55 level where far east names are currently bidding for USD, but
dealer chatter noting of significant USD sell stops building below. EUR/JPY is
hovering near the 177 area, off 130+ pips from its opening levels in Asia,
while GBP/JPY is around 136.65 as it makes fresh 13-year lows in the session.
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Tue 31 July 2018 AA JP- Bank of Japan A 06:00 DE- Retail Sales A 09:00 EZ- flash HICP/GDP AA 12:30 US- Core PCE Deflator A 14:00 US- CB Consumer Confidence Wed 1 Aug 2018 A Final Mfg PMIs AA 12:15 US- ADP Private Payrolls A 15:00 US- EIA Crude AA 18:00 US- Federal Reserve Decision Thu 2 Aug 2018 AA 11:00 GB- Bank of England Decision A 13:30 US- Weekly Jobless Fri 3 Aug 2018 A Final Services PMIs AA 12:30 US- Employment A 12:30 US/CA- Trade
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