- US indices opened not far above Monday's lows on this the first day of the
second quarter, while the G20 gather in London and protesters riot in the
streets. But equities are rallying with enthusiasm in early trading this
morning after February pending home sales rebounded strongly from January's
record low and the March ISM reading showed manufacturing activity contracted
by a bit less than anticipated. Note that the ISM new orders component was much
better than prior, with inventories seen falling. Various commentators have
offered doom and gloom this morning, including Fed Governor Fisher, who warned
the Q1 contraction in GDP may be worse than Q4's decline, and Harvard Economist
Feldstein, who said the economy is getting worse. The FDIC's Bair is not among
them, boosting financial names after saying she was cautiously optimistic about
the US banking
- With the G20 summit about to get underway in London,
recent economic data from around the globe confirms that the politicians in
attendance are under great pressure to do something about the world economy. China's
March manufacturing PMI declined again, casting further doubt on whether the
country can power any kind of economic recovery. In Japan
the quarterly Tankan was dismal, showing that economic conditions remain
severe. German retail sales were worse than expected. European PMI reading
remained at or near all-time lows and Euro Zone unemployment climbed to its
highest level since May 2006, at 8.5%. The US ADP employment change data
registered its largest decline since the inception of the series back in 2001.
One European currency dealer commented that the current G20 conference could be
among the three most important summits of all time, just behind the Plaza and
Louvre Accords in the 1980. However it's worth keeping in mind that the latter
left their marks with substantive agreements while this conference is likely to
be marred by discord and naked self interest.
- Both the Fed and BOE purchased government notes as part of their quantitative
easing schemes. GILT prices moved sharply higher after a relatively low
bid-to-cover ratio in the reverse auction of Â£3.5B 2014-2019 paper. Treasury
prices have also climbed higher after the NY Fed bought $6B with a bid-to-cover
ratio of 2.82, also below the average of the first three reverse auctions. The US
benchmark yield is trading around 2.6% while the long bond offers closer to
3.5%. The yield on the Bund has also moved lower, below 3% after sources
indicated the ECB is considering unconventional quantitative measures in the
coming weeks. Reminder the ECB is expected to cut by another 50 basis points at
- Energy prices remain to the downside following weekly inventory data from the
DOE. Distillate stockpiles grew when a decline was expected, and demand dropped
off in the latest week indicating the economic weakness continues to weigh on
the complex. May crude remains near a 1-week low below $50.
- Today's early rebound in the Indices has been led by the financials. Trades
seem to be buying these names ahead of tomorrow's FASB meeting and official
vote on possible changes to the way mark-to-market accounting is implemented.
The XLF is up more than 2% after opening down closer to 3%.
- In other equity news, consumer-oriented names Sealy and Borders Group both
offered surprising positive quarterly reports yesterday after the close. Sealy
reported a modest Q1 profit, while analysts had expected a small loss, earning
the company an upgrade at Raymond James. Borders beat Q4 estimates by a healthy
margin, although sales remain very depressed on a y/y basis. Shares of ZZ are
up 54% early on, while BGP is up 20% and headed higher. Education
company Apollo Group managed to beat earnings and revenue estimates, but
negative comments on debt from the CEO and a Baird downgrade are weighing on
the name, with shares of APOL-12%. Shares of Sonic Automotive are hurting, down
more than 45% after reporting a big Q4 loss and refraining from offering any
guidance for 2009. Biopharma firm Celgene warned that it would barely achieve
its 2009 guidance; shares of CELG-14% are down sharply in early trading.
- In currencies, dealers were eyeing key EUR/USD hourly support at the 1.3130
level, where the pair was trading prior to the Fed's quantitative easing
announcement on March 18. This level also corresponds to the 100-day moving
average. The pair was seen consolidating in a 1.3130 top 1.3330 ahead of the
ECB rate decision and G20 summit. Chatter has been circulating that the ECB is
planning an additional rate cut of up to 50bps and considering some
unconventional quantitative measures in the coming weeks.
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