- 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 Â£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 executive 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 Â£703B during the five fiscal years through April 2014
compared with Â£434B forecasted back in November. For the 2009 year, the Â£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 Â£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 Â£220B in
Gilts during 2009 period, above Â£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.
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