- 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 Â£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 MadisonSquareGarden 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
Â£100B from the Â£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 â‚¬60B for now. This compares to the Fed's $300B QE spending and the
BoE's Â£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.
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