Dow -10 S&P -2 NASDAQ -9 - Equity trading has been volatile this morning, as cross currents from data and the big earnings reports out of Goldman and Citi collide. Data out before the open helped minimize overall equity losses stemming from the financial sector. The October Empire manufacturing survey crushed expectations, rising to its highest level in five years. The weekly jobless claims data marked two milestones: initial claims data fell to its lowest level since early January and continuing claims dipped below 6M. Former Fed Chairman Greenspan commented that US firms have cut too many workers and will likely to need to add more. Greenspan also added that he was "unconcerned" by recent declines in the dollar. Note that a US Treasury report is due out later today and no speculation has surfaced whether China would be called a "currency manipulator." Front-month crude rose back to the 11-month highs seen yesterday morning, to trade around the $76 handle, although commodities in general have been softer as a strong greenback has induced some profit taking. Dec gold traded below $1050 before recovering. Treasury prices opened flat and moved lower but remain near the unchanged mark with CPI, jobs, and Philly Fed data having little overall effect. The 10-year yield remains above 3.4% while the long bond is holding 4.25% consolidating the post Columbus Day move higher in yields.
- The big banks gave up most or all of yesterday's gains in the pre-market this morning, as investors expressed their disappointment with earnings reports from Goldman and Citi. Goldman may have beat consensus estimates handily, but the firm's EPS was well below the $6 whisper number that made the rounds yesterday as well as last quarter's earnings. Goldman noted that earnings and revenue, which both beat expectations, were fueled by big gains in bond trading, while revenue from investment banking fell sharply. On the conference call, Goldman's CFO summed up the results by noting that the firm is getting "a bigger share of a smaller pie." Ward of the state Citigroup racked up its eighth consecutive quarterly loss, and the losses are not getting any smaller. However, the bank added the smallest amount to its loan-loss reserves in two years. Citi's CFO said the bank is closer to sustained profitability but "still not there."
- In other earnings, cell phone giant Nokia surprised investors with a quarterly loss and a modest miss on the top line, thanks to a writedown at its networks unit and lower sequential smartphone sales. US-listed shares NOK are down more than 10%, while competitor MOT is down more than 4%. Medical device maker Baxter missed top and bottom line estimates, blaming lower margins and FX impact, sending BAX -4%. Southwest Airlines beat earnings estimates on an adjusted basis, although it still racked up a small quarterly loss when taking into account one-time charges for its fuel hedging portfolio and employee buyouts. Shares of LUV are down 3%. Vehicle manufacturers Harley Davidson and Winnebago both missed bottom-line expectations by wide margins, and the latter also missed revenue estimates. However, shares of WGO+12% and HOG+2.5% have jumped out of negative territory as investors focus on both firms' future opportunities. Note that WGO dealer inventory fell by more than half in the quarter, while its backlog of order more than doubled.
- The New York session saw decent price action in currencies as lots of data, key earnings from US financials, technical factors and central bank speak provided plenty of catalysts for swings in sentiment. Overall the greenback's performance was mixed as European crosses drove most of the volatility, especially EUR/GBP. Sterling rose steadily from the open in Asia on a combination of more comments from BOE Gov Fisher and rumored M&A activity (reportedly the J Sainbury supermarket chain was seeing bid interest from Mid-East investors; the rumor was later denied). Technical factors also provided additional GBP momentum after EUR/GBP moved below 0.9290 and GBP/JPY broke above 144.00.
- Goldman's earning prompted the initial equity market sell-off, which aided the dollar. Weekly unemployment claims data in the US soothed some of the risk aversion fears. EUR/USD dipped to 1.4844 after ECB Chief Trichet said the euro was never created to be a global reserve currency and that the ECB was pursuing a stable euro policy. But Far East sovereign names leapt in to capitalize on any euro softness and add to their reserves. China Central Banker Zhou mentioned the reserve currency issue, noting that "everyone" was looking for a new reserve currency but conceded the process would take time. As of writing EUR/USD was just under the 1.49 handle. The yen remained soft against the major pairs, aided by technical factors in the break of two-month downtrend lines in USD/JPY and EUR/JPY, as well as strength in GBP.
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