Futures ~60bps higher this morning on solid earnings releases both in the U.S. and in Europe, positive expectations ahead of the European stress test results Friday, and the expectation that Bernanke will repeat his “low rates for a long time” mantra today on the Hill (semi-annual Humphrey Hawkins Testimony @ 2pm). Note that the Senate also nears passage of the Unemployment Benefits Extension – a vote is expected today. In
earnings, Apple (AAPL; +4.5%) is higher after reporting a 78% increase in net income. Morgan Stanley (MS; +4.5%) and Wells Fargo (WFC; +5%) also beat earnings expectations, and Coca-Cola (KO; +2%) turned in a solid quarter on the back of higher sales driven by World Cup advertising. US Bancorp (USB; +5%) and aerospace giant United Technologies (UTX; +2%) are also higher, while YHOO is 5% lower after yesterday’s earnings report. In European earnings, hotelier Accor and car-maker Fiat SpA beat expectations and are trading higher. In other European news, a German bond auction actually failed, which is seen as a positive in the sense that investors are eschewing the “safe haven” of U.S. (thus the oft-quoted “risk on”)…yet a Portuguese bond auction also was met with lukewarm demand. Further, there is M&A activity across the pond as Reckitt Benckiser agreed to buy SSL International for $3.9B. Regarding the stress tests…the response to the official release will be interesting, as the trading desk chatter thus far indicates that “easy beats” from the stress test participants will actually dilute credibility in the process itself. We will see on Friday… Germany
Interesting action yesterday, and quite a reversal from a pretty resilient market. Yesterday’s JPM trading summary captured things quite well:
Some are pointing to today’s Senate vote on extending unemployment benefits (this time around the measure is expected to pass and Senate Dems cleared a key procedural hurdle at 3pmET today) and tomorrow’s Bernanke testimony as positives that are prompting covering. Some developments in focus today: 1) sentiment remains pretty negative, setting things up for upside surprises (like today’s housing data, which showed continued M/M declines, but actually wound up coming in better than some worst-case fears and is helping the builders to rally today); In Europe, the news in Hungary has been more of a sideshow so far this week (a few weeks ago, the headlines in Hungary would have been enough to sink global equities). 2) The steel stocks have a pretty strong bid to them, a pos. indicator for the broader tape - look at the action in AKS, X, CLF, etc, today; 3) in China, the Shanghai composite was up more than 2% on both Mon and Tues (the index broke up through its 20day MA and is just under its 50day MA); some people are starting to view the action in China positively on a technical basis, at least in the near-term (if the index continues to rally it could break through its 50day, something that may occur as soon as tonight); 4) Related to the steel/China action, the Baltic Dry index has inched off the mat over the past two sessions (after falling for 35 consecutive days); 5) Europe - Western European nations continue to contract (Greece is inching to multi-week lows and stands at 800bp while Spain is heading towards multi-month lows) and countries continue to price bond deals (inc. Ireland and Hungary today; Greece has priced two issues since being bailed out); 6) In banks, while earnings have been disappointing, the source of weakness has been revenue, not capital (something that has allowed bank CDS to outperform the action in bank equities).
Meant to post this the other day – it caught my eye in the WSJ over the weekend… Seems like a potential disaster is looming, and it may have major implications for the
housing market: U.S.
Fight Now Looms Over Fannie, Freddie By NICK TIMIRAOS AND DEBORAH SOLOMON
The fight over the changes to
financial regulation was bruising. U.S.
The coming debate over what to do with Fannie Mae and Freddie Mac promises to be even more contentious.
The revamp of the nation's financial infrastructure, which will be signed into law next week by President Barack Obama, didn't address the fate of the mortgage-finance giants that helped fuel the housing bubble and were taken over by the government in 2008. So far, the
has spent $145 billion to keep the companies afloat. U.S.
Administration officials say they will outline a proposal to Congress by early next year and that intense discussions are under way on how the government should restructure its role in housing finance. The administration doesn't appear to have coalesced around an answer, according to the officials, though top advisers have indicated they see some continuing government role.
Lawmakers from both parties have heavily criticized the public-private ownership model that led the once enormously profitable companies to fail spectacularly. However, few in
know what to do next. Washington
A Republican amendment to the financial-rules bill that didn't pass spelled out an exit plan for the government but didn't specify what would take the place of Fannie and Freddie, which own or guarantee a little over $5 trillion of the nation's $10 trillion of mortgages.
"The Obama administration is ignoring the issue, and the Congress is ignoring the issue. Even if you look at what the Republicans wanted to do, they were ignoring the issue," said
Lawrence White, a professor of economics at . New York University
MO reports in-line. APA is lower on earnings and news it will acquire $7B of BP assets; BP is higher as a result. BSX is higher on earnings. CMA beats by 16c. CYT beats by 64c. DGX lowers guidance. ETN beats by 19c. FCX beats by 12c. FRO upgrade at JPHQ. GILD misses by 2c. JPHQ ups GMR. JNPR beats by 1c. MAN beats by 18c. MS beats by 34c. STX misses by 6c. SWK beats by 46c. TDW guides lower. TPX beats by 4c. TXT beats by 20c and raises guidance. URI beats by 55c. VMW beats by 2c. WFC beats by 7c. WFR raised at KAUF. YHOO misses on revs and beats by 1c.
Asia mixed overnight. Europe ~1.5% higher. EUR/USD 1.2815. Oil +1%. Gold +25bps.
Asia mixed overnight. Europe ~1.5% higher. EUR/USD 1.2815. Oil +1%. Gold +25bps.
S&P 500 PreMarket 8:30am (last/% change prior close/volume):
QUEST DIAGNOSTIC 46.50 -6.91% 2400
TEXTRON INC 19.25 +6.47% 13190
YAHOO! INC 14.23 -6.38% 1102282
WELLS FARGO & CO 27.45 +5.94% 956208
FREEPORT-MCMORAN 67.47 +4.9 % 154699
STANLEY BLACK & 55.10 +4.71% 250
APPLE INC 262.40 +4.17% 576094
COMERICA INC 38.30 +4.05% 109000
MEMC ELEC MATER 10.98 +3.98% 1700
MORGAN STANLEY 26.20 +3.89% 470093
SPECTRA ENERG 22.00 +3.68% 150
STRYKER CORP 49.50 -3.49% 1400
WEYERHAEUSER CO 16.45 +3.20% 5100
EATON CORP 71.12 +2.98% 450
ANADARKO PETROLE 47.50 +2.95% 2600
T ROWE PRICE GRP 49.03 +2.90% 500
ZIMMER HLDGS 53.59 -2.83% 200
JUNIPER NETWORKS 25.96 -2.74% 11150
US STEEL CORP 4 5.44 +2.6 % 67765
Today’s Trivia: Apparently the city with the most bars per capita in the world is in
. Which city is it? Canada
Yesterday's Answer: 95% of a jellyfish is made of water.
By Meera Louis and Jann Bettinga
July 21 (Bloomberg) -- European regulators plan to detail three scenarios when they publish the results of their stress tests on the region’s banks this week, according to a document by the Committee of European Banking Supervisors.
Banks will publish their estimated Tier 1 capital ratios under a benchmark for 2011, an adverse scenario and a third test that includes “sovereign shock,” according to a template prepared by CEBS for the banks and obtained by Bloomberg News.
In the last scenario, banks will publish their estimated losses on sovereign debt they hold in their trading book as well as “additional impairment losses on the banking book” that they may suffer after a sovereign debt crisis, according to the document that was dated July 15.
Under accounting rules, banks have to adjust the value of sovereign bonds held in the trading book according to changes in market prices, said Konrad Becker, a financial analyst at Merck Finck & Co. in
. For government debt held in the banking book, lenders must write down their value only if there is serious doubt about a state’s ability to repay its debt in full or make interest payments, he said. Munich
The sovereign-shock scenario doesn’t assume a European nation will default, said a person with knowledge of the matter, who spoke on the condition of anonymity because the information is private. Instead, it will assume that rising government-bond yields will push up borrowing costs, spurring defaults in the private sector that would lead to losses in lenders’ banking books, said the person.
EU Stress Tests
CEBS coordinates national banking authorities and makes policy recommendations to the European Union on regulation.
Spokeswoman Efstathia Bouli declined to comment.
EU regulators are examining the strength of 91 banks to determine if they can survive potential losses from both a recession and a decline in the value of their government bond holdings. They are using the tests to reassure investors about the health of financial institutions from
Germany’s WestLB AG and Bayerische Landesbank to Spanish savings banks as the debt crisis pummels the bonds of Greece, Spain and . Portugal
The banks may publish how much they will need to raise in capital if their Tier 1 ratio, a key measure of financial strength, falls below 6 percent under the sovereign scenario, the draft shows. Lenders will also provide estimated loss rates for their corporate and retail holdings for the adverse cases, according to the template.
The test results are likely to be “underwhelming” because they may require banks to raise less than half the 75 billion euros ($97 billion) of fresh capital needed, Nomura Holdings Inc. analysts said in a report yesterday. Hypo Real Estate Holding AG, the commercial-property lender rescued by the German government following the financial crisis, has failed the test, two people familiar with the results said this week.