Quick VIX

Yesterday stocks traded in a tight range on exceptionally low volume ahead of a series of central bank meetings this week. NYSE total volume was two standard deviations below average and the lowest volume put in on a non-holiday trading day this year (zerohedge). Recent consumer confidence data out of Germany, Finland, Austria, and France came in weak, showing that the continent’s banking crisis is beginning to impact consumers in even the strongest European economies. This pessimism indicates that Europe is unlikely to quickly pick up in the coming months (Wall Street Journal). Europeans certainly have plenty to worry about with Euro-zone unemployment at 11.2% with 123,000 jobs being shed in June. This poor data will likely be supportive of ECB intervention in some capacity, which could be announced as early as Thursday. Reports out of the US this morning were a bit more upbeat: the Case-Shiller home price index rose 0.7%, an unusually large gain and the third monthly gain in a row. ...

This week traders will be focusing on two main events: the FOMC meeting kicking off Tuesday and ending Wednesday with an announcement from Fed Chairman Ben Bernanke, and Thursday’s ECB policy setting meeting. Last week despite earnings misses and poor economic data US equities rose on expectations of further stimulus from the Fed and ECB. Rounding out the week will be the non-farm payrolls report on Friday. Some have speculated that the Fed will cut the Fed Funds rate, the rate it pays banks that hold deposits with them from 0.25%. As of July 25th the Fed held $1.49 trillion of reserves, up from $991 billion at the end of 2010 and $2.4 billion at the end of 2007 (Bloomberg). The aim in cutting interest rates further would be to give banks an incentive to withdraw excess reserves and lend it, where they can get a higher yield. The Fed has not cut rates since 2008, in part out of fear of destabilizing the money market. However, the results from the ECB’s recent rate cut are encouraging ...

Spanish unemployment hits a new high of 24.6%. The silver lining is that job losses totaled only 15,000 versus 870,000 last quarter. Today the Bundsbank reiterated its opposition of ECB bond purchases to reduce stuggling countries cost of borrowing. This came in response to comments from Mario Draghi yesterday suggesting the ECB was prepared to buy Spanish and Italian debt in order to force their cost of borrowing down. Draghi will be put to the test on August 2nd, the ECB’s next scheduled meeting. Markets will now be expecting bold and decisive action from him. If he disappoints markets are likely to sell off hard; if he follows through on his promises he is likely to alienate the ECB from the Bundsbank. As Carsten Rrzeski, senior economiust at ING Group in Brussels said, “Draghi is damned if he does and damned if he doesn’t.” On top of high expectations for stimulus from the ECB next week, markets will also be hopefull of talk of QE3 from Ben Bernanke next Tuesday following the FOM...

Early this morning ECB president Mario Draghi said “Within our mandate, the ECB is ready to do whatever it takes to preserve the Euro. And believe me, it will be enough”. This implies that the ECB will buy sovereign debt from countries such as Spain and Italy who are struggling to issue debt at reasonable interest rates. This has pushed US futures up sharply and the US Dollar down. Ten-year Spanish government bond yields fell 31 basis points to 7.1 percent, five-year Spanish yields fell below the 7 percent danger mark to 6.82 percent, and two-year bond yields eased 60 basis points to 5.66 percent (Bloomberg). Lower yields indicate improved confidence that Spain will not default on its obligations. The VIX, a measure of fear in US equity markets, will likely be down sharply on this news. US economic data released this morning came in better than expected, helping to fuel the pre-market rally. Durable goods new orders came in at 1.6% versus 0.6% consensus and new jobless claims were 353...

Yesterday after the close Apple delivered a rare earnings miss, coming short on both revenue and EPS. This is only the second quarter of the past 39 in which the company missed. Apple reported EPS of $9.32 and revenue of $8.8 billion versus the analyst consensus was for EPS of $10.37 and revenue of $37.2 billion. The earnings miss was due to weakening iPhone sales: Apple sold 26 million iPhone this quarter, up 28% Y/Y but down 26% Q/Q. CEO Tim Cooke said that the company “did not detect any ‘obvious economic issue(s)’ in the US and China.” CFO Peter Oppenheimer said “Our weekly iPhone sales have been impacted by rumors and speculation regarding new products” (Wall Street Journal). Considering Apple’s earning miss is an isolated event, it is unclear whether this is a symptom of a global macroeconomic downturn or simply a shift of iPhone demand from the present to future, yet unreleased models. Caterpillar reported strong earnings this morning, beating analysts’ expectations and g...

Moody’s lowered its outlook on AAA rated Germany, Netherlands, and Luxembourg to negative. Finland, the most financially isolated of the Euro-zone countries, was kept on a stable outlook with an AAA rating. “The Chinese HSBC Flash PMI for July rose to 49.5 from June's 48.2, and touched the highest level since February. ‘Earlier easing measures are starting to work. That said the below-50 July reading implied demand still remaining weak and employment under increasing pressure. This calls for more easing efforts to support growth and jobs,’ HSBC said” (SeekingAlpha.com). US PMI Flash came in this morning at 51.8 versus 52.6 consensuses, implying that the US manufacturing sector is growing the slowest in years. The weakest component of the repot is exports, which are struggling due to a stronger dollar and weakening demand in Europe and Asia. Spanish 10-year bonds hit a Euro-area high yield of 7.5% yesterday. Spain’s market regulator completely banned all short selling...

This week a troika of international inspectors will come to Athens. The inspectors, from the European Commissions, the IMF, and the ECB will formally appraise Greece’s delayed overhauls implemented since the June 17 elections. Without gaining approval from the troika Greece risks being cut off from aid, the next round of which is due in September. Domestically the focus of this week’s data will be Friday’s final revision of first quarter GDP. However, next week’s data is likely to rile markets more with both an FOMC meeting and Non-farms payroll report. This morning McDonalds reported second quarter EPS of $1.32, down from $1.35 a year earlier. Revenue grew $0.01 billion to $6.92 billion year over year. This came against consensus EPS estimates of $1.37 on revenue of $6.94, which had already been revised down $0.08 in the preceding weeks. McDonald's U.S. generated comparable sales growth of 3.6% for the quarter, while the European division delivered comparable sales gr...

With no economic news scheduled today markets are likely to be driven primarily by earnings news. Internationally, Germany approved a bailout of Spanish banks, which occurred on the heels of a weak bond auction in Spain. Spanish 10-year bond yields are trading at an unaffordable 7.1%. Yesterday after the close Microsoft reported its first ever loss as a public company. FQ4 EPS beat consensus estimates, coming in at $0.73 on revenue of $18.6 billion (+7% Y/Y) by $470 million. Enterprise strength drove the earnings: Office division sales were up 7% Y/Y while Server and Tools were up 13% Y/Y. This strength offset at 1% drop in Windows sales. Entertainment and devices sales were up 20% Y/Y. The quarter’s net loss of $492 million occurred due to a one time write-down of Microsoft’s acquisition of aQuantive. We found these earnings to be very strong and expect a bullish tone in Microsoft’s stock leading up to the release of Window’s 8 this fall. Google also reported earnings after yeste...

Jobless claims for the week of July 14th were 386,000. Initial claims for the week of July 7th were revised down a sharp 26,000 to 350,000. This has brought the four week average of initial jobless claims down 1,500 to 375,500. This week’s increase can partly be attributed to annual auto plant shutdowns for retooling in July. After yesterday’s close American Express beat earnings but reported lighter than expected revenue, slower than average growth in card member spending. Loan losses have remained at record low levels. American Express’s customers are typically seen as affluent, making American Express earnings a good indicator of the spending habits of wealthier Americans. IBM missed revenue expectations for the 4th time in a row but still managed to beat on earnings. IBM revised their future earnings outlook upwards, giving trader’s confidence in tech’s resilience. This morning Verizon reported earnings miss of $0.64 per share, an increase of 12.3% year-over-year. Verizon’s...

In his semi-annual testimony before the Senate yesterday, Federal Reserve Chairman Ben Bernanke delivered a bleak view of the US economy. The two major near-term risks to America’s financial recovery are the European debt crisis, and the fiscal cliff the US is facing. Bernanke said “We are looking for ways to address the weakness in the economy should more action be needed.” The Fed still has several tools available to it including cutting the Fed Funds rate from 0.25% to zero, buying Treasuries, and even using the discount window to get cheap credit to banks. Bernanke’s term as chairman ends in 2014, making further assurances of low rates ineffective. This morning Bank of America reported earnings with a beat: 19 cents per share on lower than expected revenue. Notable earnings after today’s close will be from American Express, IBM, Qualcom, and Yum! Brands. This will be the first quarter that IBM will report earnings with combined results from former Motorola Mobility Holdings In...