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Morning Update



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 353,000, 27,000 less than expected. Continuing claims also showed strength, down 35,000. The four-week moving average of new claims fell to 367,250. Because jobless claims can be so volatile the four-week moving average is the best way to determine the overall trend of claims.

Notable earnings yesterday after the close included Visa, Western Digital, and Zynga. Visa posted a loss of $1.8B on an increase in litigation costs (Washington Post). Excluding provisions for litigation net income came to $1.56 per share. Revenue was up 20%. However, Visa did report that the volume of transactions worldwide fell 1% in the US, suggesting consumers are spending less due to economic uncertainty.

In contrast, Zynga delivered a disappointing quarter, missing on EPS and revenue. This has sent social media shares down sharply, including Facebook. Facebook is set to deliver its first quarterly results as a company today after the bell.

3M reported earnings yesterday of $1.66 per share, up $0.06 Y/Y though revenue fell 2% to $7.53B (MSNBC). The company did not revise its previous guidance, but did mention it expects currency appreciation to reduce foreign sales by about 3% this year. We remain bullish on this stock going forward.

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