Stocks slip despite surge in housing starts
Construction of new homes climbed 15% in September. Big earnings are from IBM, BAC and PEP.
- Conflicting reports Tuesday indicated that Spain was either set to receive a "credit line" from the European Stability Mechanism or not. Also, reports stated that talks between Greece and its creditors broke down and that the nation was very close to finalizing the next round of budget cuts.
- Japanese leaders are set to decide on a new round of stimulus measures by November and the Bank of Japan seems set to act in tandem with fiscal authorities. Speculation is that the BOJ will increase its inflation target to 2% from 1% in order to spur growth.
- The Bank of England's Monetary Policy Committee minutes released Wednesday showed that members voted nine to zero to keep the current policy, however, some members discussed the potential benefits of further quantitative easing or rate cuts.
- The EUR/USD was higher at 1.3107.
- Spanish 10-year government bond yields fell to 5.552%.
- Italian 10-year government bond yields fell to 4.838%.
- Gold rose 0.14% to $1,748.70.
Commodities were mixed in overnight trading, led lower by oil futures on fears of continued weak demand. WTI Crude futures fell 0.05% to $92.04 per barrel and Brent Crude futures fell 0.34% to $113.61 per barrel. Copper futures were also weaker, again on global growth and demand fears, with futures falling 0.24% to $369.10 per pound. Gold was higher in early trade and silver futures rose ever so marginally.
Currency markets continued to show broad dollar weakness and broad euro strength in overnight Wednesday trade. Analysts at Barclays (BCS) Tuesday suggested a long EUR/USD trade on a break of 1.3025 targeting 1.32. Sure enough, the pair jumped once it broke through that level and now trades near 1.3107.
Also, the dollar fell against the yen as the Japanese currency gained 0.2% on the greenback as investors feared that any currency intervention may be delayed until the stimulus program is launched next month. Risk currencies such as the Australian and New Zealand dollars also rose in early trade against most major currencies save for the euro.
- CSX (CSX) shares rose 1.25% pre-market as the company reported better than expected earnings late Tuesday, sending shares higher.
- Shares of Apollo Group (APOL) fell 8.8% pre-market as the company missed estimates in its latest earnings report and lowered guidance, citing lower enrollment at its University of Phoenix than previously expected.
- IBM (IBM) shares fell 3.48% pre-market as the company reported weaker than expected earnings after the close.
- ASML Holdings (ASML) reported earnings that missed analyst expectations, largely due to accounting write-downs, and the stock fell 1.98% pre-market
- Abbott Laboratories (ABT) reported third quarter earnings per share of $1.30 vs estimates of $1.28 per share. It reported revenue $9.77 billion vs estimates of $9.92 billion.
- Bank of America (BAC) reported third quarter earnings per share of $0.00 vs an expected loss of 7 cents per share, and revenue $20.4 billion vs estimates of $21.89 billion
- PepsiCo (PEP) reported third quarter earnings per share of $1.20 vs estimates of $1.16 per share, and revenue $16.65 billion vs estimates of $16.90 billion
On the economic calendar Wednesday, investors will get new data on the housing market as housing starts and MBA Purchase Applications are both due out.
Also, the weekly EIA Petroleum Status Report will give insight into the supply of oil and will most likely affect the price of WTI Crude.
Wednesday is also one of two Wednesdays every month in which banks have to meet Federal Reserve capital reserve requirements, which could cause banks to be active in money markets to make sure capital levels are adequate.
Investors should also watch data out of China Wednesday night, as Beijing is expected to report investment, GDP, industrial production and retail sales data.
If you look at most of the recent earnings reports, companies seem to be consistently missing on revenues, while at the same time beating expectations on profits. This is an indication that companies are still focused on cutting expenses to meet profit targets.
Seems almost comical that for all the trouble they are in, 10 yr Italian bond yields are still less than 5%, while Spanish yields are less than 6%. Hell, this is where our yields were when we were humming along nicely in the mid 1990s.
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