Benzinga Market Primer, Monday July 30
Markets await interest rate decisions from multiple central banks this week as the European Debt Crisis continues to drag on global growth. Comments from European politicians and leaders last week indicated that the European Central Bank is set to launch a new round of crisis fighting measures including bond buying on the secondary market. Also, the temporary bailout fund, the European Financial Stability Facility, is set to start buying bonds in the primary market (at auction) to cap yields and keep borrowing costs down for peripheral nations. However, these new policies should be taken with a grain of salt, as they are clearly a sign that Spain is on the verge of bankruptcy and Italy on the verge of being locked out of financial markets.
In other news around the markets:
- Italy auctioned 10- and 5-year debt with yields rising slightly from the previous auction on the 10-year to 5.96 percent and falling slightly on the 5-year to 5.29 percent. These yields were well below those seen early last week in the secondary markets.
- Moody's, in its weekly credit outlook, suggests that new ECB action is welcome but is not enough to fix the inherent problems in Europe but is the next step to maintain the "muddle-through" strategy of crisis fighting adopted by European leaders.
- PIMCO does not believe the hype surrounding further bond purchases, insisting peripheral debt still remain an Underweight position.
- S&P 500 futures fell 3 points to 1,379.40.
- EUR/USD 1.2262, down from highs last Friday above 1.23.
- Gold $1,623.10, up $0.40.
- Spanish 10-year yield 6.588 percent.
- Italian 10-year yield 6.026 percent.
Markets largely rose in Asian trading overnight, with the exception being shares in China. The Shanghai Composite Index fell 0.89 percent even as other regional indexes rose between 0.8 and 1.6 percent. European shares also rose in early trading on the news of ECB and EFSF intervention. Italian shares were the strongest with the MIB Index rising over 2.6 percent. The Spanish Ibex Index also rose nearly 2 percent.
Commodities largely were strong early Monday on hopes of the central banks easing policy this week. WTI Crude futures rose 0.09 percent to $90.21 even as Brent Crude futures fell 0.18 percent to $106.28. Copper futures were largely flat and gold and silver futures both rose.
The dollar is marginally stronger this morning measured by the dollar index, which rose 0.1 percent to 82.79. The Aussie dollar was notably strong, rising against multiple currencies including the U.S. dollar and the euro. The EUR/AUD cross fell to its lowest level on record, showing continued euro weakness and Aussie dollar strength. A broad measure of global trade, the AUD/CAD cross, also rose significantly, showing that investor sentiment surrounding the global economy has improved on hopes of monetary stimulus.
Revenue continues to be the key theme in this quarter's earning season, as many companies are missing revenue estimates do to global weakness. Companies including Chevron (NYSE: CVX) and Merck (NUSE: MRK) bucked the trend and impressed investors even as companies such as Facebook (NASDAQ: FB) disappointed. Notable earnings Monday include:
- Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) is expected to report Q2 EPS of $1,776.64 for the A-shares, as compared to $1,640.00.
- Herbalife (NYSE: HLF) is expected to report Q2 EPS $0.96 vs. $0.88 a year ago.
- Seagate Technology (NASDAQ: STX) is expected to report Q2 EPS of $2.51 vs. $0.28 a year ago.
- Vertex Pharmaceuticals (NASDAQ: VRTX) is expected to report Q2 EPS of $0.59 as compared to a loss of $0.85 a year ago.
- Vivus (NASDAQ: VVUS) is expected to report a Q2 loss of $0.23 per share as compared to a loss of $0.20 a year ago.
On the economic front, the Dallas Fed Index is the only data point on the calendar for Monday. Markets will await patiently the Fed's decision Wednesday and the BoE and ECB decisions Thursday. Also, this week is the first Friday of the month, which means it is Non-Farm Payroll Friday.
Good luck and good trading.
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