Benzinga Market Primer: Thursday, August 22: Fed Minutes Offer Little Guidance, Bets Still On For September Tapering
The FOMC minutes provided little guidance as to when the Fed will begin to pare its stimulus; however the minutes did confirm that all of the US central bankers were in agreement that the tapering should begin sometime this year.
In other news around the markets:
- In the FOMC minutes, a new tool that would be used to sell securities to the market overnight was discussed as a possibility to remove excess cash from the financial system. Using the tool, the Fed would have an overnight reverse repurchase agreement.
- A Reuters poll of manufacturers in Japan showed optimism had risen to the highest level in three years for all but makers of cars and electronics. The survey's index rose 3 points in August and is expected to rise 2 more in November. The results are strongly correlated to the BOJ's quarterly tankan survey.
- Chinese HSBC Flash PMI data showed the nation was on the mend, with a reading of 50.1 which barely scraped above the 50 point level that indicates growth.
- After Goldman Sachs issued a wave of erroneous trades that hit the markets on Tuesday, US option-exchange officials have decided to cancel most of the trades, which were caused by a glitch in the Goldman trading system. The decision will limit losses for Goldman, but will likely impact all of the trading firms on the other side of the transactions.
- The UK's banking regulator has come to an agreement with 13 banks that mis-sold identity theft protection. The banks could be forced to pay up to 1.3 billion pounds to compensate the seven million customers affected.
- The Jackson Hole economic policy symposium opens today without several key players including Fed Chairman Ben Bernanke, POE Governor Mark Carney, ECB President Mario Draghi and Central Bank of Brazil President Alexandre Tombini.
Asian markets were down across the board after FOMC minutes left investors without evidence to believe that September bets for stimulus tapering were off base. Improved Chinese PMI data provided temporary relief, but indexes ended down. In China, the Shenzehen composite and Hong Kong's Heng Seng index ended flat with 0.08 percent and 0.06 percent gains respectively; but the Shanghai composite was down 0.24 percent. The Japanese Nikkei index lost 0.44 percent and New Zealand's NZ50 was down 0.48 percent.
European markets began the morning on a high note, especially in Germany where PMI data boosted investor confidence. At 7:50 GMT the German DAX was up nearly a percentage point with 0.96 percent gains. The eurozone's Stoxx 600 index followed suit with 0.79 percent gains and the UK's FTSE index gained 0.72 percent. Spain's IBEX saw the largest gains with a 1.57 percent jump.
Despite the looming Fed taper, energy prices remained buoyant as positive economic data added to hopes of growing demand. Brent futures were flat with only 0.09 percent gains but WTI futures for October were up almost half a percentage point at a price of $104.32. Precious metals didn't fare quite so well with gold losing 0.57 percent and silver down 0.90 percent. Copper started the morning off with a 0.89 percent gain.
The dollar was on the rise this morning as more positive economic data is expected today. The euro to dollar ratio was little changed at $1.3352, but the British pound lost ground against the greenback with a 0.37 percent loss. The yen also lost to the dollar with rising treasury yields and strong Chinese data on the greenback's side. At 8:00 GMT the dollar was at ¥98.23, near a one week high.
Earnings Reported Yesterday
Notable companies that reported earnings on Wednesday included:
- Hewlett-Packard Co (NYSE: HPQ) reported third quarter EPS of $0.86 on revenue of $27.20 billion, which was mostly in line with expectations
- Lowe's Companies, Inc. (NYSE: LOW) reported second quarter EPS of $0.88 on $15.70 billion in revenue, compared to last year's EPS of $0.65 on revenue of $14.25 billion
- Staples, Inc. (NASDAQ: SPLS) reported second quarter EPS of $0.16, below expectations of $0.18. Revenue also came in below expectations at $5.31 billion.
- Target Corporation (NYSE: TGT) reported second quarter EPS of $1.19, above expectations of $0.99. Revenue was $17.12 billion, compared to last year's $16.78 billion
Stocks moving in the pre-market included:
- Hewlett-Packard Co. (NYSE: HPQ) was down 7.49 percent in premarket trade after the company reported an 8 percent sales drop in its third quarter earnings report
- Ford Motor Co. (NYSE: F) lost 0.49 percent in premarket trade after a Ford Australia spokeswoman admitted that changes to Australia's Fringe Benefits Tax has impacted sales
- General Motors (NYSE: GM) gained 0.49 percent after the company's Chevrolet Silverado and GMC Sierra were awarded the highest possible safety rating
Notable companies expected to report earnings on Thursday include:
- Aeropostale Inc (NYSE: ARO) is expected to report a second quarter loss of $0.16 on $461.22 worth of revenue
- Abercrombie & Fitch Corporation (NYSE: ANF) is expected to report second quarter EPS of $0.31 compared to last year's $0.20 on revenue of $1.01 billion.
- Dollar Tree, Inc. (NASDAQ: DLTR) is expected to report second quarter EPS of $0.57 on revenue of $1.86 billion compared to last year's EPS of $0.51 on $1.70 billion.
- Hormel Foods Corporation (NYSE: HRL) is expected to report third quarter revenue of 2.12 billion compared to last year's $2.01 billion and EPS of $0.45 vs. last year's $0.41.
- Sears Holdings Corporation (NASDAQ: SHLD) is expected to report second quarter revenue of $9.01 billion with a loss of $1.10 compared to last year's loss of $0.86 on revenue of $9.47 billion.
- Ross Stores, Inc. (NASDAQ: ROST) is expected to report second quarter EPS of $0.93 on revenue of $2.52 billion, compared to last year's EPS of $0.81 on $2.34 billion worth of revenue.
Thursday is a busy day for US data, with the CB leading index, consumer confidence data, manufacturing PMI, house price index data, initial and continuing jobless claims, and natural gas storage data all coming out. The eurozone is also set to release a host of PMI data including eurozone services and manufacturing PMI as well as German and French services and manufacturing PMI. Also notable will be the release of the Chinese trade balance, Canadian retail sales data, and the Brazilian unemployment rate.
For a recap of Wednesday's market action, click here.
Tune into Benzinga's pre-market info show with Dennis Dick and Joel Elconin here.
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