Market Primer: Wednesday, October 16: Markets Wobble On Debt Deal Setback

With just two days until the US’ budget deadline, House leaders were unable to bring a GOP bill to the floor for a vote on Tuesday night.

The last minute obstacle put pressure on markets as investors began to worry that defaulting was becoming a real possibility.

Fitch Ratings warned that it may cut the US’ credit rating from AAA, saying that although the agency believes the debt ceiling will be raised, the political brinkmanship has put the country’s credit in question.

Top News

In other news around the markets:

• A meeting between German Chancellor Angela Merkel and the Green Party ended with no hope of the two sides forming a grand coalition. The Greens announced that the two parties did not have enough in common to move forward with a stable government. With a Greens partnership out of the picture, Merkel is left with the Social Democrats as the only option for a coalition partner.
• Twitter announced that it was preparing to list on the New York Stock Exchange on Tuesday. The Wall Street Journal reported that the social networking site will begin its investor road show on October 28^th before its shares hit the market in mid-November.
• Italy’s Prime Minister Enrico Letta announced that the country’s new 2014 budget was a “significant step in the right direction”. The budget includes tax breaks as well as spending cuts and is expected to take Italy’s fiscal gap from 3.0 percent to 2.5 percent.
• The Fed’s Richard Fisher told Reuters on Tuesday that in light of the debt showdown, the US central bank will likely continue with its bond buying program at its October 29-30 meeting. Although Fisher has been a long time critic of the stimulus program, he admitted that even he would have trouble justifying a taper at this time.

Asian Markets

Asian markets were lower on Wednesday as the US debt deadline approached. China’s Shanghai composite lost 1.81 percent and the Shenzhen composite was down 2.37 percent. The Hang Seng index lost 0.46 percent, but Japan’s NIKKEI gained 0.18 percent.

European Markets

Europe’s markets were down across the board on Wednesday. The UK’s FTSE lost 0.44 percent and the eurozone’s STOXX 600 was down 0.40 percent. France’s CAC 40 was down 0.69 percent and the Spanish IBEX fell 0.20 percent.

Commodities

Energy futures were quiet on Wednesday, Brent futures were down 0.08 percent and WTI futures gained 0.09 percent. Gold gained 0.20 percent but silver was down 0.15 percent. Industrial metals were lower with aluminum suffering the largest losses, down 1.12 percent.

Currencies

The euro to dollar ratio was steady at $1.35, but the pound gained 0.19 percent against the dollar. The yen lost out against the greenback, down 0.21 percent

Earnings

Notable earnings released on Tuesday included:

• Yahoo! Inc. YHOO reported third quarter EPS of $0.34 on revenue of $1.08 billion, compared to last year’s EPS of $0.35 per share on revenue of $1.09 billion.
• Intel Corporation INTC reported third quarter EPS of $0.58, compared to last year’s EPS of $0.58 on revenue of $13.46 billion.
• Johnson & Johnson JNJ reported third quarter EPS of $1.36 on revenue of $17.60 billion, compared to last year’s EPS of $1.25 on revenue of $17.05 billion.
• Coca-Cola Company KO reported third quarter EPS of $0.53 on revenue of $12.03 billion, compared to last year’s EPS of $0.51 on revenue of $12.34 billion.
• Citigroup Inc. C reported third quarter EPS of $1.02 on revenue of $17.90 billion, compared to last year’s EPS of $1.06 on revenue of $13.95 billion.

Pre-Market Movers

Stocks moving in the pre-market included:

• JP Morgan Chase and Company JPM gained 1.87 percent in pre-market trade after rising 2.83 percent over the past five days.
• General Motors Co GM was up 0.43 percent in pre-market trade after losing 1.78 percent on Tuesday.
• General Electric Co GE rose 0.41 percent in pre-market trade after two days of losses this week.
• Omnicom Group Inc OMC lost 1.85 percent in pre-market trade after rising 4.79 percent over the past week

Earnings

Earnings reports expected on Wednesday include:

• eBay Inc. EBAY is expected to report third quarter EPS of $0.63 on revenue of $3.90 billion, compared to last year’s EPS of $0.55 per share on revenue of $3.40 billion.
• Pepsico, Inc. PEP is expected to report third quarter EPS of $1.17 on revenue of $16.97 billion, compared to last year’s EPS of $1.20 on revenue of $16.65 billion.
• Bank of America Corporation BAC is expected to report third quarter EPS of $0.18 on revenue of $22.08 billion, compared to last year’s EPS of $0.00 on revenue of $20.43 billion.
• American Express Company AXP is expected to report third quarter EPS of $1.21 on revenue of $8.22 billion, compared to last year’s EPS of $1.09 on revenue of $7.86 billion.
• Xilinx, Inc. XLNX is expected to report third quarter EPS of $0.53 on revenue of $588.28 million, compared to last year’s EPS of $0.46 on revenue of $543.93 million.

Economics

On Tuesday’s economic calendar includes US CPI, eurozone CPI, eurozone trade balance, the British unemployment rate, and the Italian trade balance

Good luck with your mid-week trades!

For a recap of Tuesday’s market action, click here.

Tune into Benzinga’s pre-market info show with Dennis Dick and Joel Elconin here.