The earnings from corporate America so far have been better than expected and the outlook announced by some of these firms add to optimissm that the global economy isn't so bad afterall.
The worst is truly over.
These major firms beat expectations, pushing the stock indices higher pre NY open:
Caterpillar - construction
Coca Cola - consumer
Merck - pharma
Du Pont - chemicals
Whether or not analysts have put the earnings bar too low is one thing (they might have been too much on the conservative side), but at the moment, stock valuation at current prices do look attractive.
Goldman Sachs and some other banks raised their year end target for the S&P 500 to slightly above 1000.That's an additional upside of 4.4% from here (957.05 at print).
It looks like we're leaving the Mar crash well behind.
Tuesday, July 21, 2009
Saturday, July 18, 2009
Its not all that rosy in the banking sector
Yes its not all that rosy.
No doubt every major bank that reported Q2 results had reason to be proud of itself as the earnings easily beat estimates; there's little reason to be upbeat about future earnings.
This is especially so for the banks which has big consumer businesses like Citi and BoA. Firstly, Citi and BoA avoided losses in Q2 only because respectively, they sold Smith Barney brokerage and China Construction Bank stakes profitably.
They took more credit losses in the last quarter for the consumer businesses and expects this part of their business model to remain weak for the forseeable future. And that means, improving next few quarters' earnings will be challenging.
FT says Citi and BoA suffered USD 12.4 bn and USD 16.4 bn in credit costs in the last quarter.The economy must pick up fast for them to continue to do well but I think there's more de-leveraging to be done by the US consumer, the recession will be around for some time.
In contrast to investment banks like Goldman and JP Morgan, whose capital markets businesses are their earnings lynchpins, have lesser consumer related baggage.
So that doesn't sound too upbeat for stocks to me. Afterall, the S&P500 is made up of a larger group of firms that has little to do with the investment banking giants like GS and JPM and if earnings don't look too good, the euphoria will not last long.
Stocks will need more other reasons other than the bank-led surge to move another leg higher.In the following days, regional banks will too, announce Q2 earnings and these banks being more exposed to the American consumer would likely not do so well.
But the good news is... Initial Jobless Claims on Thur point to a firming to some extent of the labour market. The claims fell at a record pace as sackings in the auto and manufacturing industries have already been carried out earlier in the year.
Although Continuing Claims, an estimate of still unemployed people is at a record high, Non Farm Payrolls numbers should improve going forward.
Till then, the market is still focused on the rest of the earnings season.
No doubt every major bank that reported Q2 results had reason to be proud of itself as the earnings easily beat estimates; there's little reason to be upbeat about future earnings.
This is especially so for the banks which has big consumer businesses like Citi and BoA. Firstly, Citi and BoA avoided losses in Q2 only because respectively, they sold Smith Barney brokerage and China Construction Bank stakes profitably.
They took more credit losses in the last quarter for the consumer businesses and expects this part of their business model to remain weak for the forseeable future. And that means, improving next few quarters' earnings will be challenging.
FT says Citi and BoA suffered USD 12.4 bn and USD 16.4 bn in credit costs in the last quarter.The economy must pick up fast for them to continue to do well but I think there's more de-leveraging to be done by the US consumer, the recession will be around for some time.
In contrast to investment banks like Goldman and JP Morgan, whose capital markets businesses are their earnings lynchpins, have lesser consumer related baggage.
So that doesn't sound too upbeat for stocks to me. Afterall, the S&P500 is made up of a larger group of firms that has little to do with the investment banking giants like GS and JPM and if earnings don't look too good, the euphoria will not last long.
Stocks will need more other reasons other than the bank-led surge to move another leg higher.In the following days, regional banks will too, announce Q2 earnings and these banks being more exposed to the American consumer would likely not do so well.
But the good news is... Initial Jobless Claims on Thur point to a firming to some extent of the labour market. The claims fell at a record pace as sackings in the auto and manufacturing industries have already been carried out earlier in the year.
Although Continuing Claims, an estimate of still unemployed people is at a record high, Non Farm Payrolls numbers should improve going forward.
Till then, the market is still focused on the rest of the earnings season.
Thursday, July 16, 2009
We're slowing down
I don't have to say again what happened in the last 2 days.
Earnings announced thus far have outperformed very well, sending stocks and higher yielding currencies higher against the dollar and yen. If you were long in this market, good for you.
Today, there had been a wet blanket thrown into the mix - the CIT group's impending bankruptcy filing. Talks with government officials broke down, apparently because the company could not find a way to restructure and save itself going forward.
I'd say its politics. Afterall, they let Lehman, GM, Chrysler go, what's more a relatively small company like CIT.
A lender to many small and medium sized businesses, CIT's bankruptcy represents the wider tough credit picture the US economy is facing - which puts a drag on the recovery process.
This is a different problem from that which the bulge bracket investment banks face. The small and medium sized business are the largest group of employers in the US. If these businesses could not get credit, more people will get laid off.
The market mysteriously lost its euphoria. During the asian trade, the Dow traded negative.
Also because I believe the market's 3% surge during last night's trade was also to price in JP Morgan's better than expected Q2 earnings announced just today. True enough, when JPM's news was out, its stock actually fell on profit taking.
From here there are plenty of choppiness to be expected as some big firms have yet to announce earnings.
I'd advise against going too long from here.
Earnings announced thus far have outperformed very well, sending stocks and higher yielding currencies higher against the dollar and yen. If you were long in this market, good for you.
Today, there had been a wet blanket thrown into the mix - the CIT group's impending bankruptcy filing. Talks with government officials broke down, apparently because the company could not find a way to restructure and save itself going forward.
I'd say its politics. Afterall, they let Lehman, GM, Chrysler go, what's more a relatively small company like CIT.
A lender to many small and medium sized businesses, CIT's bankruptcy represents the wider tough credit picture the US economy is facing - which puts a drag on the recovery process.
This is a different problem from that which the bulge bracket investment banks face. The small and medium sized business are the largest group of employers in the US. If these businesses could not get credit, more people will get laid off.
The market mysteriously lost its euphoria. During the asian trade, the Dow traded negative.
Also because I believe the market's 3% surge during last night's trade was also to price in JP Morgan's better than expected Q2 earnings announced just today. True enough, when JPM's news was out, its stock actually fell on profit taking.
From here there are plenty of choppiness to be expected as some big firms have yet to announce earnings.
I'd advise against going too long from here.
Monday, July 13, 2009
Wild swings
What a day to start off the week
During the asian and early europe session, risk aversion was the call of the day as doubts about the global economic recovery came flooding back into the market. GBPUSD, a reasonably correlated currency pair with stocks, fell to as low as 1.6032 from an open near the 1.62 level, a 170 pips fall.
The over 2% fall in the Nikkei 225 started the ball rolling as PM Aso lost in the Tokyo election, which is widely seen as a national poll verdict for the ruling party. It seems the ruling party will be heading out of the government, sooner or later.
USDJPY once crashed to 91.72 (yes again), bringing down the EURJPY and GBPJPY crosses about 100 and 250 pips! at their lowest.
Then came Ms Meredith Whitney, the analyst who once famously predicted that Citi will cut their dividend payout at the onset of the whole credit crisis last year. She appeared on Bloomberg and CNBC interviews and said Goldman Sachs will outperform expectations. That lent support to risk appetite and gave optimissim that the banks are healing.
The Dow traded feebly within the first hour and then surged higher. At print (Spore time 11:44pm) it trades +130 pts. GBPUSD is just 40 pts short of its open, after recovering much of its losses on the day.
The optimissim is good, however, for it to last, more meaningful hard data has to be seen before we can conclude the US, the world's largest consumption market, has the recovery legs.
I think tomorrow's US Advance Retail Sales is an important econ indicator. The market expects an increment of 0.5%.
Q2 earnings are very important to watch this week as well. Goldman Sachs are out tomorrow (14 jul) before the bell and the rest are as follows for this week:
Intel - 14 Jul - after mkt - estimate: +3.5 / share
JP Morgan Chase - 16 Jul - estimate: +0.153 / share
IBM - 17 jul - +2.01 / share
Citi - 17 jul - -0.321 / share
GE - 17 jul - +0.24
BoA - 17 jul - + 0.088
I'd not bet big ahead of these important releases.
During the asian and early europe session, risk aversion was the call of the day as doubts about the global economic recovery came flooding back into the market. GBPUSD, a reasonably correlated currency pair with stocks, fell to as low as 1.6032 from an open near the 1.62 level, a 170 pips fall.
The over 2% fall in the Nikkei 225 started the ball rolling as PM Aso lost in the Tokyo election, which is widely seen as a national poll verdict for the ruling party. It seems the ruling party will be heading out of the government, sooner or later.
USDJPY once crashed to 91.72 (yes again), bringing down the EURJPY and GBPJPY crosses about 100 and 250 pips! at their lowest.
Then came Ms Meredith Whitney, the analyst who once famously predicted that Citi will cut their dividend payout at the onset of the whole credit crisis last year. She appeared on Bloomberg and CNBC interviews and said Goldman Sachs will outperform expectations. That lent support to risk appetite and gave optimissim that the banks are healing.
The Dow traded feebly within the first hour and then surged higher. At print (Spore time 11:44pm) it trades +130 pts. GBPUSD is just 40 pts short of its open, after recovering much of its losses on the day.
The optimissim is good, however, for it to last, more meaningful hard data has to be seen before we can conclude the US, the world's largest consumption market, has the recovery legs.
I think tomorrow's US Advance Retail Sales is an important econ indicator. The market expects an increment of 0.5%.
Q2 earnings are very important to watch this week as well. Goldman Sachs are out tomorrow (14 jul) before the bell and the rest are as follows for this week:
Intel - 14 Jul - after mkt - estimate: +3.5 / share
JP Morgan Chase - 16 Jul - estimate: +0.153 / share
IBM - 17 jul - +2.01 / share
Citi - 17 jul - -0.321 / share
GE - 17 jul - +0.24
BoA - 17 jul - + 0.088
I'd not bet big ahead of these important releases.
Wednesday, July 8, 2009
Risk aversion in FX
Stocks were mixed at print - 11:48 est time. The dow is slightly sub zero but the S&P500, down 0.74%, below the all important head and shoulders neckline of 880.
The S&P 500 is currently trading at 877. Another's day close below this level could open the way for further declines. Poor economic outlook by companies which report Q2 earnings in the coming days will kill the market.
As this point, we need more convincing evidence of economic growth before risk appetite receives another leg up, but it doesn't look like it at all.
Shorting on strength of risk assets remain my strategy unless Q2 earnings tells us things are not as bad as they seem.
As I have mentioned in my previous post, the yen has emerged as the favoured safe haven currency of choice instead of the dollar. Cross yen currency pairs have sold off massively at print. EURJPY and GBPJPY have lost massively - at least 3% each.
USDJPY is 2.6% lower as well.
Wow.
The S&P 500 is currently trading at 877. Another's day close below this level could open the way for further declines. Poor economic outlook by companies which report Q2 earnings in the coming days will kill the market.
As this point, we need more convincing evidence of economic growth before risk appetite receives another leg up, but it doesn't look like it at all.
Shorting on strength of risk assets remain my strategy unless Q2 earnings tells us things are not as bad as they seem.
As I have mentioned in my previous post, the yen has emerged as the favoured safe haven currency of choice instead of the dollar. Cross yen currency pairs have sold off massively at print. EURJPY and GBPJPY have lost massively - at least 3% each.
USDJPY is 2.6% lower as well.
Wow.
Tuesday, July 7, 2009
Rangey day
Risk aversion is seeping back into the market. The Dow now trades -80 (11:16 est) even in the absence of bad econ data. European trading were tepid as well.
Even last night's positive close in the US stock markets were due to defensive stocks moving higher e.g. consumer staples. Breadth of the move was poor as well, meaning the upmove appears weak.
I heard that speculative accounts have been selling risk assets recently so as to lock in profits ahead of the US Q2 earnings season. There're risks of poorer performance as compared with Q1.
Alcoa, the belweather commodities firm will report after the bell on Wed 8 Jul.
As one analyst put it, the market is likely to react more strongly to bad news now than good news. I feel that in this non trending environment, this is likely to happen as well.
Some TA analysts say 890 is the neckline support for the head and shoulders pattern formation for S&P 500. If broken, prepare for another surge downwards.
In FX, the majors traded rangey against the dollar in spite of the decline in US stocks and the looming sense of risk aversion.
This is because tonight, the Treasury will sell about USD 30 bn worth of treasuries, worsening the fiscal position of the US and pressuring the dollar. The market has been harping on about the increased supply of treasuries but auctions (demand) have been good.
Yesterday the Treasury successfully sold USD 10 bn of treasuries including TIPS with good bid to cover ratio.
Central banks (through the way of indirect bids) have lent support to treasuries. It makes sense because where else can they park their dollars. The dollar and treasury market liquidity comes at a premium.
In contrast, the ECB has been very prudent with their monetary policy and I feel this is the main reason the EURUSD is supported. Members like Weber, Stark and Noyer have stated that 1)inflation is not a concern 2) no additional asset purchases are needed now - which will help the fiscal position of the EZ.
Today, the EUR tried to make progress against the dollar but to no avail given the poor risk appetite.
However, in the coming few days there could be good opportunities to long the EURUSD for a medium term bet because monetary policy is what will drive prices, rather than the risk aversion flows.
Even last night's positive close in the US stock markets were due to defensive stocks moving higher e.g. consumer staples. Breadth of the move was poor as well, meaning the upmove appears weak.
I heard that speculative accounts have been selling risk assets recently so as to lock in profits ahead of the US Q2 earnings season. There're risks of poorer performance as compared with Q1.
Alcoa, the belweather commodities firm will report after the bell on Wed 8 Jul.
As one analyst put it, the market is likely to react more strongly to bad news now than good news. I feel that in this non trending environment, this is likely to happen as well.
Some TA analysts say 890 is the neckline support for the head and shoulders pattern formation for S&P 500. If broken, prepare for another surge downwards.
In FX, the majors traded rangey against the dollar in spite of the decline in US stocks and the looming sense of risk aversion.
This is because tonight, the Treasury will sell about USD 30 bn worth of treasuries, worsening the fiscal position of the US and pressuring the dollar. The market has been harping on about the increased supply of treasuries but auctions (demand) have been good.
Yesterday the Treasury successfully sold USD 10 bn of treasuries including TIPS with good bid to cover ratio.
Central banks (through the way of indirect bids) have lent support to treasuries. It makes sense because where else can they park their dollars. The dollar and treasury market liquidity comes at a premium.
In contrast, the ECB has been very prudent with their monetary policy and I feel this is the main reason the EURUSD is supported. Members like Weber, Stark and Noyer have stated that 1)inflation is not a concern 2) no additional asset purchases are needed now - which will help the fiscal position of the EZ.
Today, the EUR tried to make progress against the dollar but to no avail given the poor risk appetite.
However, in the coming few days there could be good opportunities to long the EURUSD for a medium term bet because monetary policy is what will drive prices, rather than the risk aversion flows.
Thursday, July 2, 2009
NFP day
Of course the mother of all econ data - the US non farm payroll numbers, which came out much worse at -467k vs expectations for a - 300 plus k reading and killed the market.
US stocks are trading -2%.
Reading into more details, the depressing thing about it is that the service sector lost alot more jobs than in previous months. As the service industry make up a bulk of the world's biggest economy, this is a big hit and will put to rest hopes for a quick rebound in the US economy.
Even the federal government fired more than they hired.
I'd be watching the next few months' service industry sacking rate to gauge the strength of the recovery.
Comparing with fx however, risk aversion flows into the dollar is not as drastic, surprisingly. The Euro and Sterling Pound are trading just under 1% lower against the greenback, compared with close to -2% in stocks. Only the NZD is trading lower by more than 1% against the dollar.
Reason being, the weakening US economy does not bode well for a strong dollar. Also, next week the US Treasury will be issuing close to USD 80 bn worth of treauries, further weakening the fiscal position of the US.
This of course, though is not as high as the record USD 104 bn issue last week, is still a huge auction by any measure. Afterall, its all accumulative, like our own credit card debts.
Going forward, I believe there should be a continuing of dollar buying in the next few days as the market reverberrates from the shock of the NFP fallout. But this would be limited for the reasons mentioned above.
Over the medium term, I see the majors strengthening against the dollar.
Yen looks likely to be the safe haven of choice. Japan afterall sits on massive savings and has surplus supported by investment income. Selling cross yen pairs (e.g. EURJPY, GBPJPY, AUDJPY, NZDJPY) in the event of risk aversion would be ideal.
US stocks are trading -2%.
Reading into more details, the depressing thing about it is that the service sector lost alot more jobs than in previous months. As the service industry make up a bulk of the world's biggest economy, this is a big hit and will put to rest hopes for a quick rebound in the US economy.
Even the federal government fired more than they hired.
I'd be watching the next few months' service industry sacking rate to gauge the strength of the recovery.
Comparing with fx however, risk aversion flows into the dollar is not as drastic, surprisingly. The Euro and Sterling Pound are trading just under 1% lower against the greenback, compared with close to -2% in stocks. Only the NZD is trading lower by more than 1% against the dollar.
Reason being, the weakening US economy does not bode well for a strong dollar. Also, next week the US Treasury will be issuing close to USD 80 bn worth of treauries, further weakening the fiscal position of the US.
This of course, though is not as high as the record USD 104 bn issue last week, is still a huge auction by any measure. Afterall, its all accumulative, like our own credit card debts.
Going forward, I believe there should be a continuing of dollar buying in the next few days as the market reverberrates from the shock of the NFP fallout. But this would be limited for the reasons mentioned above.
Over the medium term, I see the majors strengthening against the dollar.
Yen looks likely to be the safe haven of choice. Japan afterall sits on massive savings and has surplus supported by investment income. Selling cross yen pairs (e.g. EURJPY, GBPJPY, AUDJPY, NZDJPY) in the event of risk aversion would be ideal.
Wednesday, July 1, 2009
Day with fair weather
As mentioned in my previous post, China's PMI, which many expected should surpass expectations, did just that and added some more positivity into the market.
To that, european data was not too shabby as well, helping the majors rally against the dollar, besides JPY.
In the US session, US ISM manufacturing and pending home sales were acceptable as well and pointed to slowing contraction in the economy, lifting stocks.
At print, the Dow is up 100 pts.
I hope you have been long on the higher yielding currencies.
Tomorrow will be a data-full day, including Non Farm Payrolls, expectations are for a -370k reading.
Trading should be rangey ahead of that release.
To that, european data was not too shabby as well, helping the majors rally against the dollar, besides JPY.
In the US session, US ISM manufacturing and pending home sales were acceptable as well and pointed to slowing contraction in the economy, lifting stocks.
At print, the Dow is up 100 pts.
I hope you have been long on the higher yielding currencies.
Tomorrow will be a data-full day, including Non Farm Payrolls, expectations are for a -370k reading.
Trading should be rangey ahead of that release.
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