U.S. Market Update – 7/22/10
Thursday, July 22nd, 2010Economic Data
- (CZ) Czech Republic sells CZK7.0B in 91-day Bills; avg yield %; bid-to-cover
- (BR) Brazil Jul FGV Consumer Confidence: 120.0 v 118.5 prior
- (BR) Brazil Jun Unemployment Rate: 7.0% v 7.3%e
- (CA) Canada May Retail Sales M/M: -0.2% v 0.4%e; Retail Sales Less Autos M/M: -0.1% v 0.5%e
- (US) Initial Jobless Claims: 464K v 445Ke; Continuing Claims: 4.487M v 4.590Me
- (SA) South Africa Central Bank (SARB) maintained interest rates at 6.50%; as expected
- (EU) Euro-Zone Jul Advanced Consumer Confidence: -14 v -17e
- (US) Jun Existing Home Sales: 5.37M v 5.10Me
- (US) May House Price Index M/M: 0.5% v -0.3%e
- (US) Jun Leading Indicators: -0.2% v -0.3%e
- EIA Natural Gas Inventories: +51bcf vs. +50 to +55 bcf estimated range
Very strong corporate earnings reports – including excellent results from several major DJIA components – and some stronger than expected data from both sides of the Atlantic are propelling US equity indices higher. Before the open equities had regained levels seen before last Friday’s post-Citibank/BoA slide, and the indices are up even further in mid morning trading. Two modestly positive housing data reports are adding to the positive tone: both the June existing home sales number and the May house price index came in above expectations (although the June home sales data fell below May levels). The NAR warned that June sales are still showing the impact of the tax credit impact. Note also that Chinese President Hu offered supportive rhetoric overnight, saying that China would improve consumption stimulus measures in the back half of the year fueling investors risk appetite.Crude is creeping higher with the front-month contract trading just shy of $79. Copper is hitting two-month highs, while gold is also up, with the August contract within striking distance of $1,200. Fed Chairman Bernanke is testifying before the House this morning, although so far his comments have largely echoed remarks made yesterday before the Senate. Treasury markets have seen some profit taking through both an unwinding of flight to safety trades and profit taking ahead of next week’s $104B in scheduled coupon supply. Yields have not backed up all that aggressively though, with the benchmark 10-year still below 2.95%.
Quarterly results from Dow components UPS, Caterpillar, 3M and AT&T were strong, with outperformance seen on both top- and bottom lines and full-year guidance adjusted higher. UPS’s average daily volume was a bit soft, and the CEO warned that the company is not counting on a significant uptick in the economy in the second half of the year. Executives from 3M echoed this comment, and also warned that the period of “easy y/y” comparisons is now over and that it will be more difficult to show improvement in key metrics moving forward. Cat really crushed earnings estimates and boosted its 2010 outlook considerably. Cat also announced plans for two major new facilities in the US and China. AT&T reported one of its lowest postpaid churn numbers ever, although it wireless adds were a bit soft. All four names are driving strength in the DJIA, with UPS up a whopping 7%, CAT up 2% and MMM and T up 3%.
Rail name United Pacific is up 6% in early trading after beating consensus earnings estimates by a wide margin. Steelmakers Nucor and Reliance Steel are both up more than 3%, although both names were only slightly ahead of the Street on earnings and revenue in their quarterly reports. Note that Reliance missed targets in its guidance for next quarter. Nucor noted that residential and non-residential construction markets continue to show “little, if any, strength.”
Shares of semi major Qualcomm are up 8% in early trading after the firm modestly exceeded earnings and revenue targets. The firm’s guidance for next quarter and the full year was also raised somewhat. Note that Qualcomm said the impact of the euro is more than offsetting higher ASPs. Competitor Xilinx also beat expectations modestly, although XLNX is only up 2%. The company said the June quarter marked its third consecutive quarter of record sales. Cypress Semi’s shares rose as much as 6% despite the firm’s big miss on earnings, although they are well of their best levels. Hard drive maker Western Digital also missed EPS targets, which combined with very weak guidance for next quarter is sending shares of WDC lower, around -5% on the day. Both eBay and Bidu are off their highs. Ebay was in line with expectations and its net payment volumes grew sharply y/y, though its guidance for next quarter was soft.
Regional banks Fifth Third and SunTrust crushed EPS expectations, with very strong improvements in key metrics. SunTrust was still in the red, but is closer to profitability than any time in the last 18 months. Both banks continue to show big improvements in loan and credit quality. Shares of FITB and STI are up 8% or so. BB&T is lagging after the bank missed earnings expectations by a hair. BB&T’s credit quality is not showing the improvements seen among other regionals.
The greenback tried to consolidate earlier losses against the European pairs during the NY morning but rising risk appetite proved too much of a force to resiste. North American dealers focused on the comments out of China, savoring the global growth potential. The commodity-related currencies are taking the lead, aided by Caterpillar’s results. AUD/USD rallied above the 0.89 handle while USD/CAD was able to shake off the poor Canadian retail data. In a monetary policy report, the Bank of Canada lowered its Q2 GDP view to 3.0% from 3.8% prior. EUR/USD tested the 1.29 level during the mid-NY morning where some technical resistance was curbing upside momentum for the time being. Dealers are preparing for a event filled Friday ahead of the EU banking sector stress test results.
Looking Ahead
- 16:00 (US) May RPX Composite 28-day Y/Y: No est v 2.36% prior
- (CO) Colombia Central Bank Interest rate Decision: Unanimous analyst expectations is for the Overnight Lending Rate to remain steady at 3.00%
Written by Trade the News
