Weekly Recap: Traders wait thru the ‘Eye of the Storm’

A wave of enthusiasm spread over
financial markets on Tuesday on press reports that the ECB could start buying
corporate bonds to complement its ABS purchase program. The reports led
some participants to believe that a more fleshed-out QE program was under
consideration. Two ECB members, Nowotny and Coene, poured cold water on the
stories saying the MPC had held no discussions on corporate bond purchases.

All was quiet on the Ebola front this
week until Thursday afternoon, when New York City reported its first
confirmed case of the disease. Dr. Craig Spencer was placed in isolation at New
York’s Bellevue Hospital days after returning from a volunteer stint in Guinea
treating Ebola victims. Spencer had been self-monitoring, but had also spent a
fair amount out on the town before starting to feel fatigued and feverish.
Ebola treatment developers and sanitary equipment manufacturers had traded
lower this week before the announcement as no
new US cases were announced and people in Texas came out of quarantine,
and the bounce higher and Thursday and Friday was not very robust.

Amazon and IBM reported some buggy quarterly results. Amazon was sent to the
woodshed after reporting its biggest quarterly loss ever on Thursday afternoon.
The reported loss was much steeper than projected, fourth-quarter guidance was
weak and the company wrote down $170 million related to the company’s Fire
Phone, widely seen as a big flop. IBM missed top- and bottom-line expectations
and cut its FY14 and FY15 forecasts, blaming a “new definition of
calculating continuing operations.” This was the tenth straight quarter of
falling revenue. At the same time, IBM agreed to pay Globalfoundries $1.5
billion in cash to take its processor business off its hands.

Apple had stellar results in its third quarter. Earnings and revenue growth
were impressive and above expectations, margins were strong and iPhone
shipments were at the top end of market estimates. Note that Apple executives
warned the strengthening USD is becoming a significant headwind. The company
also launched its Apple Pay service on Monday at thousands of retail stores, with
early reports suggesting only some minor glitches that Apple has promised to
fix with a software update.

The DJIA’s big junk food components, Coca-Cola and McDonalds, turned some
unhealthy third quarter numbers. Coke met earnings expectations, gross margin
was up a bit y/y, and global volumes looked good. However, the -1% volume
decline in North America was a sign of trouble, and the firm warned that it
would be below its long-term EPS growth target for 2014. McDonalds missed top-
and bottom-line expectations, the declines in worldwide comps accelerated from
Q2, and management warned October comps would remain in the red.

General Motors, Ford, and Caterpillar saw strong third-quarter results. Shares
of Caterpillar posted solid gains after its numbers crushed expectations and it
raised FY14 guidance. Gains in the firm’s construction and energy equipment
sales are seeing good growth, offsetting the steep declines in mining hardware.
GM’s third-quarter earnings rose 98% y/y, bolstered by strong North America and
China results. Ford’s profit was better than expected, however both sales and
revenue declined on a y/y basis thanks to the impact of a big round of product
launches.

Consumer name Proctor & Gamble cleaned up nicely as first quarter results
met expectations, although revenue growth was limp. P&G also confirmed that
it would check out of the Duracell business by creating a stand-alone company,
possibly via a spin-off to shareholders. Analysts note that the unit has been
on the block for years and the company has had a hard time generating interest
in a sale. Competitor Colgate is looking tarnished after the firm warned FX
issues cut deeply in the quarter and forced the firm to reduce its full-year
guidance.

Coming into the week, the euro
continued to move up off the two-year lows against the dollar seen in early
October. EUR/USD traded as high as 1.2840 until the ECB corporate bond
buying story on Tuesday turned the pair around. EUR/USD glided back down to the
low 1.2600 handle on Thursday, when better October flash manufacturing PMI data
for Germany and the Eurozone helped arrest the slide. GBP/USD held below key
technical resistance in the 1.6210 area, which corresponded the summer
downtrend line in the pair. The BoE minutes saw no changes, and speculation
that they could be on the dovish side was brushed off as MCP would not have
seen the ominous September CPI inflation data at the time of the meeting.
GBP/USD had trouble retaking the 1.6100 handle.

China released the balance of its
September economic data, which along with October HSBC flash manufacturing PMI
were steady but uninspiring. The Q3 GDP reading of 7.3% was just above
consensus but still a 5-year low. Industrial output beat estimates, but power
generation growth sank below 5%. Both retail sales and fixed asset investment
growth was in low double-digits, but still marked multi-year lows. The HSBC PMI
hit a 3-month high, but the output subcomponent slowed to a 5-month lows.
Finally, September housing price data further confirmed the slowdown in the
property space, as y/y prices fell 1.1% after rising 0.5% in August. For the
week, the Shanghai Composite was down 1.7% – a second consecutive losing week
after an impressive 2-month rally.

Political maneuvering in Japan is bound to become more pronounced as the
cabinet draws closer to the expected decision on the second round of
consumption tax increase, particularly with the country’s economic progress
increasingly lagging. Japan confirmed its 27th consecutive month of trade
deficit this week, while the government cut its economic assessment for the
second straight month due to soft spots in consumption. Influential advisor to
PM Abe, Etsuro Honda, recommended that the next round of sales tax hikes be
delayed until 2017, however Finance Minister Aso countered that foregoing the
tax hike would jeopardize global investment trust in Japan’s fiscal state.
Traders are anxiously awaiting the Bank of Japan policy decision next Friday,
as it will be accompanied by the BOJ’s semi-annual Outlook Report providing the
latest forecasts for GDP and inflation. The BOJ may also justify some further
monetary policy easing to offset any fiscal strain if the tax hike is in fact
postponed.

Source:   http://tradethenews.com/