Day Trading Weekly Recap: Markets Stumble, China to the Rescue?

– Housing market reports out this week indicated the industry continues to
weaken even after getting past severe winter weather. March building permits
and housing starts missed expectations, driven by a slowdown in multi-family
starts. The April NAHB housing market index was weaker than expected, moving to
an anemic 47 from the 46 seen in the March report, marking the third
consecutive month the index has been in contraction territory.

– Factory data yielded better results. The March US industrial production data
came in at +0.7%, beating expectations, and the February numbers were revised
higher. More importantly, capacity utilization rebounded to 79.2% from 78.4% in
February, putting utilization at its highest level since the very beginning of
2008. This is only 0.9 percentage points below the long-run (1972-2013)
utilization average.

– The flood of IPOs continued, although market turmoil has been hard on new
issues. Out of the 10 IPOs that launched this week, eight priced below their
expected ranges and two, Chinese firms Weibo and Leju Holdings priced at the
low end of their expected range. The most anticipated new offer was the Twitter
of China, Weibo, whose shares gained nearly 20% in trading on Thursday. Chinese
e-commerce giant Alibaba, which owns an 18% stake in Weibo, is expected to file
for its own US IPO as early as Monday.

– Gold prices tumbled approximately 2.5% on Tuesday, with spot gold dropping
below $1,300 from $1,325. There was no immediate catalyst for the move, and
prices closed out the week below $1,300. Commentators cited stronger US growth
and flagging demand that would follow lower economic growth in China, and
ignored the tensions in Ukraine. Silver and copper both moved lower along with
gold.

– Earnings season picked up pace with a flurry of financial firms reporting.
First quarter results out of Bank of America and Citigroup were mixed. Citi’s
headline results beat expectations, with net income up y/y and revenue down
about 1% y/y, driven by an 18% decline in fixed income revenue. However, the
firm’s income growth came mostly from lower losses at Citi Holdings as the unit
rolls off beleaguered legacy assets. Bank of America reported a headline loss
of $0.05, well below expectations, but this was after $6.0 billion in
litigation expense ($0.40) related to the FHFA legal settlement and reserves
for mortgage-related matters. Much like JPMorgan and Wells Fargo last week,
BoA’s consumer residential mortgage originations were horrible, down 65% y/y.

– Both Goldman Sachs and Morgan Stanley posted good headline first quarter
results, beating top- and bottom-line expectations. However, a deeper look at
Goldman’s results show a more mixed picture profit and revenue declined on a
y/y basis whereas Morgan’s profits were up 18% y/y. Goldman’s FICC trading arm
saw net revenue continue to slump, while Morgan’s fixed income business grew
its revenue take. Investment banking units at both firms saw double-digit
revenue gains.

– United Heath was the first insurer to report earnings for the period covering
the rollout of Obamacare, and it claimed health insurance reform related costs
(plus lingering sequestration costs) reduced earnings by around $0.35/share.
Executives warned that additional losses were possible related to the ACA.

– Investors were unhappy with quarterly results out of Google and IBM after
both firms missed revenue expectations. Yahoo was more or less in line, and
reported more modest gains in key advertising revenue metrics. Google saw solid
y/y growth in profits and revenue, but the key paid clicks metric was negative,
raising eyebrows. Sandisk crushed earnings expectations thanks to a big
increase in margins and very good retail sales.

– Industrials General Electric and Honeywell, and chemicals name DuPont all
missed revenue targets. Revenue and profits fell modestly on a y/y basis at GE
and sharply at DuPont, although the latter had warned investors of the slump in
guidance a month ago. Honeywell saw modest revenue and earnings growth, and
said the firm was “cautiously optimistic on the macro environment, even
with some nice momentum exiting the quarter.” 

– Extensive verbal intervention by European officials continued to exert little
downward pressure on the EUR/USD pair. Press sources reported that the next
move by the ECB would be to adopt a negative deposit rate, perhaps as soon as
the June meeting. EUR/USD bounced around in the 1.3800 handle all week long.
GBP/USD hit a 4.5 year high above 1.6800 after the UK unemployment rate moved
below the BoE’s 7.0% threshold.

– China released a full gamut of March economic data plus Q1 GDP this week. GDP
slightly topped expectations, calming fears raised earlier when March M2 money
supply increased at the slowest rate in years and aggregate funding fell 19%
y/y. The China stats bureau noted consumption was a “decisive
contributor” to Q1 GDP growth, and it also said it may begin releasing
online sales figures. A researcher with China’s top economic planning agency
NDRC said that even a slowdown to 6.5% in 2014 overall would be acceptable
without triggering more stimulus. On Thursday, a separate report showed that
China foreign direct investment fell 1.5% y/y in March, for its first decline
in over a year.