Trade the News US Market Update

Dow +28 S&P +5.3 NASDAQ +4.4

***Economic Data***

– (US) ICSC/GS weekly chain store sales w/e Oct 15th: +0.1% w/w; +3.6% y/y
– (PD) Poland Sept Employment M/M: -0.1% v 0.0%e; Y/Y: 2.8% v 2.9%e
– (PD) Poland Sept Avg Gross Wages M/M: -0.3% v 0.0%e; Y/Y: 5.2% v 5.5%e
– (US) Sept Producer Price Index M/M: 0.8% v 0.2%e; PPI Ex Food & Energy M/M:0.2% v 0.1%e
– (US) Redbook Retail Sales w/e Oct 15th: +4.7% y/y; Oct MTD: -0.6% v Sept
– (US) Aug Net Long-term TIC Flows:+$57.9B v -$20.0Be; Total Net TIC Flows: +$89.6B v -$52.4B prior
– (US) Oct NAHB Housing Market Index: 18 v 15e (highest reading since May 2010)
– (EU) ECB drained €165.0B in 7-day Term-Deposit tender vs. €165.0B targeted
– (UK) BOE purchased £1.7B in reverse auction for 2028-2060 Gilts; Bid-to-cover: 1.39x

– Yesterday’s US session slide continued again this morning in the wake of Moody’s warning on France’s ratings, slowing growth in the Chinese economy and troubling results from Goldman and Bank of America. Sentiment reversed course right after the release of a surprisingly strong October housing report. The Oct NAHB was a pleasant surprise, with the main index pushing out to 17-month highs and all subcomponents showing positive gains (major homebuilders such as TOL and KBH are up approx 4% in early trading). Note that an NAHB official said that builder confidence has regained some ground thanks to an uptick in buyer interest in certain markets where the recovery is really taking hold. There were few surprises in the Sept PPI data. In Europe, German leaders continue to lower expectations for this weekend’s special EU summit. Spot gold took a tumble overnight, dropping from the $1,670-80 band it has sustained for the last several sessions to as low as $1,627. Silver is lower as well, along with some industrial metals. Treasury prices opened to the upside but sellers came in as equity markets rebounded; the US 10-year yield is drifting back towards 2.10%.

– Goldman Sachs reported its second quarterly loss since going public back in the 1990s, citing troubled in its investment portfolio and declines in trading revenue. Losses were considerably more than analysts had been projecting, and revenue was subpar. Investment banking revenues were down sharply sequentially and y/y, while the big net negative revenue figure in investing and lending segment was almost shocking. Goldman lost $1.05B from its investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC) alone in the quarter. Bank of America was a more complicated picture. Headline figures from BoA were very strong, with both profits and revenue way above par. However, big asset sales and the debit valuation adjustments (DVA) cited by the other major banks this earning season helped BoA cover up some fairly substantial losses, including a $2.2B pretax loss on private-equity assets and around $1.9B in charges related to mortgage litigation, disposing of the international cards business and other items. Net interest income fell to $10.7B from $12.7B a year earlier. Shares of both BoA and Goldman have fluctuated as investors try to make sense of their quarterly results. Shares of BAC are up 7%, while GS is up 3%. Asset manager State Street managed to top expectations on solid results, although it too is coping with lower y/y net interest margins and lower ROE.

– Dow components IBM, Coca Cola and Johnson & Johnson reported quarterly results right in line with expectations. Coca Cola saw decent growth in volumes, although it warned that cost of goods sold was up 67% in the quarter, thanks to higher commodity costs. J&J’s decline in domestic sales was more than made up for by double-digit y/y growth overseas. IBM’s business in the quarter was solid all around. IBM competitor EMC offered equally solid results in the quarter, and on the conference call EMC’s CEO warned that customers are being very careful about IT purchases.

– The greenback was off its best levels during the early portion of the NY session despite concerns that core European nations could be facing credit downgrades if they agree to backstop the banking system this week. EUR/USD managed to hold above its 200-hour moving average around the 1.3660 level to retest above 1.37, but comments from German coalition members to the effect that Merkel was considering proposing a permanent Troika program for Greece at the upcoming summit impacted the single currency. EUR/USD succumbed to fear and moved back below the 1.3660 level, although it did not elect the ‘significant’ amount of stops rumored to be lurking somewhere below this level.

***Looking Ahead***

– 11:00 (GE) German Fin Min Schaeuble
– 11:00 (US) Fed to purchase $2.25-2.75B in Notes/Bonds
– 11:30 (US) Treasury to sell 4-Week Bills
– 11:30 (US) Treasury to sell 52-Week Bills
– 12:00 (EU) ECB’s Coene speaks at Belgian Central Bank Conference
– 12:30 (US) Fed Chairman Bernanke speaks in Boston
– 14:00 (EU) EU President Van Rompuy
– 15:00 (UK) BOE Gov King
– 15:00 ((AR) Argentina Aug Economic Activity Index M/M: No est v-1.2% prior; Y/Y: 7.1%e v 7.65 prior
– 22:00 (CH) China Aug Leading Economic Index

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