Archive - Apr 22, 2014 - Story

Another month, another drop in existing home sales, which in March declined once again from 4.60MM units to 4.59MM. While the good news was that this number did beat the consensus estimate of 4.56MM (based on a a range of 4.50MM to 4.85MM from 75 economist surveyed), the bad news was that once again, a near majority of the upside was once again due to investors and other all-cash buyers, who accounted for 50% of all sales. That and that like last time, of course, this was the worst existing home sales number since July 2012.

After 2 dismal missing months in a row, the Richmond Fed manufacturing survey rebounded dead-cat-bouncedly with its biggest MoM rise since August. The bulk of the gains were a huge swing in New Orders (from -9 to +10) but average workweek was stagnant and wages dropped to their lowest in 12 months. Sadly, for those extrapolating this surge to 'escape velocity' growth any minute now, the Richmond Fed's six-month forward outlook saw shipments, new orders, employees, wages, and capex all drop...

Presented with no comment...

The morning opened with stocks decoupled from FX carry - despite some random Nikkei headlines to juice JPY - and S&P futures pinned to 5Y yields (as the correlated pair of choice for now). S&P and Dow have rallied back into positive territory for April - so Mission Accomplished for now...

If you know your "partner" is about to submit a takeover bid for a company, wouldn't you buy every call option you can find ahead of the announcement? That is precisely what Ackman did.

Vice President Jo Biden's show of support arrival in Ukraine started with a somewhat back-handed statement that left some questioning Biden's diplomatic skills once again. "You face some very daunting problems and some might say humiliating threats are taking place," Biden spoke to Ukraine officials, pledging an additional $50 million to help Ukraine's beleaguered government with political and economic reforms. As CBS reports, The White House has also announced $8 million in nonlethal military assistance for the Ukrainian armed forces, including bomb-disposal equipment, communications gear and vehicles. Biden concluded his oratory with a threat - that seemed oddly worded given the 'actions' of the last few days, warning Russia that "it's time to stop talking and start acting."

In yet another surprising 'loss' for the current administration, RT reports a three-judge 2nd Circuit Court of Appeals overturned a previous ruling that would have allowed the federal government to keep the rationale behind drone killings classified. The US Department of Justice must turn over important details from a key "White Paper" which the government has used to justify targeted killings across the Middle East. While the document was no secret (with parts leaked before Brennan's swearing in as CIA chief last year), the judges ruled that "whatever protection the legal analysis might once have had has been lost be virtue of public statements of public officials and official disclosure of the DOJ White Paper." As the ACLU stated, "This is a resounding rejection of the government’s effort to use secrecy, and selective disclosure, as a means of manipulating public opinion about the targeted killing program."

Another company which relies on the viability of the global consumer for its profits reports, and sure enough another company that misses: namely McDonalds.  Moments ago the fast-food giant reported Q1 revenues of $6.70 billion, missing expectations of $6.72 billion (pushing the number of companies that have missed revenue estimates this earnings season once again into the majority), and also missing EPS estimates of $1.24, printing at $1.21, which however will not be a surprise to those who have been following our reporting on MCD's same store sales growth, or lack thereof, in the US. But while the collapse of the US consumer is well-known, and will hardly be an embarrassment for McDonalds management to reveal its exposure to it, what does the CEO blame the miss on? Why the weather of course.

• Ukraine Accord Nears Collapse as Biden Meets Kiev Leaders (BBG)
• Novartis reshapes business via deals with GSK and Lilly (Reuters)
• Moscow Bankers See Fees Slide 67% as Ukraine Crisis Grows (BBG)
• Why ECB's QE will be Ukraine's fault: Draghi Gauges Ukraine Effect as ECB Tackles Low Inflation (BBG)
• As Phone Subsidies Fade, Apple Could Be Hurt (WSJ)
• Amazon Sales Take a Hit in States With Online Tax (BBG)
• Ford Speeds Up Succession Plan: Mark Fields, Auto Maker's No. 2, Seen Replacing Alan Mulally as CEO Ahead of Schedule (WSJ)
• U.S. force in Afghanistan may be cut to less than 10,000 troops (Reuters)
• IBM End to Buyback Splurge Pressures CEO to Boost Revenue (BBG)

While the rest of the market has been largely quiet as earnings week unfolds, it have been the pharma companies that has stolen the spotlight in the past few days. First it was the rumor that Pfizer may, reluctantly, be courting Astra-Zeneca, then yesterday afternoon news broke that Valeant in conjunction with Bill Ackman (did he replace his "expert" retail analyst with a healthcare specialist?) would team up to buy Botox maker Allergan - an announcement which once again magically lifted the stock price of both potential buyer and seller - something which usually happens only at bubble peaks. And overnight, Swiss firm Novartis unveiled a sweeping overhaul of its product portfolio, selling two units and buying another in a series of transactions worth more than $25 billion.

Moving onto overnight markets, apart from China we are seeing broad based gains across most Asian equities. Bourses in Japan, Korea and Australia are up +0.2%, +0.2% and +0.5% respectively whereas the Hang Seng and the Shenzhen Composite indices are down -0.2% and -1.1% as we type. The gains in broader Asia Pacific followed what was another constructive session for risk assets yesterday during US trading hours. The S&P 500 (+0.38%) rose for its 5th consecutive day partly driven by better corporate earnings from the likes of GE and Morgan Stanley. Staying on the results season, we’ve had 70 of the S&P 500 companies  reporting so far and the usual trend is starting to emerge in which earnings beats are faring better than revenue beats. Indeed the beat:miss ratio for earnings has been strong at 77%:23% whereas revenue beats/misses are more balanced at 50%:50%. Looking ahead, markets should get ready for another big week of US earnings.