March 25, 2011
Equity markets are opening flat this morning after a positive revision to 4th quarter GDP, which came in at 3.1% vs. expectations of a revision to 3.0%. Inventories and nonresidential investment were revised up slightly while personal consumption and net export growth were revised down. Personal consumption for the 4th quarter was also reported this morning, and rose 4.0% vs. expectations of a 4.1% increase. The University of Michigan Consumer Confidence index came in just below consensus at 67.5 vs. 68.0. Yesterday durable goods orders (see chart below courtesy briefing.com) were lower than expected, falling by 0.9% vs. expectations of a 0.2% increase, and ex-transportation fell 0.6% vs. expectations of a 0.5% increase. The weak new orders measure is at odds with last week’s robust ISM and may just be a measurement issue, however, it bears watching as it is the second month in a row of negative orders.
Officials in Japan are reevaluating the nuclear situation after it was determined a pool of water outside the containment area had radiation levels 10K times what was previously expected. Speculation is that the core of one of the reactors may have been breached, which would lead to the release of even more radioactive material. Officials still insist that there won’t be a Chernobyl scale release of radioactive material into the environment.
Oracle (ORCL) reported earnings, revenue and guidance that exceeded the consensus yesterday, the stock is up 3% this morning. Research in Motion (RIMM) beat EPS last night, but reported in line revenues and had mixed guidance, the stock is down 10% this morning.
Moody’s downgraded the credit rating of Spain’s banking sector due to pressure on the country’s sovereign credit and many weak financial institutions.
The IMF is looking for a quick activation of a $583 billion pool targeted to countries in financial trouble.
The Fed is considering auctioning a portfolio of subprime-mortgage bonds that were once held by AIG. AIG recently bid $15.7 billion for the portfolio, which was acquired during the rescue of the company. The face value of the portfolio exceeds $30 billion.
Asian markets were strong last night, led by the Nikkei after Japanese auto makers began restarting production.
As the BOE and ECB consider raising rates, Stephen King (chief economist at HSBC, not the author) warns “the danger is of a policy mistake. In an attempt to control inflation this year, they could set the scene for more disappointing growth in the future as happened in Japan.”
More criticism of the financial reform bill known as the Dodd-Frank Act was issued yesterday, this time by Bart Chilton, who is a member of the US Commodity Future Trading Commission (CFTC). “There is no mention in the law about high-frequency trading. Matter of fact, there’s no mention in our rules or regulations anywhere. And they played a significant part in the ‘flash crash’.”
NATO has taken control of the military effort against Libya as Congressmen from both sides of the aisle aggressively question the President’s authorization for the use of force, funding, and exit strategy. Germany has expressed its disagreement with NATO taking control of the military action by pulling from ships from NATO operations in the Mediterranean. There is speculation that government and opposition representatives may hold cease fire talks today. Rumors are also circulating that Libyan officers may be ready to abandon the embattled Qaddafi.
March Madness continues this weekend. Last night U-Conn, Butler, Arizona, and Florida advanced to the Elite 8.
Have a great weekend