May 10, 2011
Equity Markets are opening with a slight bid this morning. On the economic front import prices rose 2.2% vs. expectations of 1.8% on higher food and energy prices. The year over year increase was 11.1% vs. expectations of 10.4%. Inventories rose by the most since December, rising 1.1% vs. expectations of 1.0%. Treasury bonds are slightly down this morning, with the yield on the 10-year rising to 3.17%, down from its February high of 3.70%. Commodities are slightly down with oil down 1.5%. On the upside NYMEX gas is up over 1% and sugar up over 4%,
This is the last major week of earnings releases as 423 of 500 stocks in the S&P 500 have reported so far. To date 72% of companies have exceeded earnings and 67% have exceeded revenue estimates, both in line with the prior quarter. The average surprise for earnings has been 7%, and 1% for sales, which compares to 6% and 2% last quarter.
S&P downgraded Greece’s credit rating last night on concerns the country may be forced to restructure its debt. Greek bonds sold off hard on the news.
China's reported a strong jump in the trade surplus yesterday to $11.4 billion in April, much higher than expectations. Exports grew 30% year over year while imports grew 22%. The yuan hit an all time high yesterday.
Microsoft announced they would be buying Skype for $8.5 billion in the biggest tech deal of the year. Big Softy plans to eventually integrate internet calling into Outlook, Xbox, Windows mobile phones, and corporate phone software.
PIMCO’s holdings of government debt fell to -4%, showing they had increased their short positions. Bill Gross has been vociferous in his disapproval of the Fed’s strategy as it relates to the dollar and treasury bonds.
In a blow to regulation, FDIC Chairman Sheila Bair said she will leave when her term expires in July. Ms. Bair was very early in warning about the dangers of deteriorating credit quality in US bank portfolios. Unfortunately her warnings were ignored by Hank Paulson and Alan Greenspan.
Bloomberg is reporting that the highest earning California based city employees earned almost $10 million, or an average of $490K each. Robert Rizzo, the indicted former City Manager of Bell earned $1.2 million.
Federal regulators are considering creating new, “super-safe” mortgage loans known as qualified residential mortgages, or QRM’s, which would require a 20% down payment (I’m old enough to remember when that was the standard down payment). The Mortgage Bankers Association is estimating that rates will rise by 3%, to over 8%, for non-QRM loans. Additionally, the regulators are looking at shrinking the role of both Freddie and Fannie, pushing the secondary mortgage market increasingly to private investors.
APAC markets were mostly positive last night although volumes were low. The markets are cautious in advance of China’s inflation report coming out tonight (Wed. AM). EMEA markets are strong this morning, mostly up over 1%.
Have a great day