Greece’s cabinet approved the details of a €100B debt write-down after meeting for a bit over one hour in Athens, paving the way for a formal announcement of the deal that should be released later today. Most major global equity indices are trading higher this morning, and oil is extending its longest winning streak in two years as some economic data points to a recovery. The cost of insuring sovereign debt in Europe is falling, and the USD and Yen are weakening, signaling improving sentiment coming up on trading hours in New York. S&P 500 futures are trading up +0.256% on the day; the VIX index closed under 17 yesterday. 10yr Treasuries yields are down -2bps on the day to 1.979% reaching a one-week low after the European Commission said the region’s economy will shrink this year, led down by Italy and Spain. Sears announced plans to sell 11 store sites and separate some business segments after posting its largest quarterly loss in nine years; their stock is up +19% on this news.
Yesterday, applications for U.S. jobless benefits held at a four-year low, while housing prices rose +0.7% beating the median forecast calling for a +0.1% gain. The S&P 500 is approaching its ten month high and is climbing toward 1,363.61, last year’s peak and the highest level since June 2008. “On a short term basis the U.S. economy looks pretty good,” Kelvin Tay, chief investment strategist at UBS Wealth Management in Singapore, said in an interview with Bloomberg Television. “Many of the people who missed out on the initial rally are likely to be chasing the market and pushing up the market another leg.”
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President Obama is set to propose a “reduction” in the corporate tax rate from 35% to 28%, along with removing tax breaks and subsidies that help companies offset lost revenues. The plan would raise overall tax revenue by eliminating many popular deductions currently used, as well as placing a minimum tax rate on the earnings of U.S. companies operating overseas. The plan would have to be approved by a bipartisan congress in order to become law.
Fitch cut Greece’s credit rating to C from CCC, citing that the debt swap will lead to a “restricted default.” A purchasing-managers index of euro-area services and manufacturing dropped to 49.7, below the 50.5 forecast by economists in a Bloomberg survey. In response, Greece 10yr bond yields are soaring, while Germany’s 10yr slipped -3bps to 1.95%. U.S. equity futures are down -0.123% on the morning, while the Euro Stoxx 50 Index is trading down -0.58%. The U.S. Dollar has appreciated this morning, as sentiment has declined. “Given that Europe is still shrouded by the cloud of recession, a weak PMI — though not rain on the parade — will surely damp investor sentiment,” said Manish Singh, the London- based head of investment at Crossbridge Capital, which has more than $2 billion under management.
The Bank of England’s (BOE) Monetary Policy Committee had seven of its nine members, including Governor Mervyn King, vote to raise their bond-purchase target by 50B pounds to 325B pounds total, according to minutes released today from a Feb. 8-9 meeting. Two other members, Posen and Miles, called for 75B pounds in additional stimulus because of “the considerable margin of spare capacity remaining in the economy and the extent of deleveraging still likely to be required.” The majority of the MPC stated in the minutes, “Recent data on the domestic and international economies had on balance been more positive than might have been anticipated towards the end of 2011, pointing to the possibility that growth might be stronger than expected in the near term…. It was not clear that a stimulus larger (than 50 billion pounds) was warranted at this juncture.”
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European markets are trading lower this morning, despite word of an agreement for a €130B aid package for Greece that intends to coax investors into providing more relief to Greece to get them through their March 20 bond payment. Most stocks were slightly lower in morning trading amid speculation the deal will do little to fix Greece’s long-term challenges. The deal would have investors forgive 53.5% of their principle in exchange for new Greek government bonds and EFSF notes with maturities ranging from 11-30yrs, “replicating an amortization of 5% per annum commencing in 2023,” according to the IIF. The body the represents Greece’s private sector creditors advises debtholders “carefully consider” the deal at hand. German Finance Minister Wolfgang Schauble says, “All is still pending on what the reaction of the private sector,” will be. Unless 90% of investors go with the bond swap, Greece will be forced to use force to secure the debt relief.
In U.S. earnings new, Wal-Marts profit fell 15% on rising fuel costs and a struggling labor market, although same store sales inched higher. For the quarter ending Jan. 31, Wal-Mart reported a profit of $1.5 per share, down from $1.70 a year earlier. Kraft, who also reported this morning, experienced a +54% increase in its 4Q earnings, as higher prices boosted the company’s revenue, and some of that cost was easily passed on to consumers. The company reported last month that it intended to slash as many as 1,600 jobs throughout 2012 as it prepares to split itself into two businesses: a global snack company and a North American focused grocery business. Kraft reported earnings of $0.47 per share, versus $0.31 a year earlier. Removing the effects of acquisition, integration, divestitures, and other items, earnings were $0.57 in the most recent quarter. Home Depot climbed 3.5% in pre-market trading after releasing earnings beating analyst estimates.
U.S. futures are currently up +0.214% on the morning, paring earlier gains amid concern the second international bailout of Greece may have little material impact in the long-run. The U.S. 10yr remains above 2% after climbing +2bps on the day to a YTM of 2.026%. With last week being an option expiration week, the markets were fairly quiet, with the VIX holding near lows and the MOVE Index, an indication of Treasury market volatility, climbing slightly but not breaking through its resistance at around 92bps.
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