Short Trading Week with a Poor Start
It's a holiday-shortened week, with many traders already off for Passover or Easter. While it's unlikely we will see much of the way in heroic trading or heavy volume, we are starting on a weak note.
It's not just Greek CDs blowing out once again, on more vague restructuring rumors. (See Sovereign Credit-Default Swaps here .)
The euro is notably weaker this morning on the the surprising election showing of the True Finns party, a minority party in Finland that has been strongly against bailouts of other EU member. The True Finns now hold the second largest number of seats in that country's Parliament (only 19 percent, but still a strong showing). Finland requires any bailout to be approved by its parliament, so this is being viewed as a referendum on the euro by northern, more fiscally sound countries who are unhappy with bailing out their more profligate southern neighbors.
1) China raised bank reserve requirements again (fourth time); requiring banks to hold more in reserve effectively limits loans, raises rates, and — hopefully — will keep inflation more in check.
2) No gloom and doom with economists: the National Association of Business Economics (NABE) said the economic recovery in the U.S. is gaining strength.
"Job creation in the quarter, as well as the outlook for the next six months as measured by the number of firms increasing headcount, is stronger than we've seen in the entire survey history dating back to 1982. Supporting this growth, both recent results and the outlook for sales and profit margins continue to improve. Companies appear to be positioning themselves for a firming economic environment by increasing capital expenditures," according to Shawn DuBravac, an economist with the Consumer Electronics Association, who analyzed the findings. See a summary here .
3) Citigroup reported earnings slightly better than expected ($0.10 vs. $0.09 expected), but once again revenues were slightly below consensus. Like JPMorgan, credit quality was better, and the reserve release appears to have accounted for the penny beat. Fixed income trading also a bit better than expected.
Most importantly, there was some retail loan growth, which we have not seen with other banks yet. This is good news, because bulls have been arguing that we are in a transition period — that higher quality earnings are coming, where revenue and loan growth will kick in. They argue that the higher revenues are coming — soon. Third quarter. Fourth quarter, for sure. But the key event: "normal" earnings — appears to be at least one and possibly two years off.
The Street seems to have sensed this: last week, the Bank Index (BKX) was down 2.5 percent, with the S&P 500 down 0.6 percent.
4) Keycorp beat estimates and also noted credit was improving. CEO-elect Beth Mooney said "we expect to continue to see decreasing levels of net charge-offs and nonperforming assets during 2011."
5) Halliburton rises 1.5 percent after beating estimates ($0.61 vs. $0.58 consensus) on stronger-than-expected revenues. Although operations overseas were pressured by events in Libya, North American profits for the oil services firm more than tripled as land activity increased.
6) Philips Electronics falls 1 percent after earnings missed expectations due to significant weakness out of its TV business. So what to do? Get rid of the weakest link — and that's what Philips is doing. The conglomerate announced it will divest its TV operations to a joint venture with Hong Kong TV maker TPV, in which Philips will hold a 30 percent minority stake.
But that's not the only challenge the company is facing. It warned that the Japanese earthquake will hurt sales and impact its supply chain this year. Additionally, it emphasized that greater investment will be need to achieve its mid-term growth targets.
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