Consumer Data in the Spotlight, as Europe Worries Rise
CNBC Executive News Editor
Fresh news about the U.S. consumer and spending are expected Friday, as anxiety again builds about the health of Europe's banks.
Good earnings news from Google bumped that stock more than 6 percent higher in afterhours trading Thursday, and some of that good feeling could also flow into tech shares in the morning.
But increasingly, traders were chatting Thursday about the European banks and the size of the haircut that may have to be taken on Greek debt. There was also talk about what a recapitalization of European banks might mean. Then after the bell, ratings agency Fitch downgraded UBS, and put five other European banks on review for downgrade, as well as Morgan Stanley, Goldman Sachs and Bank of America.
Fitch said the institutions are vulnerable to increased challenges the financial markets are facing due to "economic developments, particularly in the euro area, as well as a myriad of regulatory changes." The after the bell announcement came on a day when U.S. banking giant JP Morgan's earnings news disappointed investors. J.P. Morgan earnings fell 4 percent and its shares fell about 5 percent. Its earnings were hurt by weak investment banking, and it said it was being cautious on spending and planning going into next year.
Europe will stay in the spotlight Friday, as G-20 finance ministers meet in Paris. Treasury Secretary Timothy Geithner will be on CNBC's Squawk on the Street at 9 a.m. et , with CNBC's Steve Liesman, from Paris.
Nomura Securities chief G-10 currency strategist Jens Nordvig said he does not expect to see much more clarification from the G-20 meeting on the European situation, and he is concerned about the bank recapitalization proposal he has seen and the time frame in which European leaders are trying to structure their plan.
Nordvig points out that only after the IMF meeting did European officials accept that a recapitalization was necessary. "They're running out of time... there's a great amount of scrambling to come up with and a lot of effort is going into finding a solution for Greece, and that makes it harder for these policy makers to focus on broader issues," he said.
He expects the euro to come under pressure and his view is that a good point to short it is at the current level (1.3740).
Nordvig said the bank recapitalization plan discussed by European Commission President Jose Manuel Barrosso causes concern. "If you give banks some window of time where they can improve their capital ratios by selling assets, it is going to cause an accelerated deleveraging process," he said. He said the markets had been hoping for large scale injection of capital instead.
"That would put a lot of pressure on any kind of credit asset because obviously that's the type of stuff they have on their balance sheets... It could be a negative for credit assets and a negative for growth and that would make their debt dynamic worse again," he said.
Nordvig said he is skeptical that European leaders will come up with a convincing policy response ahead of the G20 leaders meeting in Cannes Nov. 3-4.
What to Watch
U.S. data Friday includes retail sales and import prices, released at 8:30 a.m. ET. Consumer sentiment, is released at 9:55 a.m. and business inventories at 10 a.m.
Deutsche Bank chief U.S. economist Joseph LaVorgna expects retail sales for September to rise 0.6 percent. "I think there's some upside risk to our number in light of the fact the chain store numbers we track accelerated... that could mean there's s more strength in retail sales than we'd been seeing," he said.
The Dow ended Thursday down 40 at 11,478, while the S&P 500 was down 3 at 1,203. The Nasdaq, boosted by optimism ahead of Google's results, rose 15 to 2,620.
Miller Tabak strategist Peter Boockvar said even positives like Google may not help stocks that much this earnings period, although he does say the market may have hit a near term bottom. "I don't think they're going to help. I'm expecting a tough, bumpy road. I think we're going to have more J.P. Morgans, and Ingersoll Rands from a couple weeks ago, and Alcoas," he said.
He said 1250 is probably the upside for the S&P for now. "That's the best we can hope for, and it's only a few percentage points...it gets more dangerous here," he said.
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