U.S. stock futures, as well as European markets, turned lower as the German Finance Ministry said it saw no need to give the European Stability Mechanism (ESM) a banking license. Not a huge surprise, since that would be a big move. That means that the European Central Bank has three options for short-term action:
1) Purchase bonds in the primary market through the ESM/European Financial Stability Facility, and in the secondary market through the Securities Market Program.
2) Reducing interest rates into negative territory.
3) A third long-term refinancing operation (LTRO), perhaps, as Steve Liesman has suggested, a longer-term LTRO of five years or more, instead of the three-year LTRO that has already been used. It could also lower collateral requirements.
Elsewhere:
1) The outlook is getting tougher. Earnings and revenue continue to decelerate. Of nine companies I follow that reported after the bell yesterday or this morning, five beat on earnings, but seven were below revenue estimates. That's been the trend this quarter.
Third-quarter earnings estimates are now NEGATIVE, and fourth-quarter estimates are about 11 percent — well below the 16 percent gain expected at the start of the month.
Look at this comment from housing supplier Masco: "We expect the second half of 2012 to be less robust than previously anticipated, as the U.S. economy appears to be losing momentum and Euro-zone economies continue to struggle.”
Or this by Goodyear Tire & Rubber: "We remain confident that long-term growth in the global tire industry will continue, but at a slower pace near term than previously forecast..." Goodyear's 2012 tire unit volumes will be 5 percent to 7 percent below 2011.
2) Coach breaks down. Coach down 10 percent pre-open to the lowest levels since October of last year ... yeah, sure, it beat by a penny (taxes helped, slightly better margins), but the company has brought back in-store couponing at factory locations. North American same-store sales increased only 1.7 percent year over year ... huh? Most estimates were at least for 6 percent. The one bright spot was China, where sales increased 60 percent. It is calling 2013 a "year of investment," i.e. accelerating acquisition of domestic retail operations of key Asian distributors ... necessary perhaps, but hardly exciting.
3) Housing continues to show slow improvement. Despite the comments from Masco, builder MDC Holdings continued the string of strong order growth among publicly traded builders; net new orders increased 32 percent year-over-year to a five-year, second-quarter high.
And the Case-Shiller home prices indexes continue to show slow improvement; the May 20-city survey out this morning rose for the second straight month, up 2.2 percent, to the highest level since September on a year over year basis, even though it was down 0.7 percent compared to May of last year.
—By CNBC’s Bob Pisani_____________________________
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