Trader Talk

Bill Gross Buying Italian Debt?

Not rolling over: China GDP rose 9.5 percent in Q2, better than the 9.3 percent gain that was expected...the Shanghai Index is up 1.5 percent. This will give the Chinese additional resolve to raise rates.

More caution on chips: first it was Microchip Tech (MCHP), then Novellus (NVLS), then Applied Materials (AMAT) Netherlands-based ASML (ASML), which makes machines used to produce computer chips, is the latest to disappoint. Bookings were down 1 percent sequentially, but most importantly orders for Q3 are down 40 percent. Once again, this is an indication of weakness in cell phones, PCs, and consumer products, because the customer who buy their machines (foundries that make chips, for the most part) are worried about what they hear from their customers.


1) Bill Gross buying Italian debt! That's according to the fund's head of fixed income portfolio management. The selloff was exaggerated, according to the FT. They're also adding to U.S. Treasurys.

2) Ben Bernanke will be on Capitol Hill today, but he will probably spend most of his time trying to convince Congress to raise the debt ceiling. He'll also spend time defending QE2 (it was successfull because it ended a deflationary spiral, he will argue, but he will surely be pressed on why it did not help employment) and will likely distance himself from doing QE3 any time soon. Indeed, QE2 might have been a little too successful in quashing deflation: PPI is out tomorrow for June, CPI for Friday. Core data (including food and energy) have seen notable spikes this year; the question is whether it will be transitory or not.

3) Capital One (COF) beats estimates ($1.97 vs. $1.71 consensus) as purchase volumes increased in the quarter. Credit quality improved for the credit card company, with charge-off rates (loans deemed uncollectible) dropping to 2.91 percent from 5.35 percent year-over-year. The firm also announced plans to raise $2 billion through a stock offering to help fund its recent acquisition of ING's online bank in the U.S.

The credit card companies will report June card data on Friday...expect chargeoffs to continue to decline because delinquency trends are improving. However, keep an eye out for any big jump in early stage delinquencies...30 days or so...that might indicate that consumers are again having trouble.

4) Put up or shut up for Deutsche Boerse shareholders: midnight tonight (Frankfurt time, 6 PM tonight New York time) is the deadline for DB shareholders to tender their shares for the NYSE Euronext merger. As of yesterday, 34.5 percent had tendered; they need 75 percent to get the merger approved. Sounds tight, but no one I have talked to seems particularly concerned. The biggest institutions often vote late, I am told.

They should release new numbers around 11 AM this morning: my bet is that we will see that about 60 percent tendered, which will easily put them within shouting distance of 75 percent by tonight. We will likely not see an official tally for a couple days. One carrot: those who tender will tender will be eligible for the 2 euro special dividend; those who don't tender, don't get it.

NYSE shareholders approved the merger last week at their shareholder vote in New York.

5) Lousy volumes: Investment Technology Group (ITG) said results would be weak because of low volume...they are laying off employees.

6) And more signs the high end consumer continues to spend: Burberry, the luxury British apparel retailer, beat estimates and reported a 34 percent surge in comp store sales. Those sales were fueled by strong demand in Asian markets, particularly China and solid performance in the U.S.

7) Think food inflation is a problem here? It continues to be even more troublesome in developing countries. Yesterday, Ethiopia reported food inflation soared 45 percent year-over-year in June, while today, Bangladesh reported year.

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