Trader Talk

S&P Futures Jump on Durable Goods Report

S&P futures jumped nearly 10 points as July durable goods were far stronger than expected, in fact, at a gain of 4 percent, was more than twice consensus, and the June numbers were revised upward as well.

A third round of quantitative easing , or so-called Q3, from Bernanke? There may be a hope, but most traders don't believe it is imminent. Core inflation is creeping up—1.8 percent year-over-year, not an explosion but certainly getting close to the high end of the Federal Reserve's comfort range. It's also not lost on anyone that three members of the FOMC dissented just on committing to keep rates near zero until mid-2013. How is the FOMC going to drag everyone along for an even more ambitious QE3 purchasing program?

Still, most traders believe Bernanke will at least list QE3 as one of several possible policy options. That may be enough to avert a steeper drop in stocks. Proponents of QE3 argue that inflation worries will abate—indeed, the bond market seems to be expecting some combination of slow growth and deflation returning.

It's a tricky time for policy makers, which is why Mr. Bernanke may well unload much of the burden onto the legislative and judicial branches, throwing strong suggestions that more should be done in their bailiwicks. It will come: There will be an avalanche of legislative proposals in the wake of President Obama's speech on the economy after Labor Day.

Elsewhere: ?

1. German data continues weak. Germany's Ifo business confidence figure fell to 108.7 from 112.9, below expectations and the weakest since June 2010.

2. Mortgage rates at 4.39 percent, and still few takers. The Mortgage Bankers Association said mortgage application activity (refinancings and home purchases) fell 2.4 percent in the week ended August 19, a 15-year low.

3. BHP Billiton is down fractionally, despite reporting better-than-expected full-year profits. The Australian miner noted than demand for its metals remains strong, but warns cost pressures will pose a challenge in the coming months. The company also raised its dividend by 22 percent.

4. American Eagle Outfitters falls 6 percent after earnings missed by a penny amid flat same-store sales. Margins were squeezed by a rise in product costs for the apparel retailer. The elevated cotton costs are expected to continue pressuring margins in the second half of the year. Earnings guidance for the third quarter and the full year is extremely cautious and mostly below Street estimates (Third quarter: 22 cents a share to 27 cents a share vs. 27 cents a share consensus; full year: 85 cents a share to 95 cents a share vs. 94 cents a share consensus).

5. Toll Brothers third-quarter profits rose from a year ago, but sales disappointed the Street. Deliveries fell 14 percent and average prices remained flat. The homebuilder also cut its full-year delivery forecast amid high unemployment levels and very cautious consumer sentiment.

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