While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.
Stocks in Europe traded mixed, with information tech and energy sectors underperforming, following less than impressive earnings by apple and Microsoft after the closing bell on Wall Street, as well as lower energy prices. Of note, Apple's German listed shares traded lower by as much as 7%, with ARM Holdings down 4% after failing to meet revenue expectations.
Fixed income markets have seen light news flow during the European session, with Bunds opening higher amid soft equities before paring these gains throughout the morning.
Asian equities tracked the weakness seen on Wall Street, after Apple shares declined by 9.1% after-market following their iPhone sales missing expectations (47.5mln vs. Exp. 48.8mIn) and Microsoft posted a record quarterly net loss. Nikkei 225 (-1.2%) was dragged lower by softness in IT, firmer JPY and declines among Apple suppliers. ASX 200 (-1.6%) traded in negative territory amid losses sustained in large banks, following analysts revising their profit forecast downwards, while Chinese markets fluctuated between gains and losses with the Shanghai Comp. consolidating around the 4000 level.
In FX, EUR/GBP continued to trend lower, moving below the 0.7000 in the process, driven by hawkish comments by BoE's Miles who said that he expects inflation to converge towards the 2% target at the end of 2015. The release of the most recent BoE minutes revealed a 9-0 vote and while a number of MPC members see increasing inflation risks which are skewed to the upside, the minutes also warned that GBP strength could suppress inflation . The rhetoric released in the minutes are more or less a reiteration of the most recent MPC comments and as such proved to be somewhat uneventful.
AUD/USD saw volatile trade as it initially fell after the latest Australian headline CPI figure missed expectations (0.7% vs. Exp. 0.8%). However, AUD then pared some of its losses as RBA's preferred trimmed mean figure beat expectations (2.2% vs Exp. 2.1%). Later conflicting comments from RBA Governor Stevens also provided a catalyst for price action, as he stated that rate cuts are still on the table but hinted concern of risks from lower rates and that policy was appropriate for the time being.
WTI and Brent Crude futures trended lower overnight and in Europe this morning, weighed on by the ongoing concerns over the slowdown in China, as well as the latest API data release which showed that stockpiles increased by 2.3mln (Prey. -7.3mIn). Elsewhere, gold resumed its downward trend, moving below the psychologically important USD 1,100 level.
Looking ahead, sees the release of RBNZ Rate Decision, DoE crude inventories, Existing Home Sales as well as earnings from Coca Cola, Boeing and Qualcomm
In summary: European shares remain lower with the basic resources and oil & gas sectors underperforming and travel & leisure, retail outperforming. Greek lawmakers voting on a second package of bailout condition measures, ECB to discuss Greek ELA. Bank of England says a number of policy makers see rising inflation risks. Apple's European suppliers fall after co. missed sales estimates. The U.K. and Swiss markets are the worst-performing larger bourses, the Spanish the best. The euro is little changed against the dollar. U.K. 10yr bond yields fall; Greek yields increase. Commodities decline, with corn , copper underperforming and soybeans outperforming. U.S. mortgage applications, FHFA house price index, existing home sales due later.
