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US stock market, economy and companies update (September 06, 2012)

Contributed by Trade The News

- Markets are on a tear this morning thanks to ECB follow-through on bond buying and several strong US data reports. First the ECB: in his post-rate decision press conference, ECB President Draghi put a name to the new bond buying program - the OMT Outright Monetary Transactions plan - and outlined some technical details, all of which were in line with prior press speculation over recent weeks. Note that there were some concerns about the absence of details regarding what the ECB means by "conditionality." The S&P500 has pushed out to its highest levels since May 2008, while the DJIA has rocketed above 13,000. European markets have responded even more firmly than US equities, with FTSE MIB in Italy up more than 4% and Spain's IBEX up nearly 5%. Bund yields have gained, while Italian and Spanish 10-year yields have both declined, with Spanish yields below 6% for the first time since May. In the US, the August ISM index of services activity move higher over July levels, beating expectations, climbing to its best levels since the spring. The ADP data showed that private employers added 201K jobs in August, widely beating expectations, while initial claims fell to their lowest level in a month. Spot gold surged above $1,700 after the ECB announcement this morning, but has come off somewhat in mid morning trading.

- Men's Warehouse is up a whopping 16% post earnings, thanks to better earnings, better margins and higher FY12 guidance. Hovnanian had a mixed Q3 report, with earnings boosted by a nice one-time tax benefit but revenue below expectations. Despite the revenue miss, the firm's metrics are very strong, with the backlog up 40% y/y and net signed contracts up as well. Shares of HOV are down 4% this morning but off their worst levels. Other homebuilders are in the black. Ocz Technology cut its Q2 outlook sharply last night, blaming constraints in NAND flash memory supply. Executives warned that in August the company experienced a significant shortage on certain NAND flash components.

- Navistar's Q3 profits were way ahead of consensus expectations, thanks to a one-time tax benefit and some other items. Investors are really focusing on the firm's new separation program, which seeks to generate savings from cutting spending overall and selling off non-core businesses. The move comes after lots of pressure from activist investors Carl Icahn and Mark Rachesky. Executives were keen to point out that the North American truck business is core and will not be sold off, and also pointed out that the new plan does not mean they'll sell everything except the NA truck business. Shares of NAV are up nearly 14% on the news, while CMI is up nearly 4% in sympathy.

- EUR/USD briefly tested above the pivotal 1.2635 level following the ECB rate decision. The details of the bond buying program were very much in line with the press leaks including that the plan would stress conditionality and that the ECB would consider selling bonds if conditions were not met. The plan targets bonds with maturities up to three years and that the ECB would not have seniority on any bonds purchased. Dealers pushed the EUR/USD to session lows throughout the press conference concluding that there were still too many details missing and too much skepticism with respect to why it should this time work any better than the previous two SMP programs. USD/JPY pair was approaching its 6-month downtrend line at 79.30 area as dealers noted that Japanese export order are likely placed ahead of the level as Japan's fiscal-half-year end is on Sept 30th

***Looking Ahead***
- 11:00 (US) Weekly DOE Crude Oil Inventories
- 11:00 (US) Treasury 5-year, 10-year and 30-year refunding announcement
- 11:00 (US) Fed to buy $1.5-2.0B in bonds
- 12:00 (MX) Mexico July Vehicle Production: No est v 238.1K prior; Vehicle Domestic Sales: No est v 76.5K; Vehicle Exports: No est v 208.2K prior
- 12:30 (IT) EU Barroso with Italy PM Monti
- 13:00 (DE) ECB's Draghi, German Fin Min Schaeuble speak at Award Event in Potsdam
- 13:30 (EU) ECB members Mersch and Coene
- 17:00 (CO) Colombia July Exports FOB: No est v $4.6B prior

***Economic Data***
- (UK) BOE leaves both Interest Rate and Asset Purchase Target unchanged at 0.50% and £375B respectively, as expected
- (ZA) South Africa July Electricity Consumption Y/Y: -2.0% v -3.1% prior; Electricity Production Y/Y: -1.1% v -2.3% prior
- (BR) Brazil Aug FGV Inflation: 1.3% v 1.2%e
- (US) Aug Challenger Job Cuts Y/Y: -36.9% v -44.5% prior
- (EU) ECB leaves Main 7-Day Refi rate unchanged at 0.75%; Not expected (was expected to cut 25bps)
- (US) Aug ADP Employment Change: 201K v 140Ke
- (US) Initial Jobless Claims: 365K v 370Ke; Continuing Claims: 3.322M v 3.315Me
- (BR) Brazil Aug Vehicle Production: 329.3K v 297.8K prior; Vehicle Sales: 420.1KK v 364.2K prior; Vehicle Exports: 42.5K v 297.4K prior
- (US) Aug ISM Non-Manufacturing: 53.7 v 52.5e
- (HU) Hungary Aug YTD Budget Balance (HUF): -559.5B v -437.5B prior
- (US) Weekly EIA Natural Gas Inventories: + bcf vs. +33 bcf to +38 bcf expected range