Thursday, February 9, 2012

In an expected move, the European Central Bank (ECB) left short-term interest rates unchanged at 1% this morning. It also appears that Greek politicians have finally come around to accepting all the demands of the EU/ECB/IMF troika that were a precondition to a fresh bailout for the country.

The major sticking point in the end was the demand for cuts to public sector pension benefits that the Greek leaders were resisting. But the issue appears to have now been decided, though all the details are not out at this stage.

In other news, China’s January inflation numbers were a tad hotter than expected. On the home front, we have another positive report on the labor market front, with weekly Initial Jobless Claims falling more than expected.

Initial Jobless Claims dropped a better than expected 15K last week to 358K. The four-week average, which smooths out the week-to-week fluctuation, dropped by 11K to 366.3K, maintaining its downtrend of recent weeks.

This key data series witnessed some sharp volatility in recent weeks, but appears to be back on its downtrend. The favorable jobless claims reading today is welcome, but everybody’s focus is on Friday’s government jobs report, which is expected to show gains of about 130K in January.

China’s inflation numbers accelerated a bit in January from the preceding month, but the increase likely reflected the seasonal impact of the Chinese New Year that results in a temporary bump in demand for essentials. The January increase notwithstanding, the overall trend on the inflation front is favorable, improving the odds that the central bank will remain in an easing mode through lower interest rates and reserve requirements.

On the earnings front, PepsiCo (PEP) came ahead of earnings and revenue expectations, but referred to 2012 as a year of transition where it will be unable to pass on above-average costs through price increases. The company is planning to implement $1.5 billion in additional cost cuts through 2014 and increase its North American advertising budget. Sirius XM Radio (SIRI) met earnings expectations, but missed modestly on the top-line.

In other news, five major banks appear to be close to announcing a $26 billion settlement on the year-long foreclosure investigation with the government. These banks include J.P. Morgan (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC) and Ally Financial.

Sheraz Mian
Director of Research

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