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Merkel Claims Victory in German Election, US Stocks Have Third Consecutive Negative Day


Today's financial recap and tomorrow's financial outlook.

Over the weekend, German Chancellor Angela Merkel won the general election for her third consecutive term. Merkel's Christian Democratic Union won 41.5% of votes, but fell five seats short of a majority in the German Parliament. This means that the CDU party will have to form a coalition with the opposing Social Democratic party. Merkel's victory was the second largest since Germany's Parliament was formed following the end of the Cold War. European equities were modestly lower today. A eurozone survey of preliminary manufacturing conditions in September fell to 51.1 when estimates had forecast a rise to 51.7.

US equities began deteriorating in the pre-market and continued lower throughout the morning, reaching an intraday low shortly before European markets closed at 11:30 a.m. ET. Banks were the standout underperformer of the day, falling by 1.36% as a group. Consumer services and goods were also weak. Interest-rate-sensitive utilities were the leading sector, with tech stocks not far behind. A few investors pointed out that continued tensions over a potential government shutdown may have contributed to the sell-off.

A number of regional Federal Reserve bank presidents gave speeches today. Dovish presidents Dudley and Lockhart both pressed for a more accommodative policy, given the recent sluggishness in the economy. Dallas Fed President Richard Fisher, who is typically the most conservative member of the FOMC, said that the Fed jeopardized its credibility by choosing not to reduce asset purchases last week. In addition, he said that he had pushed the committee to reduce its purchases as the market had fully prepared for that eventuality.

Tech stocks were led by Apple's (NASDAQ:AAPL) release of opening weekend iPhone sales. Apple reported that iPhone sales reached 9 million in the opening weekend, more than the highest estimate of 7.75 million. Apple also updated its guidance for the fourth quarter, saying that revenue and gross margins would come in at the high end of their ranges. It is uncommon for Apple to release updated guidance during the quarter as the company is usually very conservative. The stock closed up 5%.

In other tech news, BlackBerry (NASDAQ:BBRY) received a tentative buyout offer from a consortium of buyers led by Fairfax Financial (OTCMKTS:FRFHF) for $9 per share or $4.7 billion. This comes after BlackBerry's announcement on Friday that it was cutting 4,500 jobs, which sent shares down 20% to near $8. BlackBerry shares closed slightly below $9 in today's trading.

Tomorrow's Financial Outlook

Tomorrow kicks off a wild week of economic data. In the morning, the Case-Shiller July home price indexes will be released. Prices are estimated to have risen 12.4% from the prior year, despite a downturn in home sales. The Conference Board's consumer confidence index will be reported later in the morning. Two weeks ago, the University of Michigan's preliminary consumer confidence survey showed a sharp decline to an index reading of 76.8 from 82.1 a month ago.

Two other Federal Reserve presidents are set to give speeches tomorrow. Cleveland's Sandra Pianalto and Kansas City's Esther George will give speeches at 9:30 a.m. ET and 1:00 p.m. ET, respectively.

In global market-moving news, the IFO Institute will release forward economic expectations for Germany, and Canada will release July retail sales.

The homebuilders will start reporting earnings tomorrow, which will give market-watchers a sense of how the housing market has been acting after interest rates have risen significantly. KB Home (NYSE:KBH) and Lennar (NYSE:LEN) will report in the pre-market. CarMax (NYSE:KMX) and Carnival Corporation (NYSE:CCL) will also report.

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Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.
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