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News & Views: Monday, October 20

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What you need to know for today's trading day.

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This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

ECB Said to Start Asset Purchases With French Covered Bonds (Bloomberg)

IBM to pay Globalfoundries to take chip unit (Reuters)

SAP Posts Higher Quarterly Profit, Cuts Outlook (WSJ)

Leveraged Money Spurs Selloff as Record Treasuries Trade (Bloomberg)

Value Investors Hoarding Cash See Few Bargains After Rout (Bloomberg)

Views
Much of the gains on Friday in European credit and European equities are being reversed this morning, even though the ECB officially began buying covered bonds (of the French variety, and now Spanish). They are the worst performing assets overnight on a risk-adjusted basis. Asian equities (Japan, Taiwan, Korea) are all catching up to the gains in Western stocks from Friday. China, however, did not show the same enthusiasm as it did on Friday following reports that the PBoC had injected about $30bln in funds into state-run banks. Note the gain in the Japanese MOTHERS index, which is negative for the Yen (these two tend to correlate).

US equities took a nosedive on the IBM (IBM) earnings (trading down ~8%) this morning. The two lines from the press release that are standing out are "Results point to unprecedented industry pace of change" and "saw marked slowdown in September in client buying behavior." Additionally, it says it will not be able to reach its $20 annual EPS goal starting in 2015, which is the sole reason that IBM is valued as high as it is, because it is winding down businesses and returning cash to shareholders. Clearly the comments from Microchip Tech (MCHP) two weeks ago were not an aberration because both of these companies have diverse, global revenues sources. It also raises more questions about the GT Advanced Tech (GTAT) bankruptcy.

On a risk-adjusted basis, the Swiss Franc (CHF) is stronger against both the USD and EUR this morning. That is representative of a safe haven bid as captial finds its way into Switzerland. Sovereign interest rates were higher overnight, but much of those gains have been reversed this morning in sympathy to the general de-risking sentiment. German Bunds and UK Gilts are both higher this morning and that will keep a bid behind US Treasuries as the NY session opens.

Moderate Boston Fed president Eric Rosengren said in a speech over the weekend that the conditions are right for the FOMC to end its asset purchase program on schedule, although he wouldn't rule out extending it if there were severe economic problems (that he does not see). He did not see an impact from softer activity overseas on domestic growth. This year he has called for caution on hiking rates in recent months due to low inflation readings, so his voice is certainly worth paying attention to. He is the last scheduled public appearance for a Fed policymaker before its meeting next Wednesday. He had interviews in the WSJ and FT over the weekend.

Overnight Data:
- German PPI YoY (Sep) down to -1.0% vs -1.0% expected, prior -0.8%

US Economics (Time Zone: EST)

No major economic reports
11:00 Fed to purchase $1b-$1.25b notes in 5 to 6-year range
11:30 Treasury to sell $24b 3-month bills and $30b 6-month bills

Earnings

Before:
Halliburton (HAL)
Valeant Pharma (VRX)
Hasbro (HAS)

After:
Texas Instruments (TXN)
Chipotle Mexican Grill (CMG)
IBM (IBM)
Apple (AAPL)
Rent-A-Center (RCII)

Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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