- Towering list of troubled banks. The FDIC's watchlist of potentially problematic banks grew by more than a third to 416 in Q2, the highest level in fifteen years and equivalent to around 5% of the country's banks. The deposit insurance fund, which protects more than $4.5T, fell to $10.4B from $13B in the previous quarter (though that news should perhaps be less troubling to investors than some headlines suggested). Bank loan loss provisions rose to $66.9B from $60.8B, while the U.S. banking industry posted a net loss of $3.7B after a profit of $7.6B in Q1. FDIC's Sheila Bair acknowledged the heavy costs of rising bad loans and falling asset values, but noted "banking industry performance is, as always, a lagging indicator." (Read the FDIC's press release)
- Fed may trim planned MBS purchase. The Federal Reserve may not need to buy back the full $1.25T in mortgage-backed securities the bank is authorized to purchase by the end of the year. Richmond Fed President Jeffrey Lacker said the bank will evaluate “whether we need or want the additional stimulus” from buying the full amount, while St. Louis Fed President James Bullard said "it might not be necessary." However, even if the Fed chooses to stop short of the full $1.25T of purchases, Bullard said total spending would still be close to that target. (Read Lacker's speech)
- GDP shrinks less than expected. GDP fell an annualized 1% in the second quarter, in-line with an estimate released last month but better than the 1.5% contraction economists expected. Business inventories fell a record $159.2B, worse than the $141.B estimated earlier. However, analysts believe the fall in inventories has likely reached its bottom and, excluding inventories, GDP rose 0.4%, its first gain in a year. Personal consumption was down 1%, better than the -1.2% prior estimate and consensus of -1.3%. (Read the BEA's GDP report)
- Sweden goes negative. Swedish Riksbank became the first central bank in the world to introduce negative interest rates on bank deposits. Riksbank is hoping the move will encourage banks to lend more. The move will be closely watched by other central banks, and Bank of England's Mervyn King has already hinted he may follow Sweden's lead to avoid a liquidity-trap in the U.K.
- Benmosche helps AIG rally. Shares of AIG (NYSE:AIG) continued to rally yesterday, gaining nearly 27% after new CEO Robert Benmosche said he's been in contact with former chief Hank Greenberg, hoping to draw on his advice about problems at the bailed-out insurer. Benmosche also reiterated his intent to take a slower approach to asset sales, giving the market a chance to recover first because "if we sell too soon, everyone loses." Separately, a recently obtained draft of a Treasury document called the government's investment in AIG 'highly speculative,' a phrase later omitted from a final version of the document.
- Google News faces antitrust probe. Italian antitrust regulators have opened an investigation into Google News (NASDAQ:GOOG), concerned the service may be an abuse of the company’s dominant position on the internet. The investigation marks the first time Google News has faced a complaint on competition rather than copyright grounds.
- China iPhone in Q4. China Unicom (NYSE:CHU) said Apple's (NASDAQ:AAPL) iPhone will go on sale in China in Q4, and both the original iPhone and a 3-G model will be available. Apple will face competition for Chinese marketshare from Research in Motion's (RIMM) Blackberry and smartphones powered by Google's (GOOG) Android software.
- Dell doesn't disappoint. Dell (NASDAQ:DELL) posted better-than-expected Q2 results yesterday (see details below) after cutting costs by contracting out more production. Dell, which is trying to save $4B annually, managed to raise gross margins to 18.7% by farming out as much as 40% of the company's manufacturing. The company said it's seeing "seasonal demand improvements" in both its consumer and government businesses.
- U.S. jobless claims dip down. Initial Jobless Claims registered 570K, down 10K from a week ago (revised) but worse than the 565K consensus. Continuing claims fell 119K to 6.133M.
- Japan's joblessness rises. Japan's jobless rate rose to a record 5.7% in July, threatening to undermine the country's recovery efforts and a punishing blow to Prime Minister Taro Aso ahead of elections his ruling Liberal Democratic Party will likely lose. Consumer prices dropped a record 2.2% compared to the previous year.
- U.K. GDP contracts. U.K. GDP contracted 0.7% in the second quarter, slightly better than the previous estimate of 0.8%. The economy shrank 5.5% from a year ago, the most since records began in 1955.
Earnings: Friday Before Open
- Tiffany (NYSE:TIF): Q2 EPS of $0.46 beats by $0.13. Revenue of $612M (-16%) vs. $602M. Sees full-year EPS of $1.65-1.75 vs. $1.58 consensus. (PR)
Earnings: Thursday After Close
- Aruba Networks (NASDAQ:ARUN): FQ4 EPS of $0.03 beats by $0.01. Revenue of $53M (+11%) vs. $49M. (PR)
- Bebe Stores (NASDAQ:BEBE): FQ4 EPS of $0.00 misses by $0.01. Revenue of $130M (-24%) vs. $129M. Sees Q1 EPS of -$0.05 to $0.00 vs. $0.04. (PR)
- Cost Plus (NASDAQ:CPWM): Q2 EPS of -$0.90 misses by $0.06. Revenue of $183M (-13%) vs. $186M. Same-store sales down 10.9%. Sees Q3 revenue of $177M-186M vs. $190M. Sees Q3 same-store sales down 6-11%. (PR)
- Dell (DELL): Q2 EPS of $0.24 beats by $0.01. Revenue of $12.8B (-22%) vs. $12.6B. "We have been reducing complexity in our organization and significantly lowering operating costs," said CEO Michael Dell. If demand trends continue, expects 2H revenue stronger than 1H. "We are expanding our capabilities in enterprise technology and services and investing in our core business." (PR)
- J Crew Group (JCG): Q2 EPS of $0.29 beats by $0.14. Revenue of $358M (+6%) vs. $347M. Same-store sales down 5%. (PR)
- Novell (NASDAQ:NOVL): FQ3 EPS of $0.07 in-line. Revenue of $216M (-12%) vs. $217M. (PR)
- Marvell Technology Group (NASDAQ:MRVL): Q2 EPS of $0.18 beats by $0.04. Revenue of $641M (-24%) vs. $620M. (PR)
- MICROS Systems (NASDAQ:MCRS): FQ4 EPS of $0.36 beats by $0.04. Revenue of $224M (-13%) vs. $215M. (PR)
- Solera Holdings (NYSE:SLH): FQ4 EPS of $0.17 misses by $0.21. Revenue of $144M (-1%) vs. $139M. (PR)
Asia markets were mixed Friday, with moderate gains in Japan offset by hefty losses in Shanghai. Europe markets are up about 1%, and U.S. futures are trading near overnight lows.
- Asia: Nikkei +0.57% to 10,534. Hang Seng -0.71% to 20,099. Shanghai -2.91% to 2,861. BSE +0.9% to 15,922.
- Europe at midday: London +1%. Paris +1.4%. Paris +1.2%.
Futures: Dow +0.3% to 9599. S&P +0.5% to 1034. Nasdaq +0.5%.
Crude +0.7% to $73.02. Gold +0.6% to $952.90.
30-year Tsy -0.27%. 10-year -0.13%.
Euro -0.1% vs. dollar. Yen -0.4%.
Friday's Economic Calendar
8:30 Personal Income and Outlays
9:55 University of Michigan Consumer Sentiment
- Notable earnings before Friday's open: FRO, TIF
Seeking Alpha editor Eli Hoffmann contributed to this post.
Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.