Japan Q3 GDP growth tops estimates. Economic growth slowed in Japan during the July-September quarter, but at 1.9% (annualized), the economy still expanded faster than economists were expecting. Despite the headline beat, capex growth printed at just 0.2% for Q3, far below consensus estimates. Private consumption rose 0.1% while inventories chipped in 40 bps after pulling the overall figure 10 bps lower in Q2.
German growth slows, France logs surprise contraction. Germany’s economy expanded by 0.3% in Q3 versus the previous quarter, meeting economists’ expectations, but exhibiting a conspicuous deceleration from the 0.7% pace at which the economy grew in Q2. The country’s statistics office described exports as "showing little dynamism," while domestic demand was reportedly solid. Meanwhile, economic growth in France turned negative, as the country’s economy contracted 0.1% compared to Q2. Finance Minister Pierre Moscovici said France should still report a modest expansion for the full year.
Eurozone GDP misses expectations. Economic growth in the eurozone came in at just 0.1% for Q3, below expectations and worse than the 0.3% expansion the currency bloc registered in Q2. The euro (NYSEARCA:FXE) slid against the greenback on the news as investors viewed the weaker-than-expected data as evidence that the ECB will need to maintain an ultra-accommodative policy stance for the time being.
Top Stock News
Cisco’s revenue, guidance disappoint. Revenues at tech bellwether Cisco (NASDAQ:CSCO) rose just 1.8% Y/Y in FQ1. Results were weighed down by weak orders. Hit especially hard were orders in China, Brazil, and other emerging markets; service provider orders fell 13%. On its conference call, the company guided for an FQ2 revenue decline of 8-10% and EPS of $0.45-$0.47. That's well below consensus estimates of a 4.1% increase in revenue and EPS of $0.52. Shares fell 10% in after-hours trading.
Fairholme proposes $52B recap for GSEs. In a letter to the Federal Housing Finance Agency, Bruce Berkowitz proposed the creation of two State-regulated private insurance companies to "purchase, recapitalize, and operate" the MBS insurance businesses of Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC). "Everyone agrees" on the need for more private capital in the non-jumbo MBS insurance business, Berkowitz said, adding that if "the basic tenets of a regulated insurance business are followed, the company should generate reasonable and safe returns."
EADS lifts Airbus deliveries outlook. Airbus parent EADS (OTCPK:EADSF) reported Q3 EBIT that, before goodwill impairment and other items, was largely in line with analysts’ expectations at €663M. Net profit for the first nine months of the year jumped 36% "thanks largely to [the] civil aircraft business," CEO Tom Enders said. For the year, the company now sees Airbus deliveries of 620 versus previous guidance of 600-610. Additionally, EADS said FCF for the year is now expected to be negative, at -€1.5B thanks to development program investments and weak government spending. Previously, EADS said it would be FCF break-even for the year.
Boeing union rejects labor contract extension. In a closely watched vote, Boeing's (NYSE:BA) machinist union rejected a labor contract extension aimed at keeping 777X production in Washington State for the next two decades. The union voted 67% against the deal, which they said would have cut pension and healthcare benefits. For its part, BA said it is "very disappointed" and now has "no choice but to open the process competitively and pursue all options for the 777X." Still, some analysts expect BA to negotiate with the union given the advantages of keeping 777X work in the Puget Sound region.
Top Economic & Other News
Yellen leans dovish in prepared remarks. ”We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession,” Janet Yellen will tell the Senate Banking Committee in her confirmation hearing today. In what looks like a bid to support the continuation of accommodative policies, Yellen will also emphasize that the “labor market and economy [are] performing far short of their potential,” while inflation remains below the Fed’s target.
Italy logs ninth consecutive quarterly contraction. Italy’s economy shrank by 0.1% in Q3, matching economists’ expectations. The quarterly contraction — which the national statistics office describes as "very mild" — is the ninth-straight for the eurozone's third-largest economy. Strength reportedly came from the industrial sector, while services and farming were weak in inflation-adjusted terms. The full-year contraction now sits at 1.9%, meaning the country will have to see economic growth in Q4 if the government's forecast of a 1.8% contraction for the year is to prove accurate.
Gross ups holdings of 3-5 year Treasurys. Bill Gross has boosted his exposure to shorter-to-intermediate-dated Treasurys in what could be deemed a bet on the Fed tapering soon, but not hiking the Fed Funds rate for a quite some time. Treasury holdings at Gross’ Total Return Fund (ETF equivalent: BOND) have risen to 38% - the highest since the end of April - but the buying is focused on 3-5 paper, and Gross continues to be underweight the long end of the curve.
Bank of Korea keeps policy rate on hold. For the sixth-consecutive month, South Korea’s central bank left its benchmark rate unchanged at 2.5%. With inflation sitting near 14-year lows, policymakers have a decent argument for keeping a lid on rates as questions linger about the country’s export-driven economy in an environment that, at times, has been characterized by slack global demand.
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In Asia, Japan +2.1% to 14876. Hong Kong +0.8% to 22649. China +0.6% to 2100. India +1% to 20399.
In Europe, at midday, London +0.8%. Paris +0.7%. Frankfurt +0.9%.
Futures at 6:20: Dow +0.1%. S&P +0.2%. Nasdaq -0.1%. Crude -0.1% to $93.76. Gold +1.3% to $1284.50.
Ten-year Treasury Yield +2 bps to 2.72%.
Today's economic calendar:
8:30 International Trade
8:30 Jobless Claims
8:30 Productivity and Costs
9:45 Bloomberg Consumer Comfort Index
10:00 Janet Yellen speech
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
1:00 PM Results of $16B, 30-Year Note Auction
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
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