EmailGlobal equity markets are trading lower on a very busy Wednesday morning. While the reasons are very familiar to participants -- U.S. regulation, weak global economic data, rising eurozone yields -- some of the underlying catalysts are new.
The Federal Reserve made Tuesday's close anything but typical, announcing right at 4:00 p.m. ET its final rule requiring top-tier U.S. banks to submit annual capital plans for review. Since that includes holding companies with total consolidated assets of $50 billion of more, it increases the number of banks under surveillance from the original 19 to 31.
All 31 will undergo stress tests in 2012, including a “hypothetical global market shock” for the six largest -- Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC). That shock will include a contraction of as much as 8% in quarterly U.S. GDP and a spike in unemployment to 13%.
Further capital controls from the Fed sent financials lower after the cash markets closed Tuesday, which forced futures lower.
Moving to the overnight session, Asia traded lower after one of China’s two manufacturing indicators crossed the threshold into contraction in November. The HSBC manufacturing PMI fell from 51.0 in October to 48.0 this month, pressuring Asian markets. Commodities are trading weaker this morning, particularly copper, following the release.
That is a perfect lead-in to Europe as the eurozone also released its preliminary manufacturing indicator, which continued to weaken in November. The eurozone’s manufacturing PMI fell from 47.1 in October to 46.4 this month, though that was in-line with expectations. Germany (47.9 from 49.1) and France (47.6 from 48.5) both declined more than expected, though.
And surprise, surprise, there are numerous, negative headlines out of Europe Wednesday regarding the eurozone debt crisis.
The focus remains on yields, which are up across the board.
That includes Germany, where the yield on the 10-year bund is up 10 basis points and approaching 2.00%. The country only managed to raise 3.64 bln euros of the 6 bln euros it intended at a 10-year auction today. It is not unusual for a German auction to be undersubscribed, but the rate averages 20% instead of today's nearly 40%.
French and Italian yields also continue higher, with the latter once again approaching 7.00%.
As a result, S&P futures are expected to open 1.2% below fair value this morning.
Mixed U.S. economic data failed to make a dent in that indication.
Durable goods orders fell in October on aircraft orders (-0.7% vs. -0.9% Briefing.com consensus), but that was expected. We saw a nice pick-up in orders ex. transportation (0.7% vs. 0.0% consensus), but that was not due to an increase in capital goods as business investment (both shipment and orders) declined. The decline in shipments will most likely lower our Q4 2011 GDP growth expectation.
Real PCE increased only 0.1%. Goods did their part, increasing 0.4%, which was in-line with the retail sales report, but services came in flat.
Finally, the jobless claims report came in as expected, with initial claims at 393,000 (consensus 391,000).
The only notable items remaining on today's calendar are the final Michigan sentiment reading for November at 10:00 a.m. ET (consensus 64.2) and the $29 billion in 7-year Notes the Treasury will auction off at 1:00 p.m. ET.
Therefore, we expect activity to slow down as today's session progresses and traders leave their desks ahead of the tomorrow's holiday. Happy Thanksgiving.
Dave is a Research Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
