Good morning. Here’s what you need to know.
— Shares of PulteGroup are up more than 5% in pre-market trading following the release of earnings results for the quarter ended December 31. The homebuilder reported earnings of $US0.57 a share, more than the $US0.45 consensus Wall Street estimate. Revenue was $US1.66 billion, just short of the consensus $US1.67 billion estimate. “The increase in revenue was driven by a 13% increase in average selling price to $US325,000, partially offset by a 4% decrease in closings to 4,964 homes,” the company said in a statement. “The higher average selling price reflects price increases, as well as a continued shift in product mix.”
— Google shares are up nearly 3% in pre-market trading after the company announced it will sell smartphone manufacturer Motorola to Chinese PC manufacturer Lenovo for $US2.9 billion. Google bought the company in 2012 for $US12.5 billion, but it’s still keeping billions of dollars worth of intellectual property garnered in the deal, so the hit it is taking is much smaller than the headline numbers suggest. “The smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices,” said Google CEO Larry Page in a blog post. “It’s why we believe that Motorola will be better served by Lenovo — which has a rapidly growing smartphone business and is the largest (and fastest-growing) PC manufacturer in the world.”
— S&P 500 futures are heading higher this morning and U.S. Treasuries are heading lower following a rough Thursday session for Asian indices — notably Japan’s Nikkei 225, which fell 2.5%, but also the Hong Kong Hang Seng, which fell 0.5%, and the Shanghai Composite, which fell 0.8%. European indices are also in the red nearly across the board with the exception of the Italian FTSE MIB, but the losses are smaller than in Asia. Gold is headed lower, and the dollar is strengthening against the euro and the yen.
— Facebook shares are up nicely in pre-market trading following the release of better-than-expected earnings results for the quarter ended December 31. The highlights: earnings per share were $US0.31 ($0.27 estimated), revenue was $US2.59 billion ($2.35 billion estimated), and monthly active users numbered 1.23 billion (up 16%).
— The first look at fourth quarter gross domestic product is released by the U.S. Bureau of Economic Analysis at 8:30 AM ET. The median estimate of market economists surveyed by Bloomberg is 3.2% annualized GDP growth in Q4, down from 4.1% annualized in Q3. Personal consumption growth, however, is expected to have been 3.7% annualized, up from 2.0% in Q3. The GDP price index is expected to have fallen to 1.2% from 2.0%, and the quarter-over-quarter price index of personal consumption expenditures is expected to have fallen to 1.1% at a seasonally-adjusted annualized rate from 1.4% in Q3. Follow the release LIVE »
— Also out at 8:30 AM are weekly jobless claims figures. The median estimate of market economists surveyed by Bloomberg is 330,000 initial claims filed in the week ended January 25, up slightly from 326,000 in the previous week. Continuing claims are expected to have fallen to 3.000 million in the week ended January 18 from 3.056 million the week before.
— Rounding out the U.S. data calendar is the release of pending home sales data at 10 AM. The median estimate of market economists surveyed by Bloomberg is a 0.3% drop in sales — both from the previous month and year over year. Follow all of the data LIVE on Business Insider »
— The U.S. Treasury is holding two debt auctions in one day, both in significant size. It will auction $US35 billion of 5-year notes at 11:30 AM and $US29 billion of 7-year notes at 1 PM. “There could be indigestion since the combined duration coming to the market between 5-year and 7-year will be roughly an unprecedented $US40 billion of 10-year equivalents, which is the highest single-day U.S. Treasury duration supply on record (at least since 7-year issuance resumed in February 2009),” write Nomura interest rate strategists in a note this morning. “We believe this setup along with moving 5yr auction to 11:30am may expose the risk of tails.”
— German unemployment unexpectedly fell to 6.8% from 6.9% in January as the ranks of the unemployed fell by 28,000, a much bigger drop than the 5,000 expected by market economists.
— The final results of this month’s HSBC/Markit China manufacturing Purchasing Managers Index survey revealed a slightly larger deterioration in business conditions in China’s manufacturing sector than the preliminary results released a week ago suggested. The report’s headline index fell to 49.5 from December’s 50.5 reading, slightly below the 49.6 flash estimate. Numbers above 50 reflect various degrees of expansion, where as readings below 50 reflect various degrees of contraction.
“It is reasonable to expect this cycle will play out differently from past EM cycles. It looks like a potentially elongated cycle, allied not least to 1) the very slow turn in U.S. monetary policy, and 2) China’s capacity to act as a buffer. Nonetheless, the post-crisis import of overly-easy Fed monetary policy has been pervasive in the EM world, spawning frothy asset markets that will be extremely difficult to collectively soft-land.
“Fortunately, ‘risk’ looks better distributed in the developed world in real money versus fast money leverage accounts, but the scale of outstanding cross-border assets highlights the scale of the problem, if a clear tipping point is reached for real money. Much will still depend on the extent to which EM credit cycles turn vicious, which could play out over years, rather than months. The most unpredictable elements are whether there will be any dislocations in systemically-important EM financial institutions that would greatly impact path-sensitive growth scenarios.”
— Alan Ruskin, global head of G-10 FX strategy at Deutsche Bank
“10-year Treasuries had their third bullish outside day on Wednesday so far this year, which is a very rare event and one you’d have to go back several years to find (2011 to be exact, so think European crisis and U.S. downgrade). It speaks to a market that is both short and nervous about something. Clearly the jacking up in interest rates by emerging market [central banks] may have a currency supportive element for a period of time — a nano second is measurable, isn’t it? — but doing that to rates doesn’t exactly help economies that are arguably slowing, help stocks that were otherwise at risk, nor soothe political turmoil, which is another story altogether…
“Emerging markets are certainly a catalyst, a trigger, but we think the theme is one of more general risk reduction to get things closer to historic balance. As such this move could have some legs to it. Understand it’s not about the Fed, other than tapering, nor about a sense of the U.S. economy slowing but rather an adjustment to holdings that only needed price action itself to serve as an incentive.”
— David Ader, head of government bond strategy at CRT Capital
“We believe Greece has reached a turning point and 2014 is a pivotal and challenging year, yet providing a great opportunity: the anticipated rebound of the economy and the upcoming debt relief measures could signal the beginning of the end of the crisis, putting the country in a virtuous circle. Political stability and determination for implementation and delivery are the key prerequisites for the last, but crucial, miles of the marathon.
“Our base-case scenario for 2014 (>50% probability) includes: low single-digit win by SYRIZA in the EU Parliament elections, but no snap elections in 2014; an agreement with the troika and completion of its review by the end of Q1; marginal economic recovery of 0.5%; debt relief measures in Q3 and coverage of the funding gap most likely through a small third bailout package without any additional austerity measures.
“In contrast, a bear scenario (<40% probability) could stem from a significant defeat of the coalition parties in May elections, leading to heightened political tension and snap elections in 2014. Such a development with prevailing political instability would paralyze the economic activity and jeopardize the fiscal adjustment process, while discussions on debt relief measures would be put on hold.”
— Manos Giakoumis, research director at Euroxx Securities
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