Economic data Wednesday painted a mixed portrait of the U.S. economy. The Federal Reserve’s beige book detailed indications that growth remains moderate as wages flat-lined and industrial activity slowed on lower energy activity. Meanwhile, September retail was below forecast, driven by weak automotive sales, registering a deeper month-over-month contraction than July, which had later been revised to a negative reading. Producer-price index levels for the month also came in below estimates. With consumer inflation, initial claims and Energy Department crude-stockpile data slated for release today, investors will be looking for further confirmation of sluggish momentum that could induce the Fed to postpone hiking rates. Current pricing for futures contracts on the Fed target rate implies a likelihood of less than 30 percent for tightening before year-end, suggesting that many investors have already made up their minds.
Wells Fargo, Bank of America beat expectations. Third quarter earnings announcements for U.S. banking stalwarts Bank of America Merrill Lynch and Wells Fargo released Wednesday were better than consensus estimates by analysts with growth in core banking functions at both firms overcoming disappointments in some trading segments of their respective investment bank divisions. Rival Goldman Sachs Group was not as fortunate, with results for the period announced on Thursday morning that revealed earnings and revenues that were well below analyst estimates as weak results from fixed income and commodity trading groups. Meanwhile, Citigroup also announced earnings this morning with earnings that bested average expectations despite lower than forecast revenues and a 25 percent year-over-year decline in investment banking returns as operational expenses were reduced.Nowotny hints at increased ECB easing. In a speech in Warsaw on Thursday, European Central Bank governing council member Ewald Nowotny said the central bank should consider increasing intervention in markets to help revive demand in the Eurozone. In the strongest signal yet that the ECB may consider further easing, Nowotny, who is also governor of the National Bank of Austria, insisted that while the ECB has no control over weak commodity inputs, policy shifts could help drive core inflation towards target levels.
Puerto Rico “super bond” discussed.
Media reports Thursday indicate that talks between the government of Puerto Rico and federal officials, including representatives of the Treasury Department, are focused on a plan to resolve the territory’s debt crisis. The proposal reportedly would revolve around a single bond issue overseen in part by federal authority (including partial oversight of tax revenues) that would be exchanged at a negotiated haircut for the various bonds constituting $72 billion in debt Puerto Rico says cannot fully be repaid.Wal-Mart stock dives on earnings miss. Shares of Wal-Mart Stores, based in Bentonville, Arkansas, fell to a multi-year low Wednesday after the company reported results that included downward guidance for fiscal 2017 with new expectations for earnings to decline as much as 12 percent. The company’s grim outlook weighed heavily on the retail sector, causing grocery chain Albertsons to postpone pricing its initial public offering until Thursday.
U.K. banks face higher capital hurdles. A report from the Bank of England’s Prudential Regulation Authority released today estimates that U.K. banks will need to raise significant capital to meet heightened requirements for separation of lending and investment-banking operations in 2019. Regulators estimate the banks affected may need to boost capital by over $5 billion in aggregate to meet the requirements for the required ring-fenced structure.
