Monday August 3

Stocks fall on pessimism out of Greece and China. The S&P loses 0.3% to 2,098 while the Dow falls 0.5% to 17,598. Greek stock markets opened today for the first time in five weeks, and fell 16% on their first day. A China PMI report for the manufacturing sector reflected contraction for the fifth straight month along with a reading that was lower than expected. New orders, output, raw materials inventory are all components to PMI that showed losses for China. Oil fell another $2 to $45.50 for WTI. Economic data in the US was mixed. Personal income was in line with expectations which called for modest increases. An ISM manufacturing index missed expectations with a reading of 52.7 compared to an estimated reading of 53.7. A PMI in the US was in line with expectations for 53.8. As a result of these concerns the 10 year yield fell 6 basis points to 2.15% to the lowest since early June. The 2 year yield fell 1 basis point to 0.67%.

The strength of the dollar has negatively impacted US earnings for another quarter. Analysts estimate that the strong dollar took off as much as $100bn from corporate earnings from US companies operating abroad. This number reflects the sum of dollar revenues that were lost at the largest US multinational corporations in the first 6 months. The 10 largest companies including Apple, GM, IBM, Johnson & Johnson, Amazon, General Electric all had foreign dollar denominated sales reduced by $31bn. This figure will grow in future quarters as the Fed begins to take action. S&P500 companies earn around 48% of their revenues abroad. The strong dollar hurts companies who are trying to bring foreign earnings back to the US. The dollar is up 19% from one year ago. Internet and tech companies are the most negatively impacted sectors as they earn more of their revenues abroad than other sectors. Only 42% of companies have beat sales estimates so far this quarter. Companies must evolve by charging more or accepting less profit in countries with weak countries.

Puerto Rico bond prices fall after the country misses a debt payment over the weekend. The 2035 general obligation bonds fall below 70 cents on the dollar. The Government Development Bank (GDB) bonds made a $169MM payment last week. This weekend the Public Finance Corporation (PFC) missed a $58MM payment. These are lower on the creditor line of preference and are more subordinated than general obligation bonds. PFC debt due 2024 is priced at 14 cents on the dollar with a yield of around 50%.

Monday August 3

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