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Wall Street drops on earnings as euro swings on ECB rhetoric

  
Analysis, US Market
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The S&P 500 retreated from a record high on Thursday as adverse reactions to a handful of corporate results weighed on the market and as the latest assessment of monetary policy rhetoric from the European Central Bank triggered a volatile session for the euro.

The US equities benchmark was down 0.5 per cent owing to poorly-received results from a number of technology and industrial companies.

American Airlines shed 8.4 per cent after saying it expected a larger hit to pre-tax earningsfrom the grounding of Boeing’s 737 Max jets. Southwest Airlines said it expected cost pressures from the grounding to weigh on results in the second half and decided it would cease operations out of Newark Liberty International airport, which helps serve the New York City area, although its shares managed to reverse early declines to finish roughly flat.

Rivals Delta Air Lines and United Airlines were both lower. Boeing remained under pressure, down nearly 4 per cent, after flagging on Wednesday it might have to cease production of the jet that was involved in two fatal crashes earlier this year.

Facebook and Tesla were down 2 per cent and nearly 14 per cent, respectively, after reporting results following Wednesday’s closing bell.

The leg down in US equities also came as investors digested better than expected US economic data that raised concerns that Federal Reserve policymakers may not be as dovish as markets expect at next week’s investor meeting.

There was much interest in the ECB, though. As President Mario Draghi gave his regular press conference after leaving interest rates on hold, investors measured his words against hopes for a return to economic stimulus in the region, which had pointed to more bond-buying as soon as September.

It sent the euro on a volatile run, and a rally for the region’s government bonds also faded, drawing yields higher as the trading day developed. Stocks also dropped back from highs, although banking shares remained in demand.

The shared currency bounced up off two-year lows after Mr Draghi spoke to reporters, and was about flat at $1.1144.

European stocks were also unsettled, with the extent of the ECB’s concern at an economic slowdown outweighing the hopes for fresh stimulus. Frankfurt’s Xetra Dax stood out, falling back by 1.3 per cent, surrendering earlier gains that took it up as much as 0.6 per cent for the session.

Greece won’t last beyond November without aid, says PM

  
Analysis, Education
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Greek Prime Minister Antonis Samaras has signalled that his country could not survive beyond November if it isn’t granted the next tranche of bailout aid. 
Samaras highlighted that the most important thing for Greece is liquidity and underlined the necessity of the international financing. 
When questioned in the Handelsblatt interview how long Athens could survive without additional help he answered: “Until the end of November, then the cash box will be empty.” 
Samaras also felt that the European Central Bank (ECB) could help out by accepting lower interest rates on Greek bonds and rolling over the debt at maturity. However, ECB President Mario Draghi ruled out the idea, because he considers it to be “monetary financing”. 
In an International Herald Tribune conference held in Paris, Samaras also warned that a Greek exit from the euro would be “disastrous” for the Eurozone and could slash the Greek standard of living by up to 70%. 
German Finance Minister Wolfgang Schäuble gave some show of support stating that countries with problems should be allowed more time to reform but he did lash out at Greece by stating that all the other Eurozone states had made good progress on their austerity measures. He did however admit that Athens is in a “difficult situation”.

Mario Draghi's Favorite Joke

  
Education, Humour
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In his latest “What Next in The Global Economy” note, Morgan Stanley economist Joachim Fels passes along the following little story about Mario Draghi:

 Who said central bankers have no sense of humour? During a recent dinner at Frankfurt’s Senckenberg Museum (the home of Germany’s most extensive collection of dinosaurs) Mario Draghi told the crowd his favourite joke:

A man needs a heart transplant. Says the doctor: “I can give you the heart of a five-year old boy.” “Too young.” “How about that of a forty-year old investment banker?” “They don’t have a heart.” “A seventy-five year old central banker?” “I’ll take it.” “But why?” “It’s never been used!”

I like the joke, and not only because I consider myself an economist working for an investment bank rather than an investment banker. Mario Draghi’s joke conveys a simple but important message: central banking is about making rational, cool-headed and unemotional decisions in often difficult circumstances. In the 15 years of its existence as the keeper of the euro, the ECB led by Mario Draghi and his predecessors Jean-Claude Trichet and Wim Duisenberg has had to make a lot of difficult decisions in difficult circumstances. A few of these decisions were questionable (though typically only with the benefit of hindsight), such as the rate cut in April 1999 or the rate hikes in July 2008 and in April and July 2011. Most of the other ECB decisions were just right or even hugely successful – just think of Mario Draghi’s announcement in July 2012 to “do whatever it takes” to safeguard the euro. (more…)

Greece in last-minute talks on austerity cuts

  
Analysis, Education
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Greek premier Lucas Papademos held last-minute talks on Sunday with international lenders on wage and pension cuts amid fears that political leaders may reject a second €130bn bail-out and plunge the country into a chaotic default.

Evangelos Venizelos, finance minister, said “It’s not an impasse but there are problems for the Greek side” over terms of a medium-term package being negotiated with the so-called “troika” – representatives of the European Commission, European Central Bank and International Monetary Fund.

The two sides were “quite far apart” over projected cuts of 25 per cent in private sector wages, 35 per cent in supplementary pensions and the immediate closure of about 100 state-controlled organisations with thousands of job losses, a Greek official said.

Mr Papademos held telephone conversations on Sunday with Christine Lagarde, IMF managing director and Mario Draghi, ECB president, in a bid to break the deadlock, the official added.

The three leaders of Greece’s national unity government were due to meet Mr Papademos later on Sunday to agree the package before it goes to eurozone finance ministers for approval next week.

It was not clear whether former socialist premier George Papandreou and Antonis Samaras, the conservative leader bidding to succeed him, would also meet the troika mission chiefs. (more…)

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