Lunch Update

{+++}US Market Update

Dow -40 S&P -4.5 NASDAQ -11.7
– Cuts to full-year guidance at Aetna and Honeywell are apparently trumping the latest improvements in housing data, with all three major equity indices trading in negative territory this morning. The June new home sales logged a strong 11% sequential improvement over May’s numbers, although the data also showed median prices continue to decline on both a y/y and m/m basis. Note that the July Dallas Fed manufacturing index was very bearish, at -25% v -11%e. A two-day US-China trade summit opened in Washington, DC, with very general commentary out of President Obama, Treasury Secretary Geithner and senior Chinese officials. Front-month NYMEX crude is more or less unchanged, around $68. Treasury prices continue to head South pushing the US 10-year yield back towards 3.75% ahead of a week stuffed with new supply.

– Dow component Verizon reported quarterly results that were just a hair ahead of the consensus and largely flat business metrics. The company typically does not offer forward-looking guidance, but it did say it is planning 8,000 job cuts in the second half of the year. Shares of VZ are down 2%. Aetna reported its Q2 earnings ahead of its prior schedule this morning. The health insurance giant reported more or less in line with analysts’ estimates and also announced steep cuts to its full-year forecast. Aetna said higher-than-projected medical costs have not been fully captured in 2009 pricing and warned that earnings will continue to be adversely affected by a higher commercial medical benefit ratio. Shares of Aetna are down 5% or so in early trading, while shares of the other health insurance majors are making modest gains.

– Like Aetna, Honeywell’s Q2 results were in line with expectations while the company shaved the top end off its full-year earnings guidance and cut its revenue forecast significantly. Honeywell’s CEO said that economic conditions remain challenging and the company is not planning for any recovery in 2009. Specialty manufacturer Corning beat top- and bottom-line expectations, and managed to raise its gross margin by nearly a third over last quarter. Corning raised its forecast for 2009 by 15% over last year thanks to strong LCD TV sales in the first half of the year. Investors are not impressed, however, and shares of GLW are down nearly 4%. HON opened down 2% and are now around even.

– In currencies, emerging market rumblings helped the USD come off its worst levels in early New York trading. EUR/USD failed to break above the 1.43 handle as chatter of some large USD buy stops building above 1.4300 but “protected” by option barriers that are in play at 1.4300 level. Also contributing to the profit-taking sentiment was the lack of market response to the increase risk appetite following the US new home sales, the biggest gain in eight years. EUR/USD wrapped up the New York morning just above the 1.4210 level. In Eastern Europe, a Latvian parliamentary coalition member has decided to withhold its vote in favor of an emergency funding agreement with the IMF. Lavian press outlook Leta had noted that the IMF might sign LOI with the country as soon as today to keep bailout funds flowing. The Hungarian central bank slashed its key interest rates by 100bps to 8.50%, more than the 50bps expected. Commodity currencies retreated from session highs as profit-taking ensued. USD/CAD failed to elect the slew of USD sell stop orders said to be lurking below the 1.0770 area.

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