- There were some troubling signs among the major retailers reporting this week. Walmart's Q4 results were disappointing, as revenue missed expectations and the bottom line was only just in line, excluding some one-time items. Walmart's guidance included expectations for negative comps in Q1. Kohl's saw negative comps in Q4 and its Q1 guidance was very soft. Sears' Q4 results were grim, with comps in the red and profits sinking lower. Shares of Sears rocketed higher after earnings, however, as the firm announced plans to sell stores and business units. Other major retailers had a better fourth quarter: Home Depot's earnings and comps held up well, Macy's met all expectations and Target had solid results and offered very strong forecasts for Q1 and FY12. On the conference call, Target said that sales volumes have returned to the strong pre holiday pace.
- PC makers Dell and Hewlett-Packard reported lackluster quarterly results. Dell's enterprise business is holding up but sales to consumers continue to erode. Hewlett-Packard's Q1 profits fell sharply on a y/y basis and the firm's guidance for Q2 is even worse. Margins shrank, the Europe business came under major pressure and the firm was still feeling the impact of the Thai flooding situation. CEO Whitman said she expects to see a better Q2 for the PC division, but that the company's turnaround will take time.
- In other earnings, shale driller Chesapeake had a mixed Q4 report, with earnings a bit ahead of expectations but revenue a bit short. The firm's FY12 earnings guidance was pretty solid, and it said it plans to triple Utica oil shale drilling rig deployments in the next year. Homebuilder Toll Brothers saw a loss in its Q1, with revenue falling well short of consensus estimates due to a small decline in deliveries in the quarter. Nevertheless, Toll's backlog and net signed contract growth was impressive in the quarter, boding well for the future. AIG reported a substantial profit in Q4, although most of the firm's gains were from big tax benefits. AIG recognized $17.7B in tax benefits in the quarter, which dwarfed the $1.6B in operating income from its insurance businesses.
- The week began with risk appetite weighing upon the greenback in the wake of the Chinese reserve requirement ratio (RRR) cut, plus optimism that after months of haggling and heartache, the euro zone would be successful in assembling the new bailout for Greece. With the threat of a Greek default at least temporarily off the table, the focus shifted to the question of growth. Data out this week was not particularly reassuring on this front, and on Wednesday, the EU Commission's interim forecasts for 2012 officially recognized that the euro zone as a whole would experience negative growth for the year, with Spain, Italy, Greece and Portugal all poised for significant economic contractions. Preliminary PMI data out of euro zone nations reinforced these negative assessments, with the first look at February manufacturing PMIs mostly at or below the key 50 level. Note also that the Feb IFO survey in Germany saw its fourth sequential month of improvement, indicating that there are still islands of growth in Europe. EUR/USD entered the week around 1.3200 but ended above 1.3450 by Friday afternoon on the back of the Greek bailout approval and the formal initiation of the private debt exchange (PSI).
- On Monday the Eurogroup agreed to release €130B fresh bailout funding to Greece, alongside a 53.5% haircut as part of the PSI exchange. Now euro zone parliaments need to approve the deal, although the consensus is that there should not be any stumbling blocks in this phase of the process. Ominously, German Finance Minister Schaeuble sent a letter to the Bundestag urging support for the package that stressed Germany might need to consider additional assistance for Greece in the future. Greece formally launched the debt swap offer on Friday, and the chief unknown at this point is how many of the bondholders will participate in the exchange. Greece has threatened to implement a collective action clause (CAC) as part of the exchange if too few holders participate, and some fear that doing so would raise the threat of credit default swaps (CDS) being triggered.
- The BoE minutes initially softened sterling mid-week as the MPC was split on the amount to increase the asset purchase target. Two members sought more than the agreed upon amount of £50B. EUR/GBP hit fresh 2012 highs above 0.8500. GBP/USD was back above the 1.58 by Friday.
- USD/JPY moved above its Aug 2011 intervention high of 80.30 this week. Japanese officials expressed satisfaction about the softer yen and reiterated that they would continue to closely monitor developments. Various analysts noted that the break above 80.30 would ignite more upside potential in the pair. USD/JPY exited the week at six-month highs and EUR/JPY moved above 108.00, at five-month highs.
- The People's Bank of China helped goose market sentiment over the weekend with another cut to its reserve requirement ratio. Taking the rate to 20.50%, this second RRR cut was anticipated as early as the Lunar New Year holiday period in late January. The subsequent rise in January inflation put near-term policy easing in doubt, however a fresh round of weakness in the trade data released last week was seen as a key catalyst for the cut. PBoC officials noted the latest move will ensure reasonable levels of money supply in the system, while also affirming the "prudent" stance on monetary policy will not change. February HSBC flash manufacturing PMI numbers were also received positively -- while still in contraction territory, a 49.7 print marked a 4-month high. The Shanghai Composite continued its steady climb to close the week around 2,440, a 3-month high.
- Down under, the Reserve Bank of Australia's February meeting minutes as well as testimony by RBA Governor Stevens suggested the central bank may take a more extended pause after two consecutive cuts in cash target rates. RBA minutes indicated that policymakers are comfortable with rate levels that are "consistent" with historic averages and would only undertake further easing if conditions weakened "materially." Governor Stevens noted that the economy is still in an upswing, with the current stance of monetary policy now seen as mostly neutral. In Canberra, Australia is headed for a Labour party leadership vote on Monday after a surprising challenge from former PM Rudd. Current PM Gillard is widely expected to survive the challenge and remain in her post until the 2013 general elections.
