- Investment banks JPMorgan and Morgan Stanley got beaten up in the press and by analysts this week, although shares of both banks closed out the week in positive territory. Various sources said that the losses faced by JPMorgan from its errant CIO office continue to mount as it struggles to unwind its big trade. Reports last week said the loss was around $3-5 billion, while this week UK press sources said the loss was up to approximately $7B. At a Deutsche Bank conference, CEO Dimon said that JPMorgan would not provide a running total of its losses, adding that the bank had suspended its stock repurchase program (for reasons unrelated to the loss, naturally). Shares of Facebook broke below the IPO price of $38 in pre-market trading Monday morning, raising howls of protest claiming that the entire process was mismanaged. On Thursday Morgan Stanley held a conference call with brokers and said that no retail clients would pay more than $43 for FB shares bought on Friday. Over at Nasdaq, multiple shareholders have filed lawsuits against the company for their handling of the IPO and there were reports that the CEO could lose his job over the affair.
- PC hardware names Dell and Hewlett-Packard headed opposite directions this week, with shares of HP steady and shares of Dell down sharply on the week. Dell missed expectations in its Q1 report and offered a weak forecast for Q2. Dell warned that it is seeing a tougher environment for PCs and servers even as sales of services, networks and storage have remained strong. HP beat estimates and raised its FY12 outlook, although its margins continue to be well under trend and revenue in the printing business is down nearly 10% y/y. HP also confirmed that it would look to lay off about 8% of its workforce over the next several years, as part of its ongoing transformation plan.
- Among retail earnings, one of the biggest losers this week was Tiffany. The high-end retailer's earnings and revenue totals missed expectations, sales comps in the US and Europe were flat (the New York flagship store's SSS was -4%) and it slashed its FY12 outlook. Apparel names Ralph Lauren and American Eagle Outfitters had very strong Q1s, with excellent comps driving outperformance. There were no surprises in Costco's report, with earnings and sales growth meeting the consensus view, on solid comps. Best Buy handily beat profit targets but also saw another quarter of big declines in sales comps.
- In M&A news, manufacturing conglomerate Eaton Corporation said it would acquire Cooper Industries for $11.8B, making it Eaton's biggest buy ever. Cooper, based in Ireland, offers a broad range of electrical products, lighting and wiring devices. Sycamore Partners informed Talbots that it is not willing to follow through on the previously agreed upon acquisition deal following the expiration of the go-shop period and Talbots said it was exploring other strategic options. Google completed its $12.5 billion purchase of Motorola Mobility after getting the green light from Chinese regulators.
- The euro resumed its May meltdown on Tuesday morning after a brief, hopeful pause that accompanied the G8 summit over the weekend. There had been vague talk of "coordinated measures" to help Europe, however nothing but empty rhetoric emerged from the event. Monday saw EUR/USD hold the 1.2800 level, but after that downside momentum was unrelenting. European leaders met for an "informal summit" on Wednesday, and hopes ran high that some consensus on euro bonds might emerge. Ahead of the meeting, the German Bundesbank stated that the euro could "handle" a Greek exit but warned that it would be "challenging," and the EUR/USD gave up a big figure in an hour, dropping from 1.2680 to 1.2580. The January low in EUR/USD was 1.2622, and the cross struggled to retake the level mid week, however it plumbed 22-week lows just above 1.2500 through Friday's close. Various analysts now assert that the ECB refi rate should be cut from the 1.00% level in coming quarters, with another three-year LTRO operation looking more likely.
- Sterling was softer following very soft UK April CPI data. Year over year CPI came in at 3.0%, just below the threshold that has compelled the BOE to send a required explanatory letter to the Exchequer each of the last 10 quarters. GBP/USD dipped below the 1.57 handle following the CPI report, making two-month lows. The Swiss National Bank's EUR/CHF floor at 1.200 continued to see a massive bid in its defense. The frank bounced off the 1.2000 floor as several convenient rumors weakened the franc and tested two-month highs above 1.2070. Traders circulated talk of a possible tax on Swiss bank deposits to discourage hot money flows.
- The Japanese Yen briefly came under pressure after a two-notch cut of Japan's sovereign rating to A+ early on Tuesday. USD/JPY briefly rose above the ¥80 handle, but quickly retreated back toward ¥79 after the Bank of Japan decision to keep its policy unchanged. Despite acknowledging increasing financial market nervousness regarding the European crisis, the BoJ maintained its asset purchase fund at ¥70T, reiterating Japan's economy is "shifting toward a pick-up phase." Later in the week, Moody's kept its Japan assessment unchanged, but warned that failure by parliament to make progress on fiscal reform would be construed as credit negative.
- China saw its 2012 GDP target cut to 8.2% by both the World Bank and the OECD. While the forecast remains above the official 7.5% estimate, signs of a slowing economy have taken a more pressing role in Beijing ahead of the regime change later this year. China Premier Wen reiterated State Council stance of "proactive" fiscal and "prudent" monetary policy, but also called for more focus on growth. Later in the week, the May HSBC Flash Manufacturing PMI printed at a disappointing 48.7, down from 49.3 final reading in April and remaining in sub-50 contraction territory for the 7th consecutive month. Chinese monetary authorities remained on the sidelines in spite of the deteriorating fundamentals, as PBoC adviser Song suggested a cut in key 1-year lending/deposit rates is still unlikely.
