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Can strong earnings and improving Europe keep the party going?

CMC Markets

A flurry of flash PMI and corporate reports has had a big impact on trading overnight that could carry through the day today. China’s flash PMI came in below expectations generating a mixed response. Copper plus China sensitive indices like the Hang Seng and S&P/ASX continued to climb on speculation the government or PBOC may have to take steps to defend 7% growth. AUD and NZD, on the other hand trimmed some of their earlier gains. Australia inflation coming in more benign than expected, giving the RBA room to cut interest rates if needed may also have been a factor. NZD dropped back despite stronger than expected trade numbers ahead of today’s RBNZ meeting where currency intervention could come into focus. Flash PMI news out of Europe was taken very positively, sparking a rally across the continent as Germany moved back well into expansion territory and France continued to move closer to the key 50.0 waterline. This has increased chatter that the moves toward growth over austerity may already be starting to pay off. EUR has also been well supported on the news. Although US flash PMI is due before market open, earnings reports appear more likely to be the main driver of trading today. Once again we could see a split in action between the Dow and the S&P due to their different membership. While the street appears to be responding positive to Apple’s earnings, it is not a Dow component and neither are many of the companies that handily beat expectations this morning. Among Dow components reporting, Boeing delivered positive results, AT&T missed slightly and Caterpillar missed badly. Today also could see some of the major questions overhanging the markets come to a head. With all the great news out there, why aren’t the Dow or S&P breaking out to new highs more decisively? Has the big run of the last few months already built in high expectations? If conditions can’t get any better for stocks, can they only get worse? It’s getting to the point where a failure to move higher could almost be seen as a bearish sign with what are historically the two worst months of the year for stocks coming up next and the lingering possibility of Fed tapering come September. Corporate News Wow! Not only is it a busy day for reporting in terms of the number of reports, but it has been a very long time since I have seen so many companies crush expectations. In Canada, EnCana’s huge earnings could spark renewed interest in the energy sector. On the other hand, CP’s disappointment could cast more clouds over Canadian railroads already reeling from the Lac-Mégantic disaster. Highlights of this morning’s earnings reports include: Boeing $1.67 vs street $1.57 Caterpillar $1.45 vs street $1.69 Ford $0.45 vs street $0.37 Pepsico $1.31 vs street $1.18 Eli Lilly $1.16 vs street $1.01 GlaxoSmithKline $0.52 vs street $0.51 Moody’s $1.00 vs street $0.91 General Dynamics $1.81 vs street $1 62 Canadian Pacific $1.43 vs street $1.50 Rogers Comm $0.96 vs street $0.97 EnCana $0.34 vs street $0.17 Cenovus CFPS $1.15 vs street $1.18 Loblaw $0.59 vs stret $0.58 Highlights of last night’s earnings reports include: Apple $7.37 vs street $7.24, sales $35.3B vs street $35.0B, iPhone shipments beat 31.2M vs street 26.4M, iPad shipments missed badly 14.6M vs street 17.8M. sales guidance $34-$37B vs street $37.1B AT&T $0.67 vs street $0.68 Broadcom $0.70 vs street$0.69, sales guidance $2.05-$2.20B short of street $2.24B Norfolk Southern $1.46 vs street $1.49 Don’t forget tonight after the close, Facebook, Visa, Qualcomm and a number of others are scheduled to report earnings. Economic News Significant economic announcements released overnight include: China flash manufact PMI 47.7 vs street 48.2 France flash manufact PMI 49.8 vs street 48.8 France flash service PMI 48.3 vs street 47.5 Germany flash manufact PMI 50.3 vs street 49.2 Germany flash service PMI 52.5 vs street 50.7 Brazil unemployment 6.0% vs street 5.8% NZ trade balance $414M vs street 105M Japan trade balance (¥180B) vs street (¥155B) Australia consumer prices 2.4% vs street 2.5% Economic reports due later today include: 9:00 am EDT US flash manufact PMI street 52.6 10:00 am EDT US new home sales street 484K 10:30 am EDT US crude oil inventories street (2.8 mmbbls) 10:30 am EDT US gasoline inventories street 1.6 mmbbls 12:00 pm EDT France jobseekers change street 10K

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