July 21: Macro Worries Make a Comeback – Economic Highlights

The comeback of macro worries will likely put stocks on the defensive today even as the earnings parade continues to impress. These worries pertain to the Greece situation and the still-elusive deal on the U.S. debt ceiling/budget issue.

In economic news, weekly Jobless Claims increased by a greater than expected level last week. Importantly, the fact that this key number has now remained above the critical 400 thousand level for 15 weeks is indicative of the continued labor market problems. In other economic reports, we have the Philly Fed manufacturing survey for July coming out later in the day. A weak Philly Fed report would confirm the negative reading from the Empre State survey a few days back and would be a bearish read on the nation’s manufacturing sector.

European leaders are meeting in Brussels today where they are expected to discuss the Franco-German deal reached overnight for a fresh Greek bailout. The deal provides for a ‘selective default’ by Greece through a debt swap program where maturing Greek bonds will be replaced with newly issued bonds of longer maturity. The European Central Bank, which in the past had opposed such a ‘selective default’, has reportedly been brought onbaord with the proposal. This deal would be a net negative for European banks as it would force them to recognize losses on their Greek bond holdings.

On the earnings front, we had better than expected results from Morgan Stanley (MS), as the investment bank proved to be much more nimbler than its rivals in navigating the tough trading environment. AT&T (T) came ahead of EPS and revenue expectations on the back of better than expected subscriber growth. The subscriber growth in the quarter was notable as this was the carrier’s first full quarter after it lost exclusivity to Apple’s iPhone.

Pepsico (PEP) barely met EPS expectations, as rising input costs squeezed margins. UnitedContinental (UAL) beat EPS and revenue expectations and did railroad operator, Union Pacific (UNP). We also got better than expected results from Intel (INTC) and eBay (EBAY) after the close on Wednesday.

The Leading Indicators Index is scheduled for release today and is expected to increase by 0.2% after increasing by 0.8% in May to 114.7.