Central Banks Watch

Today is rate decision day in Europe. The European Central Bank is expected to keep interest rates on hold at a record low of one percent, as it waits to see the impact of efforts so far to revive the economy and credit flows.

BoE to hold rates at 0.5%, fate of QE scheme unsure - Reuters poll

The Bank of England is also expected to hold its interest rate at a record low of half-a-percent. But economists polled are Reuters are split whether the BoE will expand its 213 billion dollars quantitative easing programme.

Upbeat data boosts U.K. recovery hopes

There are tentative signs that the UK economy is on the road to recovery. Government data showed industrial output rose at its fastest pace since October 2007, helped by a surge in car production. And leading British think-tank, the NIESR, expects the economy to shrink much less sharply for the current quarter than in Q2.

Commerzbank Q2 net loss to hit $917.7 mn - DJ poll

Commerzbank is expected to report a 2nd quarter net loss of nearly 918 million dollars, according to a Dow Jones poll. Analysts remain concerned about the bank's exposure to to commercial real estate as well as deterioration in its corporate and markets division.

Deutsche Telekom Q2 net profit to jump 22% to $1.12 bn - DJ poll

But fellow German heavyweight Deutsche Telekom could post a 22 percent rise in 2nd quarter net profit. Analysts expect the company's results to be helped from the first time consolidation of OTE, which is one-quarter owned by Deutsche Telekom. However, after stripping out the OTE affect, analysts expect declines in the telco's operating profit.

Zurich Financial Q2 net profit to fall 36% to $804 mn - DJ poll

Net profit for Zurich Financial Services may fall 36 percent in the 2nd quarter. The decline is mainly due to lower investment gains and moderate write-downs. Analysts will be watching out for the company's  guidance and expect its balance sheet to be solid.

Unilever Q2 EPS to rise 16% to $0.53 - DJ poll

And consumer goods maker Unilever could see a 16 percent rise in its 2nd quarter earnings per share. Analysts expect the company's sales to grow at a slower pace. But they also say Unilever's sales will be driven by higher prices and they are looking out for a recovery in its volumes from the previous quarter's decline.

China to grow 8% this year - Govt think-tank

In China, an influential government think-tank released a report saying that the domestic economy may grow about 8 percent this year. The State Information Centre said that investment remained the key driver of the economic rebound. The report added that China CPI should begin rising again before the end of the year, due in part to higher prices for oil and other resources.

PBoC to fine-tune policy, warns Of recovery risks

Late on Wednesday, China's central bank said it will fine-tune its policies as needed amid concerns over the sustainability of its economic recovery. For now though, the PBoC said it will maintain its moderately loose monetary policy. It also flagged dangers of another round of asset-price bubbles and rampant inflation in the global recovery if exit strategies are too slow. We will get a better sense of the health of China's economy when official data is released next week.

Wall Street hurt by economic data, corporate outlooks

Wall Street snapped a 4-day winning streak as weak economic data cooled optimism that the US recession was retreating. Disappointing corporate outlooks also weighed on the markets. The Dow Industrials slipped 4-tenths of a percent. The S&P 500 shed 0-point-3 percent. The Nasdaq Composite lost 9-tenths of percent.

U.S. financials limit market losses

But Wall Street did finish off its lows as investors ventured into riskier financial shares. Analysts also said that traders rushed to buy shares to cover short positions in these battered companies.

Shares of American International Group shot up 63 percent. The Insurer reports 2nd quarter results on Friday, which are expected to stabilize for the first time in five years. Former American Express CEO Harvey Golub has emerged as the frontrunner to become chairman of AIG, according to the Financial Times.

CIT shares ended the session 38 percent. Shares of Bank of America jumped 6-and-a-half percent. Shares of American Express advanced 6 percent after it said credit card defaults fell for a second straight month in July. It was helped by helped by a lower-than-expected number of bankruptcies.

P&G Q4 sales disappoint, warns of weak Q1

Procter & Gamble was the biggest drag on the Dow after it reported a disappointing 11 percent drop in quarterly sales. The consumer goods maker also warned that sales could fall as much as 10 percent this quarter. But 4th quarter profit beat forecasts, P&G earned 80 cents per share, which was 2 cents higher than analysts' expectations.

Cisco Q4 net profit beats, but cautious on recovery prospects

Cisco's 4th quarter net profit fell to 33 cents per share but fared better than the 29 cents that analysts were expecting. But shares fell in extended trade after the tech bellwether gave a cautious outlook for the 1st quarter. The company expects revenue to fall by 15 to 17 percent from a year earlier. CEO John Chambers said it is too soon to call a recovery.

“This is about as optimistic as we could have been, in Q3 too early to call upturn, in Q4 we said it's clearly a tipping point and it will take one or two more quarters to verify that this is accurate,” he said.

Other U.S. Earnings

News Corp reported net loss a 203 million dollars in the three months to June as revenue at its TV and publishing units tumbled. The media giant said it could charge for access to its news websites by the middle of next year, and might break off its relationship with Amazon dotcom's Kindle e-reader if it cannot get better terms.

Bond insurer MBIA reported a lower 2nd quarter profit but shares rose after it said it lowered the amount of money put aside to cover losses. And  Prudential Financial, the 2nd largest US life insurer, posted a stronger-than-expected second-quarter profit but lowered its outlook for the full year.

U.S. Economic Watch

The chief reason for the negative market sentiment? Concerns over the strength of a US recovery after a report showed private employers cut more jobs than expected.

371-thousand private sector jobs were lost in July, according to the ADP Employer Services report. While this was smaller than the cuts made in June, it was above what economists had been expecting.

Labour market strains were also evident in the services sector, which comprises 80 percent of US economic output. The Institute for Supply Management said its services index fell to 46-point-4 in July. A reading of below 50 indicates a contraction in the sector.

Commodities Check

Nymex light sweet crude had edged up 8-tenths of a percent in New York trade, boosted by a weaker dollar. EIA data out overnight also showed a larger-than-expected rise in US crude inventories. Meanwhile distillate stocks showed a surprise draw, down by 1-point-1 million barrels.

Forex Focus

The dollar traded close to its lowest level this year against a basket of currencies. This after bullish economic data from around the world boosted hopes of a recovery. We are expecting Eurozone Composite PMI data later. Analysts polled by Dow Jones are expecting a reading of 46-point-8 in July, compared with 44 in June. UK industrial output also out today. It is expected to fall by 12 percent in June on an annualised basis, according to another DJ poll.

Deutsche Bourse Q2 EBITA falls to $356.9 mn

German stock exchange operator Deutsche Boerse reported a wider-than-expected 34 percent fall in 2nd quarter operating profit. Its performance was pressured by lower trading activities in the financial markets. EBITA fell to just under 357 million dollars in the three months to June. Deutsche Boerse said it was sticking to its cost guidance goal of around 1-point-8 billion dollars for 2009. It also said it has not decided whether to resume its stock buyback programme this year.

Europe Earnings Preview

Another heavy earnings day for European financials. Societe Generale is expected to post a 82 percent slump in 2nd quarter net profit. Analysts will be focusing on the French bank's trends in risky assets, provisions, and corporate and investment banking activities. And Lloyds is seen reporting a 1st half net loss. Investors will be watching its impairment charge, which some say could reach over 18 billion dollars. But analysts say that the British bank could turn in a small net profit as a result of fair value gains and other one-offs. Insurance firms such as Standrad Life, AXA and Swiss Re are seen posting lower results as well.

UBS close to hiring Merrill's McCann – FT

UBS is in talks to hire former Merrill Lynch executive Robert McCann to head its wealth management business in the Americas. This is according to the Financial Times on Tuesday, citing people close to the negotiations. Talks reportedly accelerated after UBS struck a deal last week over a US tax dispute that has ignited massive outflows at its wealth management unit. The FT said a deal between UBS and McCann could be sealed soon. A UBS spokeswoman declined to comment on the report.

Northern Rock sale unlikely before U.K. election – FT

Separately the FT also reported that British state-owned bank Northern Rock is unlikely to be sold before a general election next spring. The newspaer cited aides close to UK finance minister Alistair Darling. It also cited Darling as saying he is in no hurry to sell the bank. CEO Gary Hoffman also said there was no timetable for such a sale. Northern Rock was nationalised in early 2008 after it became the first major British victim of the credit crunch.

Economic data helps extend Wall Street rally

Wall Street got a boost from positive government data that suggested the economic recovery was sustainable though somewhat slow. US stocks ended a see-saw session with slim gains.

The Dow gained nearly 4-tenths of a percent. The S&P 500 rose 0-point-3 percent. The Nasdaq Composite edged up just over 1-tenth of a percent. Thiks is its its highest close since early October.

The S&P Financial index advanced 2-point-1 percent as financial stocks became the investment of choice for many investors. The sector was also supported by upbeat US housing data.

Caterpillar expects 2012 EPS of between $8 and $10

Shares of heavy equipment maker Caterpillar jumped more than 6 percent after CEO Jim Owens gave an upbeat earnings presentation. They were the strongest performer on the Dow. Owens said the company hopes to report annual earnings of between 8 and 10 dollars a share on sales approaching 60 billion dollars by 2012, provided the world economy recovers from the current recession. He also said that in future recessions Caterpillar would be able to report annual earnings of 2 dollars and 50 cents a share.

PepsiCo to buy bottlers  for $7.8 bn, shares surge

PepsiCo agreed to buy bottlers Pepsi Bottling Group and PepsiAmericas in a sweetened deal worth 7-point-8 billion dollars. The price represents premiums of more than 40 percent for the bottling firms. The move is part of PepsiCo's efforts to cut costs and boost profits in North America. PepsiCo will also be able to consolidate 80 percent of its North American beverage volume. which will speed decision-making and eliminate friction between the companies.

GE to pay $50 mn to settle SEC fraud charges

General Electric will pay 50 billion dollars to settle SEC charges that the company misled investors with fraudulent accounting in 2002 and 2003. The SEC found that GE had intentionally wrongly accounted for some commercial paper hedging activity and the sales of railroad locomotives in an effort to make its financial results look better. GE did not admit or deny wrongdoing as part of the settlement.

D.R. Horton Q3 loss steeper-than- expected at $0.45 per share

US homebuilder DR Horton reported a deeper-than-expected 3rd quarter loss of 45 cents per share. But its shares still gained more than 3 percent, boosted by a strong report on US home sales. DR Horton still faces faces difficult market conditions as it navigates its way through the worst housing slump since the 1930s. It also stands to lose its position as the largest US builder due to the merger of two rivals, Pulte Homes and Centex.

Kraft Q2 EPS at $0.56, versus Wall Street's view of $0.54

Kraft Foods reported a higher-than-expected 2nd quarter profit, helped by price increases, cost-cuts and people eating more food at home. Net income for the F&B giant jumped 11 percent to 56 cents per share, versus  54 cents per share consensus. Kraft also raised its full-year profit forecast, citing its strong performance so far this year and cost-cuts. But its shares dropped more than two percent in extended trade.

U.S. Economic Watch

The National Association of Realtors said its Pending Home Sales index rose for the 5th straight month in June. Sales rose 3-point-6 percent , which was an improvement from May's reading. US consumer spending rose 4-tenths of a percent in June, according to the Commerce Department. This was partly due to higher gasoline prices. But if the data was adjusted for inflation, spending actually fell 0-point-1 percent in June after being flat in May.

But joblessness continues to weigh on the US economic recovery.The Commerce Department said personal income declined 1-point-3 percent in June, as the effects of one-time government stimulus checks wore off. Adjusting the data for taxes and price rises, real disposable income actually tumbled 1-point-8 percent in June, the largest decline in a year.

Commodities Check

Oil prices erase losses from the previous session after API data showed a surprise drawdown in US crude inventories. US crude stocks unexpectedly fell 1-and-a-half million barrels last week, according to the API weekly report.  And we are waiting for inventory numbers from the EIA due later today.