10 Things You Need To Know Before The Opening Bell, May 15, 2014

10 Things Before Opening Bell

May 15, 2014

Good morning! Here's what you need to know.

Europe Is Germany. The eurozone grew by just 0.2% in Q1, which missed expectations for 0.4% growth. But almost all of the growth came from Germany, Europe's largest economy, where GDP grew by 0.8%; economists were looking for 0.7% growth. "Germany is accelerating and performing strongly while the rest of the zone is stalling or even falling further behind," said Pantheon Macroeconomics' Claus Vistesen. "This is worrying because the assumption that a strong Germany would act as driving force for its weaker neighbours now seems severely challenged. Indeed, it would even appear that Germany’s economy, with its large external surplus, to some extent is preventing an even recovery across the eurozone as a whole."

Don't Forget Europe's Losers. France's economy grinded to a halt with GDP showing no growth versus expectations for 0.1% growth. Italy contracted with GDP falling 0.1% versus expectations for 0.2% growth. Portugal tanked with GDP plunged 0.7% versus expectations for 0.1% growth.

Euro Tanking. The odds that the European Central Bank will act during its June meeting appear to be rising as reflected by the tumbling euro. The currency touched a low of $1.3655, down from an intraday high of $1.3723. The stock markets aren't doing too much. Japan's Nikkei closed down 0.7% while Hong Kong's Hang Seng closed up 0.6%. Things are pretty flat in Europe where Britain's FTSE and Germany's DAX are marginally higher, and France's CAC 40 and Spain's IBEX are marginally lower. U.S. futures are flat.

Japan Spikes. Japan's economy exploded, with GDP growing at a 5.9% annualized pace, crushing expectations for 4.2%. The key driver of grow appears to be the April consumption tax hike, a Q2 phenomenon that encouraged consumers to pull forward their purchases to Q1. This caused domestic demand to add 1.7 percentage points to quarterly growth. "Looking ahead, we anticipate that the strong growth in Q1 will be partially offset by negative growth in Q2 due to the subsequent decline in domestic demand after the consumption tax hike," said Societe Generale's Kiyoko Katahira.

Wal-Mart Misses. Wal-Mart reported Q1 earnings of $1.10 per share. Management said bad weather cut around $0.03 from the bottom line. Still, the number fell short of analysts' expectation for $1.15 per share. During the period, comparable store sales excluding gas fell by 0.2%; analysts were looking for an unchanged level. "Walmart's underlying business is solid, and I'm confident in our long-term strategies," said CEO Doug McMillon.

Cisco Beats. The networking hardware giant announced revenue and earnings that beat analysts expectations. Orders during the period grew by 7%. Guidance for Q4 was also stronger than expected. The stock is up by around 6% in premarket trading.

The World According To John Chambers. As head of a leading global IT hardware company, Cisco CEO John Chambers has a pretty good idea of what's going on in the world. "Our U.S. Enterprise and Commercial are usually a very good indicator of GDP slowly increasing or GDP decreasing, and we saw a turn up in U.S. in Enterprise and Commercial back in summer of 2012," said Chambers during the company's earnings conference call. "So, that feels good and you combine that with the CEOs I talked to, most of us feel 2.5%, 3% for the next nine months is very doable number." Chambers characterized Europe as fragile, but growing. But the emerging markets are "still very challenged," he said.

Economic Data Tidal Wave. At 8:30 a.m ET, we'll get the consumer price index (est. +0.3%, core +0.1%), initial jobless claims (est. 320,000), and the Empire Manufacturing Index (est. 6.0). At 9:15 a.m., ET, we'll get industrial production (est. 0.0%). At 10:00 a.m. ET, we'll get the Philly Fed Business Outlook Index (est. 14.0).

SeaWorld In The Red. SeaWorld Entertainment said Q1 revenue fell 11% year-over-year to $212.3 million, which led to an adjusted net loss of $0.56 per share. Both numbers were worse than analysts expected. The big problem was attendance, which plunged 13.0% during the quarter. Management blamed the Easter Holiday calendar shift and unfavorable weather in Florida and Texas. While the company didn't mention it explicitly, it's likely that SeaWorld is hurting from the unfavorable publicity that came with CNN's documentary "Blackfish."

David Tepper Is Nervous. Billionaire hedge fund manager David Tepper spoke at the SALT Conference in Las Vegas on Wednesday evening. "I am nervous," said Tepper about the markets. "I think it's nervous time."

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BONUS: BI's Linette Lopez and Julia La Roche have been reporting live from the SALT conference in Las Vegas.

On Wednesday, economist Nouriel Roubini laid out the risks he sees in the world. Here's Linette's summary:

China! "Some people believe in a hard landing... some people believe in a softer landing," said Roubini. "I worry about a bumpy, tougher landing." What does that mean? Growth of 6% or less by 2016 and the continuation of bad investment policies. Roubini does not believe the market is pricing this in yet.
A policy mistake by the Fed. For example, lets say the Fed decides to set the Fed Funds Rate at 3% rather than too, and that turns out to be too high. Maybe the Fed exits QE too soon.
Roubini sees a "secular stagnation in advanced economies," thanks in part to income inequality. Right now companies are rich but they're not spending any of that money on capital expenditures. They don't see the demand. Why? Because of income equality. "High debt and inequality are slowing down consumption." In consumption based, advanced economies, "that's a problem," said Roubini.
There are six new countries that are fragile for political and economic reasons — Argentina, Venezuela, Thailand, Ukraine, Russia, and Hungary.
An expansionist Russia. "Putin is not just after Ukraine, he wants to create a Eurasian union," said Roubini. It's a 20 year process that would join a bunch of countries in Eastern Europe politically and economically.
Japan and China are really getting angry at each other."I was quite disturbed at the World Economic Forum... senior officials were talking about relations between China and Japan being like Britain and Germany before WWI." You've got nationalist governments in both countries, and xenophobic elements that could be exacerbated if either country's economy goes sour. This conflict would spill out to the rest of Asia too — to Korea and India at the very least.