"We all live under the same sky, but don’t all have the same horizon."
Market Week Wrap-up
- US equity indices have sustained modest gains in the four-day trading week (markets were closed for Memorial Day on Monday) on modest volume as investor attention has focused on big moves in bond and currency markets.
With the fallout of the massive US budget taking its toll, yields on US Treasuries and currency trading in USD pairs took out key levels all week long. Bond guru Bill Gross summed up the situation in fixed income, noting that the "new normal" for Treasuries has arrived, warning that markets are wondering who will buy USTs moving forward. The EUR/USD closed out the week back above 1.41 for the first time in five months, helping to propel crude futures above $66/barrel. Crude had its biggest one-month percentage gain in nearly a decade in the month of May, rising over 30%. For its part OPEC met in Vienna and left its output levels unchanged, but said it would focus on continuing to improve compliance. Consumer confidence data surprised investors this week, with the Commerce Department reporting its May confidence reading well above expectations, hitting a seven month high. Markets also shrugged off a much worse than expected Chicago Purchasing Managers Index on Friday. That helped propel stocks to another weekly gain: for the week, the S&P 500 rose 3.6%, the DJIA gained 2.7% and the Nasdaq Composite climbed 4.9%.
- Three separate data reports this week offered mixed signals on the US housing market, presenting no clear bottom yet.
On Tuesday the March S&P/CS Home Price index was in line with expectations, but it's worth noting that the index has fallen more than 19% in Q1, the biggest y/y decline on a quarterly basis in its 21-year history. Home prices in the 20 cities tracked by the composite index fell by 18.7% y/y in March, which is a slight improvement over the February data. On Wednesday the National Association of Realtors' April existing home sales reading was +2.9% m/m, although the backlog of unsold homes rose 9% from March levels, with 10.9 months of supply in the pipeline. NAR's Chief Economist said most sales are in lower price ranges, with activity just beginning to pick up in the mid-price range while high-end sales are still sluggish. On Thursday the April new home sales data was a bit below expectations, with the backlog of homes in line with the NAR's data, at more than 10 months supply. Mortgage delinquencies surged in Q1 to 9.12%, marking the fifth consecutive month of record highs. One ominous component of the delinquencies data indicated that nearly half of rise in Q1 foreclosures in Q1 was accounted for by prime, fixed-rate mortgages.
- A GM bankruptcy is now expected sometime on Sunday or Monday. Executives and bondholders discussed terms of a potential deal all week, taking negotiations down to the wire.
On Wednesday unsecured bondholders rebuffed GM's offer to exchange more than $27B in debt for a 10% equity stake in a reorganized company, forcing executives to sweeten the deal by adding warrants to buy a further 15% stake after reorganization. Some bondholders have accepted the improved offer, calling the proposal their best option and also noting that bankruptcy litigation would be "costly and uncertain," while the Main Street Bondholders continued to hold out against the proposal. The administration said on Thursday it would commit another $30B in funding to GM (with another $9B from the Canadian government), estimating the company would emerge from bankruptcy in 60 to 90 days and go public again after 6 to 18 months. On Friday, the UAW membership approved further concessions to GM, which along with a bondholder deal could smooth out bankruptcy proceedings.
- An FDIC report this week offered a mixed picture of the performance of US banks in the first quarter of 2009.
According to the report, profits in the quarter were buoyed by revenues at a few larger firms, but overall the credit picture remained grim as the number of banks on the brink continued to rise and consumers and businesses increasingly fell behind on their loans. Net profit at US banks was $7.6B for the quarter was down y/y but much improved from the $36.9B loss in the final quarter of 2008. FDIC's Bair said that asset quality remains a major concern, troubled tier-1 loans continue to accumulate and costs associated with these impaired assets are weighing heavily on banks. There were also reports this week that Fed has quietly informed banks that they will have to rely less on future earnings when determining capital raising plans, with projected revenue permitted to covering no more than 5% of their capital shortfall. Some banks had reportedly been planning for improved revenues to cover as much as 20% of their shortfalls.
- Trading in US Treasury markets captivated the entire spectrum of traders and commentators this week.
Despite the relatively warm reception to the Treasury's 2-, 5- and 7-year note auctions, by mid-week yields had surged through key levels with alarming ease. Traders dumped US paper noticeably after both the 2- and 5-year auction results, as concerns about the government's ability to find corral demand for longer-dated supply overshadowed the healthy short-term auction. Wednesday afternoon the benchmark 10-year yield surged towards 3.75% sending the spread above 275 basis points, briefly topping all-time highs made back in 2003.
- Reaction to the surge in interest rates sparked concern after the selling in government paper was matched by selling in mortgage-backed bonds.
Fears began to circulate that an impending move up in mortgage rates could quash any recovery in the housing market. The average 30-year fixed-rate mortgage jumped above 5.4% for the first time since February. By Thursday worries were growing that the Fed was losing its ability to influence mortgage rates as spreads between mortgage-backed securities and comparable Treasuries widened at a faster rate than the overall rise in Treasury yields.
- A relatively good showing in the 7-year note sale late on Thursday provided some relief as the near hysteria seen by the sharp decline in stocks and the USD that accompanied the surge in interest rates abated.
Treasury yields retraced, with the benchmark yield falling back below 3.5%, and 2-10y spread narrowing towards 250 basis points. Traders and prognosticators alike seem to be resigned to the fact that although rates are up sharply over the past two weeks, they still remain at historically lows levels. Markets also appear to be shrugging off the inflationary implications of the recent move and focusing instead on its likely signal of an improving economic environment that could convince investors to reallocate to riskier assets. Next week's 10- and 30-year auction announcements could renew uneasiness in markets, especially if they differ widely from expectations. But with no new supply scheduled until the second week of June, Treasury markets are likely to consolidate in an attempt to digest the recent move. Markets will also surely be watching the Fed to see if they provide any signals that they intend to defend rates through their outright securities purchases.
- In currencies, economic data and bond auctions battled it out this week to dictate the overall tone.
Early in the week there was talk that major central banks might be caught in a dollar trap as countries with large US Treasury holdings (particularly China) were seen as having little choice but to keep pouring reserves into USTs, since they comprise the only market big and liquid enough to support huge purchases. China sent signals to the Federal Reserve that it is increasingly disturbed by the US freely printing money. PIMCO's El-Erian said no other currency could replace the dollar as the world's reserve but warned that some holders might diversify their holdings. Currency dealers kept a wary eye on the Russian Central bank as one indicator of the trend in EUR/USD, given that the Russians have been trying to keep the ruble from strengthening by buying euros. The deputy chairman of the Russian Central Bank insisted once again that the bank has no plans to change the makeup of its dollar/euro basket (currently 55% USD and 45% EUR). Later in the week South Korea's Pension Fund indicated it might diversify currency holdings away from the dollar.
- Comments in defense of the dollar out of US officials and rating agencies didn't help things.
Various parties insisted the AAA sovereign ratings of the United States were safe despite the growing supply of Treasuries on tap to pay for US deficits. A senior S&P analyst said US ratings are not under immediate threat, a comment later reiterated by Fed Governor Fisher. There was a certain amount of skepticism that the Treasury would find buyers for the $100B of bonds it planned to sell during the week. Note that the US needs to sell $3.3 trillion of Treasuries by Sept. 30th to fund bank bailouts, stimulus spending and a record budget deficit. In addition, there was dealer chatter that the administration would unofficially pursue a weak dollar policy to support the manufacturing sector.
- Risk appetite found traction after the May consumer confidence data beat expectations, and various soft data components continued to improve.
Central bankers and government officials maintained an optimistic tone that the worst of the global recession was over, though caution remains on the growth front. In China the PBoC warned the global economy has yet to hit bottom and a Chinese economic recovery is not under way yet. Hard data continues to be weak, exemplified by the US housing data. By the end of the week USD sentiment was on the ropes, exhibiting weakness against the major pairs, emerging market pairs and commodity-related pairs. Note that the USD benefited slightly from its safe-haven status following the North Korean nuclear test and numerous missiles launches. The dollar ended the week and the month of May on shaky ground, with EUR/USD moving toward the 1.41 level, while GBP/USD tested above the 1.61 handle for the first time since Nov 6th. EUR/GBP moved below the 0.87 level for the first time in three months and GBP/JPY tested above the 155 level.
- The yen began the week weaker against major pairs due to political risk emerging from the North Korean nuclear test.
Downside momentum picked up a bit as dealers focused on the launch of two large Toshin funds. USD/JPY moved above the 97 handle for the first time since May 13th. Dealers said money has been leaving Japan in search of higher yields as global economic growth potential brightened. Commodity currencies also regained some composure as oil firmed up over the course of the week; CAD remains strong and fell below its 200-week moving avg at 1.1147 as NYMEX crude tested above the $66 handle.
- The week in Asia featured broad-based strength for commodity-driven markets as well as the currencies of Australia and New Zealand, with the rally in the Aussie and Kiwi dollars reaching multi-month highs against the greenback while also outpacing the gains seen in the European majors.
AUD/USD rose above 0.79 and NZD/USD traded above 0.63 for the first time since early October, as EUR/AUD declined steadily from 1.80 all the way down to 1.7650 on a mixed batch monetary, credit, and corporate developments. The Reserve Bank of Australia is expected to retain its status of having the highest overnight lending rate of all major economies at 3.00% when it meets early next week, having previously suggested increasing sensitivity to global recovery sentiment and a far more sparse pace of easing. In New Zealand, expectations of longer-lasting budget deficits did not unhinge currency underpinnings under the dreaded scrutiny of credit rating agencies, with Moody's maintaining Stable sovereign rating and S&P actually raising its outlook on foreign currency rating to Stable, citing improvement in fiscal flexibility. On the corporate front, mining giants in Australia secured contracts with Korean and Japanese steelmakers, while also proclaiming resurging demand from the "bottomed out" China markets.
Week of 6/1/2009 thru 6/5/2009
Monday, June 01, 2009
8:30am April Personal Income (last -0.3%), April Personal Spending (last -0.2%), April PCE Deflator y/y (last 0.6%), April PCE Core (last m/m 0.2%, y/y 1.8%)
10:00am May ISM Manufacturing (last 40.1), May ISM Prices Paid (last 32), April Construction Spending m/m (last 0.3%), TAF auction
Tuesday, June 02, 2009
10:00am April Pending Home Sales m/m (last 3.2%), TAF results
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Wednesday, June 03, 2009
7:30am May Challenger Job Cuts y/y (last 47%)
8:15am May ADP Employment Change (last -491K)
10:00am May ISM Non-Manufacturing (last 43.7), April Factory Orders (last -0.9%)
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
10:00am Fed Chairman Bernanke testifies before House Budget Committee.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
8:30am Preliminary Q1 Annualized GDP q/q (last -6.1%), Q1 GDP Price Index (last 2.9%), Q1 Personal Consumption (last 2.2%)
9:45am May Chicago Purchasing Manager Index (last 40.1)
9:55am May Final U. of Michigan Confidence (last 67.9)
10:00am May NAPM-Milwaukee (last 39)
Todays Headlines
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 623K V 628KE; CONTINUING CLAIMS: 6.788M V 6.745ME
- Prior jobless claims revised from 631K to 636K
- Prior Continuing Claims revised from 6.662M to 6.678M
8:30:03 AM
*APR DURABLE GOODS ORDERS: 1.9% V 0.5%E; DURABLES EX-TRANSPORTATION: 0.8% V -0.3%E
- Prior Durables revised from -0.8% to -2.1%
- Prior Durables Ex Transportation revised from -0.7% to -2.7%
10:00:02 AM
*APRIL NEW HOME SALES: 352K V 360KE (0.3% M/M)
- Median sales price: $209,700 v $202,200 m/m (+3.7%); $246,400 y/y (-15% y/y)
- New Home months of supply: 10.1 months v 10.6 months m/m
- Prior New Home Sales revised from 356K to 351K
10:00:04 AM
*Q1 MORTGAGE DELINQUENCIES: 9.12% V 7.88% PRIOR (Q4) (another record high)
- Prime mortgage delinquency rate 6.06% v 5.06% q/q
- Mortgages in foreclosure at 3.85% v 3.30% q/q
10:15:33 AM
(EU) ECB's Weber: Risk-taking might rise if interest rates fall with asset prices
- Central banks must not insure investors against risk
- Symmetric monetary policy needed for across asset price cycles
- Central banks need to take a longer-term perspective
- Econmic crisis showed how valuable ECB's monetary policy analysis is
1:01 PM
*TREASURY'S $26B 7-YEAR NOTE AUCTION BID-TO-COVER RATIO: 2.26 V 2.28 PRIOR AND 2.30 OVER THE LAST THREE- indirect bidders take 33% of competitive bids - notes draw 3.30% with 78% alotted at the high
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Pre-market buying lifted US indices before the open this morning after yesterday afternoon's late selloff, but more negative housing data knocked things into the red within the first hour of trade.
Equities have recouped a bit, after GM's bondholders accepting the sweetened debt-for-equity deal. The third set of housing data this week showing nothing but yellow weeds dropped this morning, with April new home sales a bit below expectations, and supply in line with the NAR's data yesterday at more than 10 months. Mortgage delinquencies surged in Q1 to 9.12%, marking the fifth consecutive month of record highs.
One ominous component of the delinquencies data indicated that nearly half of rise in foreclosure starts in Q1 were accounted for by prime, fixed-rate mortgages. Front-month NYMEX crude is pushing out to fresh six-month highs towards $65 after OPEC confirmed it was on hold and weekly gasoline and crude inventories declined.
- Treasury are attempting to consolidate the large move that occurred after yesterday's 5-year auction results.
Early in the floor trading session yields looked to give back some gains from yesterday's surge but the buying as been tepid. The 10-year yield is down less than 10 basis points from yesterday's high remaining above 3.65%. The benchmark spread after widening out to an all time high of 275 basis points has narrowed to 268 basis points. BAC and MS both announced bond offerings today as they look to continue to sure up their balance sheet under the watchful eye of the government, while Citigroup was forced into another FDIC backed offering.
- GM's new offer for bondholders includes a 10% equity stake in "New GM," plus warrants to buy a further 15% stake in the reorganized company.
The bondholder's committee has reportedly approved the plan, calling the proposal their best option, and also noting that bankruptcy litigation would be "costly and uncertain." The US Treasury is backing the sale of toxic GM assets with $50B in DiP support, up from the $30B figure that was making the rounds yesterday.
- Various macro stories are adding weight to financials.
Overnight the WSJ reported that the Fed has quietly informed banks that they will have to rely less on future earnings when determining capital raising plans, with projected revenue permitted for covering no more than 5% of their capital shortfall. According to the Journal, some banks had been planning for improved revenues to cover as much as 20% of their shortfalls. Watch out for more capital raises out of the 10 banks the Fed said needed bigger cushions after the stress tests - Wells Fargo and Bank of America topped that list, with shares of both under performing peers this morning. Moody's said the April credit card industry charge-off rate was 9.97%, for its fifth consecutive all-time high, while the credit card delinquency rate of credit card delinquency rate of 6.34% was a hair lower m/m. Moody's said these trajectories are both consistent with its revised expectations for the charge-off rate index to peak in the second quarter of 2010 at about 12%.
- Consumer-facing names are front and center this morning, including plenty of earnings and conference comments.
Procter & Gamble offered widely anticipated commentary on global pricing at an investor conference, saying that it would take a "highly surgical" approach to adjusting its prices. More specifically, PG said it would lower prices on fabrics and tissues, while leaving beauty and grooming alone. In addition, it said it would use cash to maintain its credit rating and pledged to maintain a healthy dividend, while curtailing buybacks. Competitor Colgate-Palmolive also said it would use its cash to maintain its credit rating.
- In earnings, Sanderson Farms is up more than 8% after blowing out earnings and revenue estimates.
The company said much of the improvement is due to production cuts and resulting reduced supply of chicken in the market. Tyson was up 4% early on these comments, but is off its best levels. Heinz is around even after reporting Q4 results in line with expectations. Wholesale warehouse Costco missed earnings estimates for a second quarter, with same-store sales markedly worse over last quarter. Shares of COST are down 4%. Discount retailers Fred's and Big Lots met or exceeded analysts estimates. FRED reaffirmed its full-year guidance, while BIG upped its slightly, although shares of both names fell into negative territory after the open before recovering to around -3%. Trina Solar is up 6% after reporting a slim profit versus expectations for a loss.
- In currencies, yen weakness continued into the New York session, with the USD/JPY pair hitting its highest levels in eight weeks at 97.24.
Other JPY-related cross pulled off even stronger rallies, with EUR/JPY testing above the 135 handle and GBP/JPY probing the 155 neighborhood. Dealers are noting that demand for overseas assets among Japanese investors has been growing. The GBP price action was choppy as rumors circulated that the GKF confidence data might be weaker than the expected -27 reading expected. GBP/USD was little changed as the New York morning ended at the 1.5950 level while EUR/GBP was 40 pips higher than its opening levels in Tokyo at 0.8735. Commodity currencies remained firm, with USD/CAD at the 1.1155 level and AUD/USD holding above the 0.78 handle following the OPEC's decision to maintain its current output production with the series of 4.5M bpd of cuts that were enacted back in the Sept to Dec period. New Zealand's dollar gained was also aided by an earlier comment from S&P, which raised its outlook on the countries sovereign debt rating to stable from negative.
More Headlines
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 623K V 628KE; CONTINUING CLAIMS: 6.788M V 6.745ME
- Prior jobless claims revised from 631K to 636K
- Prior Continuing Claims revised from 6.662M to 6.678M
8:30:03 AM
*APR DURABLE GOODS ORDERS: 1.9% V 0.5%E; DURABLES EX-TRANSPORTATION: 0.8% V -0.3%E
- Prior Durables revised from -0.8% to -2.1%
- Prior Durables Ex Transportation revised from -0.7% to -2.7%
10:00:02 AM
*APRIL NEW HOME SALES: 352K V 360KE (0.3% M/M)
- Median sales price: $209,700 v $202,200 m/m (+3.7%); $246,400 y/y (-15% y/y)
- New Home months of supply: 10.1 months v 10.6 months m/m
- Prior New Home Sales revised from 356K to 351K
10:00:04 AM
*Q1 MORTGAGE DELINQUENCIES: 9.12% V 7.88% PRIOR (Q4) (another record high)
- Prime mortgage delinquency rate 6.06% v 5.06% q/q
- Mortgages in foreclosure at 3.85% v 3.30% q/q
10:15:33 AM
(EU) ECB's Weber: Risk-taking might rise if interest rates fall with asset prices
- Central banks must not insure investors against risk
- Symmetric monetary policy needed for across asset price cycles
- Central banks need to take a longer-term perspective
- Econmic crisis showed how valuable ECB's monetary policy analysis is
"In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing."
8:30am April Durable Goods Orders (last -0.8%, ex-transport -0.6%), Initial Jobless Claims (last 631K), Continuing Claims (last 6.662M)
10:00am April New Home Sales (last 356K, m/m -0.6%)
10:30am Natural Gas Inventories
11:00am DoE Crude Oil/Gasoline/Distillate Inventories
1:00pm Treasury's 7-yr auction
Todays Headlines
9:11:29 AM
(VZ) Venezuela Oil Min Ramirez:
- Expect oil to trade around $75/barrel by end of 2009; Remains concerned about level of inventories, sees around 1.0M barrels/day in oversupply; not seeing signs of demand recovery yet
- says OPEC meeting should focus on getting compliance toward 100%; does not expect OPEC to cut output during the meeting.
- OPEC may need to cut output later on in 2009.
- Adds that there is no need to discuss quotas at upcoming meeting.
9:16:29 AM
(US) EIA: World Energy consumption to increase by 44% by 2030
- Expect economic recovery over next 12-24 months to spur energy demand
- Sees oil prices reaching $115/barrel by 2015, and $130/barrel by 2030
- Emerging economies to account for 90% increase in energy use
- Projections do not include policies to limit emissions
9:45:33 AM
(UK) May Year Ahead CPI Expectations: 1.6% 1.8% prior - YouGov
- Long term inflation expectations at 3.0%
- Survey does not see widespread expectatiojn of deflation
10:00:02 AM
*APR EXISTING HOME SALES: 4.68M V 4.66ME (+2.9% M/M)
- Prior revised from 4.57M to 4.55M
- Total Months of Supply: 10.2 months v 9.6 months in March (3 month avg is 9.8)
- Median Existing Home Price: $170,200 v $169,900 in March (+0.2% m/m),
- NAR Chief Economist: "First-time buyers continue to influence the market but there also is a seasonal rise of repeat buyers. "Most of the sales are taking place in lower price ranges and activity is beginning to pick up in the midprice ranges, but high-end home sales remain sluggish," he said. "The Federal Reserve needs to help restore liquidity for the jumbo mortgage market by buying these loans under the TALF program."; numbers of buyers looking at homes +14% y/y
10:02:47 AM
(US) FDIC's Bair: Troubled tier-1 loans continue to accumulate in Q1, costs associated with these impaired assets are weighing heavily on banks
- Asset quality remains a major concern: Loans that are not current rose in Q1, banks charged off nearly $38B in loans in Q1.
- In Q1 insured deposits grew by 1.7% y/y
- Tier-1 capital rose by nearly $70B in Q1, mostly due to govt capital programs.
- Around 97% of banks were well capitalized by regulatory standards in Q1.
- The number of bank failures continue to increase, FDIC has $28B in reserves to cover losses over next 12 months (reminder; FDIC recently forecasted $70B in losses over period of 5 years)
- The 21 bank failures during the first quarter was the highest quarterly total since the final three months of 1992.
1:01:36 PM
*TREASURY'S $35B 5-YEAR NOTE AUCTION BID-TO-COVER RATIO: 2.32 V 2.22 PRIOR AND 2.17 AVG OVER THE LAST 10 AUCITONS
- indirect bidders take 44.2% of competitive bids
- notes draw 2.310% with 44.9% alloted at the high
4:02:11 PM
DSW Inc. Reports Q1 $0.16 v $0.16e, R $385M v $383Me
- Guides FY09 EPS $0.30-0.35 v $0.46e
- Guides FY09 SSS to decline in mid single digits
- Forecast opening 10 new stories v 41 new stores last year
- Capital expenditures are expected to decrease to approximately $35M compared with $81M last year.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equities are trading sideways this morning as another mixed batch of housing data and plenty of caution around the financials keeps things subdued.
This morning's April existing home sales data offered a different take on housing to yesterday's cloudy S&P/CS home price index. According to the National Association of Realtors, sales of existing homes were up 2.9% m/m, although there is grist for pessimistic mills in the data as well, with unsold homes up 9% from March levels, with 10.9 months of supply in the pipeline. NAR's Chief Economist said most sales are in lower price ranges, with activity just beginning to pick up in the mid-price range and high-end sales still sluggish. Front-month NYMEX crude is off its overnight highs above $63, trading mid morning around $62.50.
- Treasury prices remain lower ahead of this afternoon's 5-year note auction.
Yesterday's 2-year results were quite strong but yields still pushed higher as trepidation remains ahead of the longer dated paper set for auction the rest of this week and next. The 10-year yield has moved above 3.5% sending the benchmark spread above 260 basis points. Equity, bond and even currency traders are noting that spread is rapidly approaching the all time highs above 274 basis points made back in 2003.
- At a Sanford Bernstein conference this morning, JP Morgan CEO Jamie Dimon addressed emerging concerns about commercial real estate losses, calling commercial real estate "a shoe that's dropped" and warning that losses from this area are increasing.
He also said JPM was done building credit card loan loss reserves and said the firms investment banking business is doing well. Bank of America has updated investors on its capital raising program, noting that it has placed $26B under its $33.9B plan, including the conversion of $5.9B of preferred shares into around 436M shares of common stock.
- The FDIC discussed the performance of US banks in the first quarter of 2009.
Profits in the quarter were buoyed by revenues at a few larger firms, but overall the credit picture remained grim as the number of banks on the brink continued to rise and consumers and businesses increasingly fell behind on their loans. Net profit at US banks was $7.6B for the quarter was down y/y but much improved from the $36.9B loss in the final quarter of 2008. FDIC's Bair said that asset quality remains a major concern, troubled tier-1 loans continue to accumulate and costs associated with these impaired assets are weighing heavily on banks.
- GM confirmed that its exchange offers to bondholders for $27.2B debt have fallen flat.
Yesterday there were reports that a paltry low single-digit percentage of bond holders accepted the auto maker's to convert the debt to a total 10% ownership stake in a reorganized GM. The company needed a 90% exchange rate to consummate the deal. Overnight the WSJ reported that secured lenders may get full recovery on their $6B in loans under a proposed bankruptcy plan, with the Treasury likely injecting $50B in financing to back a GM workout. Across the pond, the German government has paused the process of selling Opel, calling offers from Fiat and Magna insufficient while also saying that a bid for Opel from China's Beijing Automotive Industry Holdings was under consideration.
- In earnings, shares of Take-Two are on a tear, up 12% in early trading after the company reported in line with Q2 expectations and reaffirmed its full-year EPS outlook. Note that TTWO guided a huge loss next quarter and also trimmed its 2009 revenue forecast. Retail names in a broad range of businesses have reported this morning.
Office supplies retailer Staples met estimates, and warned that it would not provide specific sales and earnings guidance for 2009 due to the ongoing slump. Car parts name AutoZone outperformed top and bottom line estimates and increased its quarterly same-store sales. Bookseller Borders Group reported half the expected loss.
Apparel names American Eagle and Ralph Lauren did notably well, with shares of both names up 5% or so. AEO met Q1 estimates and guided in line, while RL reported twice the expected earnings and beat revenue targets as well. Executives from both firms were upbeat on conference calls, with AEO's CEO saying the slump from last fall has leveled off, while RL's CEO said that sales in the second half of the year would be dominated by promotional activities. Jewelry retailer Zales offered dismal results, missing estimates across the board, with shares of ZLC down 18%.
- In currencies, various cross currents were in play during the New York session, as central banker trend, economic data and bond auctions results battled it out to dictate the overall momentum.
The USD price action was mixed by the end of the New York morning ended. Earlier the USD had fallen off its best levels on dealer chatter that the US might pursue a weak dollar policy to support manufacturing. EUR/USD probed the 1.40 area before retreating back below 1.3900. ECB member Provopoulos warned that the financial crisis was still unfolding and the US existing home sales failed to provide hard data that the worst was over, given that total supply rose to 10.2 months from 9.6 last month.
Other players had a lot to say about the dollar as well: PIMCO's El-Erian said no other currency could replace the USD as world reserve currency but warned that various holders might diversify their basket of holdings, while the Russian Central Bank deputy chairman reiterated the bank had not discussed plans to change the compositions of the dollar/euro basket (currently 55% USD and 45% EUR). The GBP maintained its firm tone it garnered in both the Asian and European sessions. The EUR/GBP cross moved below the 0.87 level for the first time in three months.
More Headlines
9:11:29 AM
(VZ) Venezuela Oil Min Ramirez:
- Expect oil to trade around $75/barrel by end of 2009; Remains concerned about level of inventories, sees around 1.0M barrels/day in oversupply; not seeing signs of demand recovery yet
- says OPEC meeting should focus on getting compliance toward 100%; does not expect OPEC to cut output during the meeting.
- OPEC may need to cut output later on in 2009.
- Adds that there is no need to discuss quotas at upcoming meeting.
9:16:29 AM
(US) EIA: World Energy consumption to increase by 44% by 2030
- Expect economic recovery over next 12-24 months to spur energy demand
- Sees oil prices reaching $115/barrel by 2015, and $130/barrel by 2030
- Emerging economies to account for 90% increase in energy use
- Projections do not include policies to limit emissions
9:45:33 AM
(UK) May Year Ahead CPI Expectations: 1.6% 1.8% prior - YouGov
- Long term inflation expectations at 3.0%
- Survey does not see widespread expectatiojn of deflation
10:00:02 AM
*APR EXISTING HOME SALES: 4.68M V 4.66ME (+2.9% M/M)
- Prior revised from 4.57M to 4.55M
- Total Months of Supply: 10.2 months v 9.6 months in March (3 month avg is 9.8)
- Median Existing Home Price: $170,200 v $169,900 in March (+0.2% m/m),
- NAR Chief Economist: "First-time buyers continue to influence the market but there also is a seasonal rise of repeat buyers. "Most of the sales are taking place in lower price ranges and activity is beginning to pick up in the midprice ranges, but high-end home sales remain sluggish," he said. "The Federal Reserve needs to help restore liquidity for the jumbo mortgage market by buying these loans under the TALF program."; numbers of buyers looking at homes +14% y/y
10:02:47 AM
(US) FDIC's Bair: Troubled tier-1 loans continue to accumulate in Q1, costs associated with these impaired assets are weighing heavily on banks
- Asset quality remains a major concern: Loans that are not current rose in Q1, banks charged off nearly $38B in loans in Q1.
- In Q1 insured deposits grew by 1.7% y/y
- Tier-1 capital rose by nearly $70B in Q1, mostly due to govt capital programs.
- Around 97% of banks were well capitalized by regulatory standards in Q1.
- The number of bank failures continue to increase, FDIC has $28B in reserves to cover losses over next 12 months (reminder; FDIC recently forecasted $70B in losses over period of 5 years)
- The 21 bank failures during the first quarter was the highest quarterly total since the final three months of 1992.
10:00am March House Price Index m/m (last 0.7%), April Existing Home Sales (last 4.57M, m/m -3%)
1:00pm Treasury's 5-yr auction
Todays Headlines
5:00 AM
*(EU) EURO-ZONE MAR INDUSTRIAL NEW ORDERS M/M: -0.8% V 0.8%E
- Y/Y: -26.9% V -30.6%E
- Prior M/M revised from -0.6% to 0.0%
- Prior Y/Y revised from -34.5% to -34.2%
6:11 AM
(EU) ECB's Nowotny:
-The ECB remains cautious despite positive signs, staff growth projection likely to be revised lower- Reiterates the view that interest rates are at an appropriate level.
9:00 AM
*(BE) BELGIUM MAY CONSUMER CONFIDENCE:
-27.6 V -27.1
10:00 AM
*MAY CONSUMER CONFIDENCE: 54.9 V 42.6E (Highest reading since Sept 2008)
- prior revised from 39.2 to 40.8
- Conference Board: consumers seeing the 'worst behind us.'
10:30 AM
*MAY DALLAS FED MANUFACTURING ACTIVITY (business activity):
-21.5% V -22.1%E
1:01:37 PM
TREASURY'S $40B 2-YEAR NOTE AUCTION BID-TO-COVER RATIO: 2.94 V 2.72 PRIOR AND 2.43 AVE OVER LAST 10 AUCTIONS
- indirect bidders take 54.4% of competitive bids
- notes draw 0.940% with 42.9% alotted at the high
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equities are seeing something of a post-memorial day rally this morning, with investors pushing the three leading indices out to impressive gains on the back of strong consumer confidence data (ignoring another grim look at housing).
The March S&P/CS Home Price index was in line with expectations, although the index has fallen more than 19% in Q1, its biggest y/y decline on a quarterly basis in its 21-year history. Home prices in the 20 cities tracked by the composite index fell by 18.7% y/y in March, which is a slight improvement over the February data, marking another faint sign that things are getting worse more slowly.
Still, there are no signs home prices have hit bottom in the data. Consumer confidence is showing strong improvements, with the May reading soaring to 54.9 from April's 40.8 reading. Consensus estimates were for 42.6. Front-month NYMEX crude is back above $61 after dropping below $60 early in the session. Various OPEC figures have indicated no changes to production levels will be forthcoming at the organization's May meeting later this week.
- Treasury prices opened marginally higher before moving lower in tandem with rallying stock prices.
The 10-year yield is back above 3.45% while the 2-year has regained 0.9%. Later this afternoon Treasury auctions off $40B in 2-year notes in the first of three notes auctions scheduled this week. This weeks auctions are likely to see some increased attention of a two week hiatus of new supply from the US government. Traders will also be focusing on the reverse action results of the Fed's TIPS purchase due shortly. The results could shed some light on any change in inflation expectations.
- News on individual equities has been rather thin, with good news for tech and pharma names helping the Nasdaq outperform.
Shares of Apple were raised to Overweight at Morgan Stanley, as analysts at the firm wrote that they expect demand for iPhone sales to beat expectations in the second half of 2009. Morgan raised its price target on Apple to $180 from $105. Canadian Solar reported a smaller than expected quarterly loss, while its revenue was disappointing. In addition, the firm cut its 2009 shipments guidance for the third time. MAP Pharmaceuticals is up more than 170% today after the company said its Phase III trial of LEVADEX migraine product candidate met all four of its primary endpoints.
- In currencies, the greenback consolidated its session gains during the New York morning, benefiting initially from its safe-haven status as US traders returned from the extended holiday weekend.
EUR/USD tested 1.3860 before retreating to 1.3920. The euro's overall tone was soft amongst the major pairs, with EUR/GBP tested below the 0.8760 level and EUR/JPY tested 131.45. But risk appetite found traction after the May consumer confidence index beat expectations, with the survey suggesting that consumers believe the worst of the recession is over, forcing the dollar to give up its earlier gains but hold below the 1.40 handle. Commodity currencies also regain some composure as oil firmed following the US confidence data, with USD/CAD around 1.1260 after testing 1.1355 earlier today and AUD/USD looking to retest the 0.78 cent level.
More Headlines
5:00 AM
*(EU) EURO-ZONE MAR INDUSTRIAL NEW ORDERS M/M: -0.8% V 0.8%E
- Y/Y: -26.9% V -30.6%E
- Prior M/M revised from -0.6% to 0.0%
- Prior Y/Y revised from -34.5% to -34.2%
6:11 AM
(EU) ECB's Nowotny:
-The ECB remains cautious despite positive signs, staff growth projection likely to be revised lower- Reiterates the view that interest rates are at an appropriate level.
9:00 AM
*(BE) BELGIUM MAY CONSUMER CONFIDENCE:
-27.6 V -27.1
10:00 AM
*MAY CONSUMER CONFIDENCE: 54.9 V 42.6E (Highest reading since Sept 2008)
- prior revised from 39.2 to 40.8
- Conference Board: consumers seeing the 'worst behind us.'
10:30 AM
*MAY DALLAS FED MANUFACTURING ACTIVITY (business activity):
-21.5% V -22.1%E
"When you feel in your gut what you are and then dynamically pursue it - don't back down and don't give up - then you're going to mystify a lot of folks."
Market Week Wrap-up
- Equities spent the first half of the week on an even keel, making solid gains as investors took heart from positive quarterly results out of home improvement retailers Lowe's and Home Depot and reports that several leading banks would be allowed to repay TARP funds soon.
In another milestone on the road to healthier markets, the VIX volatility index dropped below 30 on Tuesday for the first time since Lehman's failure, while the DJIA had risen nearly 450 points to a weekly high around 8590 by Wednesday morning. However Q1 National Association of Realtors report that forecasted commercial real estate activity would remain weak for six to nine months and the release of the April 29th FOMC minutes helped slam on the breaks.
The FOMC minutes forecasted a deeper recession in 2009 and a slower rebound in 2010, and revealed that the Fed is open to expanded quantitative easing, reminding market participants about the precarious state of the economy and ballooning US government debt.
Then on Thursday afternoon S&P cut its outlook on the UK's AAA sovereign rating to negative from stable, a move that cast a shadow on the AAA ratings of the United States. This led to renewed weakness in the greenback against other major currencies, which in turn helped keep crude futures above $60/barrel. For the week, the S&P 500 rose 0.4%, while the DJIA and the Nasdaq Composite each gained 0.7%.
- Another week has yielded little concrete progress on a final restructuring plan for GM.
Negotiations continued with bondholders, the UAW and the Treasury, with the latter pledging another $30B in funding to support GM's restructuring process and promising to refloat GMAC as a publicly traded company. The UAW finally agreed to some further concessions, but bondholders rejected an offer of a 10% equity stake in the restructured company in exchange for billions in debt.
In Europe, multiple bidders emerged for Opel, with Magna International seen as a leading candidate. By Thursday the Washington Post was reporting that the Obama Auto Taskforce was preparing to send GM into bankruptcy as early as next week, prompting a response from White House economic advisor Austin Goolsbee, who said the administration is "committed" to getting a workable restructuring plan by the June 1st deadline, although Goolsbee also admitted that negotiations would likely be "down to the wire."
- The unofficial government policy of dribbling out information about its various bailout programs was on full display this week.
Administration officials disclosed a few more details on the Public-Private Investment Program (PPIP): in Congressional testimony, Treasury Secretary Geithner said PPIP would commence within the next six weeks, in line with recent comments on timing out of the White House and the FDIC. For its part, the FDIC said it might go ahead with plans to float a "pilot sale" of toxic "legacy" assets without any government financing, implying that there could be a part of the program lacking a "public" component, although the Treasury has said nothing regarding the proposal.
Over the weekend reports circulated that five or six more banks might be cleared to pay back their TARP funding. On Tuesday the Fed confirmed that the first official responses to banks looking to repay government funds would come on June 8th, with further disclosures on a monthly basis thereafter. Goldman, JP Morgan and American Express are reportedly first in line to repay, according to the FT, followed possibly by Morgan Stanley, State Street and US Bancorp. At the firm's shareholder meeting, JP Morgan CEO Jamie Dimon told investors that the TARP program has been a "painful experience" for the bank.
- The banks are continuing the process of raising capital to pay back TARP funding or meet stress test requirements.
Bank of America said it has sold 1.25B shares since May 8th, or just short of 20% of its market cap, worth $13.5B, in its quest to satisfy government capital requirements. The bank also said it is considering a conversion of preferred shares to common equity as the means to raise the rest.
Regions Financial is selling $1B in common stock (about 34% of market cap) and Fifth Third Bank filed to sell $750M in common equity (17% of market cap) plus offer holders $1.1B in preferred shares; both regional banks are looking to fulfill the demands of the Fed stress tests.
- The credit card reform bill and its contentious "Bill of Rights" passed Congress and was signed by the president.
The legislation puts a variety of new restraints on interest rates charged for consumer credit, which are seen as good for consumers and bad for lenders. In a related story,
JP Morgan shifted a portion of its debt card users to Visa from MasterCard, affecting more than half of MA's $59B portfolio of debit card users. A MasterCard spokesperson insisted the move would not have any material impact on revenue.
- Thursday was a pivotal day for overall sentiment in US Treasury markets, as the safe haven status of US government paper appeared to be seriously questioned.
After S&P downgraded the UK, treasuries and the USD sold off sharply in tandem with equities, in contrast to the inverse relationship that has been en vogue since the collapse of Lehman in September.
With some obvious similarities between the two economies, including rapidly expanding national debt and deficits, speculation ensued amongst many players. Adding to the uneasiness, the NY Fed's 22nd round of outright coupon purchases was subsequently met with a wave of unparalleled selling, as dealers submitted a record $45.69B in offers, with the increase ominously attributed to central banks. Disappointment was palpable after the Fed only bought 16% of the bids submitted compared to the 25% they had been averaging, especially in light of Wednesday's FOMC minutes which indicated the Fed could become more aggressive in buying back assets. Subsequently the yield on the 10-yr note surged roughly 15 basis points though 3.30%.
- By Friday the US 10-yr yield pushed above 3.4% for the first time since November, while the benchmark spread found traction above 250 basis points.
The question remains whether the weakness in US Treasury markets is really signaling a pivotal change in investor demand or whether it is just technically driven trade in a thin holiday market ahead of the first new supply in weeks.
Next week the US Treasury will be auctioning off $101B in 2-, 5- and 7-yr notes, offset by just two Fed coupon purchases. Investors will certainly be paying close attention to both sets of auctions to get a better sense of supply/demand dynamics.
- In currency trading, risk appetite was in the air early in the week, prompted by growing speculation that three big American banks would repay a total of $45B in government funds and also helped by the seventh consecutive month of improving German ZEW data.
The resounding victory of the ruling Congress Party in India'a elections powered a 17% surge in the Sensex 30 Index on Monday on the hope that India would consolidate and extend economic reforms. However, a sense of caution crept back in later in the week, as the minutes of the April FOMC meeting posited the US recession could be longer and steeper than expected, and the World Bank cautioned that optimism about China's recovery was premature (not to mention S&P's action on the UK's sovereign ratings outlook).
- In cutting its outlook on the UK's AAA rating, S&P highlighted its concern that Britain's government debt could approach 100% of GDP and stay there in the medium term.
The UK Treasury immediately countered S&P's warning by saying it was confident it could sustain its debt-to-GDP ratio projection of 60% in 2009-10 and 80% in 2013-14. The UK reiterated that S&P's outlook could return to stable if comprehensive measures were implemented to put public finances on a sustainable footing or if fiscal conditions turned out to be more benign than anticipated.
The USD was softer in the wake of the move, with a big assist from Bill Gross who said the US is vulnerable to losing its AAA sovereign rating for similar reasons. Concerns over the US's fiscal health were highlighted by the Congressional Budget Office (CBO), which called its own March economic forecast "too optimistic" and warned any economic recovery could take several years. The CBO also said the US jobless rate might peak above 10% in 2010. Currency and fixed-income dealers expect higher budget deficits given this change in outlook, with obvious implications for US ratings.
Concerns are also simmering at the state level, especially after California voters rejected special ballot measures aimed at curbing the state's widening budget deficit on Tuesday. And keep in mind that the dollar's status as a reserve currency can only decline if recent softness persists. Dealers were noting this week that the Kingdom of Oman recently purchased sterling and euros for its reserves.
- Sterling was actually having a good week before Thursday's rating action, probing its best levels since early November against major pairs, including 1.58 in GBP/USD and below 0.8800 in EUR/GBP.
Within 30 minutes of S&P's rebuke, GBP/USD slumped from around 1.5800 to test below 1.5550, while EUR/GBP rose from 0.8720 to 0.8870. The GBP/JPY cross-slumped over 300 pips from intra-day highs of 149.90. The pound only managed a little consolidation from these session lows.
- The greenback has tobogganed downhill all week; EUR/USD bounced off its 200-day moving average of 1.3410 on Monday and never looked back.
The Portuguese Finance Minister shook things up on Wednesday stating that the EU had no concerns about a stronger a euro, and also forecasted that the EU economy would hit bottom this quarter, helping to propel EUR/USD above the 1.3650 level to test just below 1.38 by mid week. The FOMC minutes that same day kept the pressure on the USD thanks to a revised growth forecast and more hints of quantitative easing. On Friday, the pair tested the 1.4000 handle. USD/JPY ended the week testing the 94.00 level.
- The weaker dollar was complemented by higher commodity prices in both energy and metals.
NYMEX July crude ended the week above the $60 handle, at its best level since early Nov 2008. Spot gold also had a good week, ending at a two month high around $957. With energy and metals in positive territory, the commodity currencies like AUD and CAD were firmer.
- The week in Asia was highlighted by the upgrade in the outlook for economic conditions issued by the Bank of Japan and a recovery in Japanese equities.
The Bank of Japan predictably left interest rates unchanged at 0.10% but surprised the markets by raising its economic assessment on the economy for the first time since July of 2006.
Over the prior session, Governor Shirakawa refuted earlier press speculation that growth forecasts for the domestic economy would be raised. However, the BoJ did in fact drop its view of a severe ongoing economic contraction, noting that the economy would moderate gradually, leading to a more pronounced recovery taking place in the second half of the year. The jury on the timeliness of the revision may still be out however, particularly against the backdrop of Japan's Q1 GDP coming in at its worst contraction on record just this week.
The Nikkei briefly tested on the downside of the 9,000 level for the first time since early May, but ended the week down only fractionally.
Week of 5/25/2009 thru 5/29/2009
Monday, May 25, 2009
Markets closed for Memorial Day Holiday.
UK Spring Bank Holiday. 8:30am
Tuesday, May 26, 2009
9:00am March S&P/CS Home Price Index (last 143.17),
March S&P/CS Composite-20 y/y (last -18.63%)
10:00am May Consumer Confidence (last 39.2),
May Richmond Fed Manufacturing Index (last -9)
10:30am May Dallas Fed Manufacturing Activity (last -31.6%)
1:00pm Treasury's 2-yr auction
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Wednesday, May 27, 2009
10:00am March House Price Index m/m (last 0.7%),
April Existing Home Sales (last 4.57M, m/m -3%)
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equity indices have see-sawed this morning as skittish investors continue talk about S&P's shot across the bow of Britain's AAA sovereign rating.
In the premarket investors kept up the buying seen late in yesterday's session, with trade yo-yoing into and then out of negative territory in the first hour. PIMCO's El-Erian summed up the mood on CNBC, noting that market participants are concerned about the long-term sustainability of the Federal government's balance sheet, in the light of the government's short term goals. Front-month NYMEX crude is hovering around even for the session, at $61. Front month natural gas tested $3.50, off more than $1 from the multi-month highs made less than two weeks ago.
- The downside momentum in Treasury prices resumed following the open of pit trade in Chicago.
The sell off that started yesterday just before noon sent the 10-year yield above 3.4% for the first time since last November. The benchmark spread continues to trade at the widest levels in more than 7 months moving above 250 basis points.
- Investors have been eying the credit card reform bill working it way through Congress over the last few weeks. Last night the Senate passed the legislation, with its associated credit card "Bill of Rights"; the next step is a conference committee to reconcile the bills, followed by the president's virtually guaranteed signature.
The WSJ's Heard on the Street wrote today that the days of easy profits for credit card names are over, thanks to the legislation and accounting rule changes that will force companies to bring large amounts of off balance sheet loans back on the books. BofA/Merrill Lynch are not so downbeat, as analysts at the firm raised their price targets on AXP, COF and DFS (although they left the Underperform ratings on all three untouched). In a related story, JP Morgan shifted a portion of its debt card users to Visa from MasterCard, affecting more than half of MA's $59B portfolio of debit card users. A MasterCard spokesperson insisted the move would not have any material impact on revenue.
- Florida bank BankUnited was shut down by the OTS and handed over to the FDIC last night, making for the largest bank failure of 2009 and the biggest hit to the FDIC since IndyMac collapsed last fall.
It has reopened as a newly chartered savings bank, owned by an investor group including the Blackstone Group, the Carlyle Group, Centerbridge Partners and WL Ross & Co.
- In earnings, apparel retailers Gap and Aeropostale reported in line with estimates. Guidance from Aeropostale, which continues to dramatically outperform other mall chains with positive double-digit same-store sales, was well ahead of estimates for next quarter.
Foot Locker had an impressive first quarter, beating analyst estimates by a wide margin. FL and ARO rose 5% before the open and rapidly gave up their gains after the bell, with FL plunging as much as -10% before cutting its losses. Solar names LDK and Yingli both reported much larger than expected losses, and Yingli missed revenue targets significantly. Both firms have been hit hard by the crisis and the withdrawal of various government subsidies for buying solar panels. Shares of YGE were up 5% at the open but rapidly sunk to -5% early on. LDK opened down 5% and is presently around -15%. Shares of Salesforce.com are 10% despite a strong quarterly performance, with investors evidently unhappy about weak guidance for the coming quarter.
- In currencies, concern about the implications of a potential US sovereign rating downgrade continued to weigh on dollar sentiment.
Dealers are saying that the size of next week's Treasury auction as well as the ratings fears are putting any prospect of a near-term dollar recovery on ice. One dealer noted that the recent equity-dollar correlation trend might drift toward a stronger bond/dollar correlation. EUR/USD tested above 1.4000 level during the session, a level last tested back on Jan 2nd.
More Headlines
7:00:09 AM
*(RU) RUSSIAN APR UNEMPLOYMENT RATE: 10.2% V 10.2%E
- Real Wages Y/Y: -3.0% v -7.0%e
- Disposable Income:-0.1 % v -2.5%e
- Investment in Prodictive capacity: -16.2% v -15.8%e
8:00:28 AM
(US) Treasury Sec Geithner: There are real concerns over banks repaying TARP early
- Reiterates that there should be "very substantial" changes to executive pay.
- Sees gradual US economic recovery as credit remains tight
11:30:31 AM
(EU) ECB's Nowotny: Large bond spreads do not necessarily reflect Euro Zone instability; expects to see joint European financial instruments in the long term
- Eastern Europe will profit early when the recovery begins
- IMF and EU aid have calmed market fears about Eastern Europe
1:30:32 PM
FDIC proposes one time fee of $0.05 (5bps) for every $100 of bank assets to raise $5.6B; more special assessments could come in Q3 and Q4
- a 10bps ceiling is being discussed as far as a one time fee.
- Forecasting approx $70B in losses to the FDIC fund over period of 5 years (vs $65B forecast in Feb).
- Formal FDIC vote due later.
- Note: FDIC's prior emergency assessment fees were to be charged upon the Bank's domestic deposits.
- Follow Up: John Bowman notes support for Fee proposal
(UK) UK Treasury Timms: Does not agree with S&P figures on UK debt projections
- DMO auction results following S&P comments point to underlying market confidence
- Remains confident that can bring budget under balance
- Rejects IMF call for faster budget deficit cuts
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 631K V 625KE; CONTINUING CLAIMS: 6.662M V 6.650ME; Continuing Claims hit fresh all-time highs
- Prior jobless claims revised from 637K to 643K
- Prior Continuing Claims revised from 6.560M to 6.587M
10:00 AM
*APRIL LEADING INDICATORS: 1.0% V 0.8%E- prior revised from -0.3% to -0.2%
10:01 AM
(US) Treasury Sec Geithner: Govt bailout program is helping to improve stability of the financial system - House committee testimony- Govt borrowing risks crowding out private investment.
10:02:48 AM
Congressional Budget Office (CBO): March economic forecast too optimistic
- Expects US economy to stop contracting in 2H 2009, but could take several years for economy to recover.
- US jobless rate expected to peak above 10% in 2010.
10:30 AM
*EIA NATURAL GAS INVENTORIES: +103 BCF VS. +90 TO +95 BCF ESTIMATE RANGE
11:00 AM
US Treasury to sell $26B in 7 year, $35B in 5 year, and $40B in 2 year notes
12:18:34 PM
(UK) DMO's Stheeman: If the UK were to lose its AAA rating, the yield change would be "imperceptible" - TV interview
- Belives markets can absorb UK gilt issuance.
- Reminder: earlier today, S&P cut the UK's outlook to negative from stable, citing the conclusion that the UK's net general government debt burden may approach 100% of GDP and remain near that level in the medium term.
12:35:48 PM
(JP) Japanese govt and banks plan to split funding of new ¥4T loan plan 50/50 - Nikkei
- Plans to launch the emergency lending program for large and mid-sized corporations as soon as next month.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- The sell-off that got started yesterday afternoon following the release of the April 29th FOMC minutes has carried over to NY morning trade, with US equity indices opening down and heading lower.
The downbeat message of the Fed minutes, with its outlook for a steeper GDP decline and greater unemployment in 2009, has been compounded by yet another all-time high in weekly jobless claims. The May Philly Fed Index was slightly lower than expected (although employment and inventory subcomponents were markedly better than in April). The Congressional Budget Office added its two cents, noting that its March economic forecast was too optimistic and would be revised lower.
On the brighter side, Radar Logic said in March home prices rose on a m/m basis in 11 of the 25 metropolitan areas it monitors in the RPX 25-MSA, while in six more areas prices decreased less in March than in February, marking at least a less bad if not better trend in home values. Last night, former Fed Chairman Alan Greenspan said things have unquestionably improved globally, with "extraordinary improvement" in the Libor-OIS spread. The US 3-month TED spread drifted below 50 basis points.
- Front-month NYMEX crude is come off the highs of recent days, falling nearly $2 to trade around $60 eyeing the weak stock action.
June natural Gas is swooning 7% to trade at $3.66 down almost a full dollar from the May high made a little more than a week ago. Weekly inventories rose by a robust 103 BCF in the latest week. Other commodities are generally lower across the board as the selling the Dollar takes a breather. Copper -4% while Corn and Wheat give back 1.5%.
- US Treasuries were the early beneficiary of weak stocks and continued momentum from yesterday's FOMC minutes.
Prices have moved lower though, since the Treasury said they would be selling another $101B in notes next week. The 10-year yield is just below 3.2%.
- In tech, strong earnings reports from Tech Data, Intuit and Brocade are helping these three firms buck the trend this morning, with shares of all three up around 10% in early trading, while shares of Suntech power are getting bogged down by the firm's 20M secondary offering.
(12.8% of shares outstanding) Despite better than expected Q1 results. Suntech managed a $0.01 per share profit and guided moderate revenue growth next quarter, outperforming results from fellow solar names JASO and SOLF earlier this week. STP's CEO said that Europe continued to be the biggest source of solar demand in the first quarter, although it expect further market diversification due to recently introduced stimulus initiatives in high potential markets.
- Another round of retailers released varying first quarter results yesterday and today.
Department store retailer Stein Mart is the standout, doubling its profit on a y/y basis and blowing out consensus estimates for the quarter, despite an 8% decline in same-store sales. Note that the firm's gross margins in the quarter doubled on a q/q basis, while its effective tax rate was down significantly thanks to the deployment of various deferred tax assets. Shares of SMRT are up around 50%.
On the other hand, GameStop and New York & Co. are both down more than 18% after more or less in line results. GME's guidance for the next quarter was below consensus estimates, while NWY forecasted another big quarterly loss in Q2 (versus expectations of a small profit. Shares of Buckle, Ross Stores and Barnes & Noble are up 5-8% after strong quarterly results. Note that BKS managed to cut it loss to a much smaller figure, and expects to be profitable next quarter.
- In currencies, the economic data weighed on risk appetite with some retracement of earlier sharp moves during the New York session.
Sterling managed to claw its way back to only small losses sustained against the major pairs after S&P's big call as UK officials and rating agencies did their best to reassure markets about Britain's budget situation. The euro saw some of its strength whittled away as dealers focused on press speculation that Spanish regional bank Caja Madrid might skip interest payments on two bonds due to rising defaults on mortgages backing the debt, the first halt in such payments by a Spanish bank during the financial crisis.
EUR/USD moved off overnight highs of 1.3839 to test the 1.3730 area during the New York morning. EUR/GBP moved off its 0.8870 highs to drift back towards the 0.8865 area. CHF was softer on chatter the Bank of International Settlements (BIS) was "checking prices" in EUR/CHF. Commodity currencies moved off their best levels as oil retreated from its six-month highs on concerns over the 'shape' of any economic recovery. USD/CAD retesting its pivotal hourly level of 1.1480.
More Headlines
8:08:13 AM
(UK) UK Treasury Timms: Does not agree with S&P figures on UK debt projections
- DMO auction results following S&P comments point to underlying market confidence
- Remains confident that can bring budget under balance
- Rejects IMF call for faster budget deficit cuts
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 631K V 625KE; CONTINUING CLAIMS: 6.662M V 6.650ME; Continuing Claims hit fresh all-time highs
- Prior jobless claims revised from 637K to 643K
- Prior Continuing Claims revised from 6.560M to 6.587M
10:00 AM
*APRIL LEADING INDICATORS: 1.0% V 0.8%E- prior revised from -0.3% to -0.2%
10:01 AM
(US) Treasury Sec Geithner: Govt bailout program is helping to improve stability of the financial system - House committee testimony- Govt borrowing risks crowding out private investment.
10:02:48 AM
Congressional Budget Office (CBO): March economic forecast too optimistic
- Expects US economy to stop contracting in 2H 2009, but could take several years for economy to recover.
- US jobless rate expected to peak above 10% in 2010.
10:30 AM
*EIA NATURAL GAS INVENTORIES: +103 BCF VS. +90 TO +95 BCF ESTIMATE RANGE
11:00 AM
US Treasury to sell $26B in 7 year, $35B in 5 year, and $40B in 2 year notes
8:30am Initial Jobless Claims (last 637K), Continuing Claims (last 6.56M)
10:00am AprilLeading Indicators (last -0.3%), April Philadelphia Fed (last -24.4)
10:30am Natural Gas Inventories
11:00am Treasury note announcement
BoJ rate decision.
Todays Headlines
9:30:13 AM
*TREASURY'S GEITHNER: TOXIC ASSET PLAN TO COMMENCE IN NEXT 6 WEEKS
- Vast majority of banks are well capitalized
- Non- banks no longer pose same threat
- Important signs are emerging indicating that markets are beginning to heal
- $124B left in TARP, $11B less than previous estimate
- Treasury is preparing executive pay rules
- Auto financing efforts will continue
- New "niche" assets may be included in TALF
10:30 AM
*DOE CRUDE: -2.1M V -1.2ME; GASOLINE:-4.3M V -1.2ME; DISTILLATE:+670K V +1ME; CAPACITY UTILIZATION:
- 81.8% V 84.1%E- Distillate demand +16K bpd to 3.64M bpd - Gasoline demand +321K bpd to 9.23M bpd
11:04:47 AM
NY Fed:Purchased $7.69B in $300B outright coupons purchase; Dealers submitted $37.18B for consideration (bid to cover 4.83)
- Heaviest purchase was $3.2B for the 04/30/16 maturity
- Note: avg bid to cover for prior four auctions is 5.1
11:20:11 AM
(US) SEC votes 3-2 to give investors greater proxy access
- Investors holding 1% of larger firms, 5% of companies with a market cap of $75M or less will be able to nominate directors for board elections.
- SEC's Shapiro: Hoping for vote soon on a NYSE broker proposals
2:00:07 PM
*MINUTES OF APRIL 29 FOMC MEETING/FED FORECAST: SAW POTENTIAL TO BUY MORE ASSETS; see a deeper recession in 2009, slower recovery in 2010
- Housing may be nearing a trough, with housing prices decline slowing; deflation risks have slowed
- Vote was unananimous
- Sees potential to purchase more treasuries and mortgage backed securities
- GDP 2009 -2.0- to -1.3%; 2010 +2.0 to +3.3%; 2011 +3.5-4.8%
- Unemployment 2009 9.2-9.6 % ; 2010 9.0-9.5%; 2011 7.7-8.5%.
- PCE Inflation 2009 +0.6-0.9%; 2010 +1.0-1.6%; 2011 +1.7-2.0%.
- Core PCE Inflation 2009 1.0-1.5%; 2010 +0.7-1.3%; 2011 +0.8-1.6%.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equities made up for yesterday afternoon's sell off in the pre-market this morning, with all three major indices opening stronger and extending gains in the early going.
Equities turned over in the wake of a National Association of Realtors report, which indicated Q1 real estate activity was -12.9% y/y and -4.88% q/q, and forecasted a continued reduction in commercial real estate activity for next 6-9 months.
Front-month NYMEX crude tested above $62 to hit six-month highs before trading off a bit with equities, while gold breeched $940/oz. Commodities are getting a boost from real weakness in the greenback, with the euro, pound, loonie and Swiss Franc all making fresh multi-month highs against the dollar.
- Treasury Secretary Geithner is testifying before the Senate this morning on the financial sector.
This comes after the Treasury said the vaunted Public-Private Investment Program (PPIP) would commence within the next six weeks, in line with recent comments on timing out of the White House and the FDIC. Note that yesterday the FDIC had said it might go ahead with plans to float a "pilot sale" of toxic "legacy" assets without any government financing, implying that there could be a part of the program lacking a "public" component, although the Treasury has said nothing regarding this proposal today.
Geither has also noted that there is $124B of funding left in TARP. In addition, the Wall Street Journal reports that the Obama Administration is working out plans to give a Federal agency authority to police mortgages and other consumer-oriented financial products as part of the broader overhaul of financial regulation.
- Shares of Bank of America are up 8% in the early going after the company confirmed that it has sold 1.25B shares since May 8th, or just short of 20% of its market cap, worth $13.5B, in its quest to satisfy government capital requirements that emerged from the stress test.
The bank also said it is considering a conversion of preferred shares to common equity as the means to raise the rest. Citi has also risen somewhat in the early going, while the rest of the leading banks have dropped into negative territory.
- In earnings, Target outperformed in the first quarter, beating earnings expectations and meeting revenue targets.
Executives displayed confidence on the conference call, noting that the credit card business is improving, economic conditions seem to be stabilizing a bit. Warehouse retailer BJ's came in more or less even with expectations and guided in line. TGT is up 6%, while BJ has steadily sunk into the red after making modest gains before the open. Manufacturing giant Deere was a bit ahead of the Street, although its sales guidance for the next quarter and the rest of the year still projects big double-digit declines.
HP reported in line yesterday after the close. Shares of the tech giant are headed lower in early trading, down 5% as investors focus on the firm's weaker revenue forecasts. Troubled homebuilder Toll Brothers reported preliminary second-quarter revenue results, noting that revenue was running ahead of expectations. The CFO warned, however, that numerous other aspects of the overall economy are keeping the outlook unclear at this point.
- In currencies, higher commodity prices in both energy and metals fed into broad USD weakness during the New York session.
The dollar was lower against its major European, Asian and North American counterparts as several critical levels were breeched. Market participants continue to believe that the worst of the financial and global crisis is over and risk appetite continues to rise. The Portugal Finance Minister shook things up this morning, stating that the EU has no concerns over stronger a euro, also forecasting that the EU economy would hit bottom in current quarter, helping to propel EUR/USD above the 1.3650 level to test just below 1.38, its highest level since the first week of the year. Dealers are now eyeing the 1.3740 as the key short-term pivot point for insight on the directional momentum in the pair.
- The GBP/USD hit fresh 6-months highs and broke above the 200-day moving average of for the first time last July as it tested 1.5625.
USD/CHF dipped below the 1.0980 level during the course of the NY morning to also retest its lowest level since Jan 5th. The loony hit fresh seven-month highs against the USD as the USD/CAD pair kissed 1.1400. Looking ahead, the focus will turn towards the BoJ policy meeting later this week and to see whether it decides to accept foreign debt as collateral for its funding operations. The BoJ is expected to upgrade its economic assessment in the upcoming monthly report. USD/JPY was at 95.30 as the New York morning wound down.
More Headlines
9:30:13 AM
*TREASURY'S GEITHNER: TOXIC ASSET PLAN TO COMMENCE IN NEXT 6 WEEKS
- Vast majority of banks are well capitalized
- Non- banks no longer pose same threat
- Important signs are emerging indicating that markets are beginning to heal
- $124B left in TARP, $11B less than previous estimate
- Treasury is preparing executive pay rules
- Auto financing efforts will continue
- New "niche" assets may be included in TALF
10:30 AM
*DOE CRUDE: -2.1M V -1.2ME; GASOLINE:-4.3M V -1.2ME; DISTILLATE:+670K V +1ME; CAPACITY UTILIZATION:
- 81.8% V 84.1%E- Distillate demand +16K bpd to 3.64M bpd - Gasoline demand +321K bpd to 9.23M bpd
11:04:47 AM
NY Fed:Purchased $7.69B in $300B outright coupons purchase; Dealers submitted $37.18B for consideration (bid to cover 4.83)
- Heaviest purchase was $3.2B for the 04/30/16 maturity
- Note: avg bid to cover for prior four auctions is 5.1
11:20:11 AM
(US) SEC votes 3-2 to give investors greater proxy access
- Investors holding 1% of larger firms, 5% of companies with a market cap of $75M or less will be able to nominate directors for board elections.
- SEC's Shapiro: Hoping for vote soon on a NYSE broker proposals
9:30am Treasury Sec Geithner testifies at Senate hearing on TARP.
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
2:00pm FOMC minutes
Todays Headlines
8:30:03 AM
*APR HOUSING STARTS: 458K V 520KE; BUILDING PERMITS: 494K V 530KE (record lows in both starts and permits)
- Prior Housing Starts revised from 510K to 525K.
- Prior Building permits revised from 516K to 511K (Second revision).
- record lows in both series since the data started being collected in 1959.
- Single Family April Housing Starts rose to 368K from 358K in March, while multi-family and apartment complex starts slowed substantially.
Fed comments on TARP payment requests; first reponse about repayments to come on or about Monday, June 8; monthly comments thereafter
- confirms supervisors and banks have been discussing the details of how to go about repayment of TARP funds.
- follow up 11:54amET: CNBC reports the Treasury plans to spread out TARP warrant auctions over time so the market is not flooded.
11:47:26 AM
(CA) BoC's Murray: Central banks are not out of ammunition yet; risks to inflation and deflation 'exaggerated'
- Canada needs unconventional measures less than other nations.
- Early results of unconventional policies worldwide have been encouraging.
- Canadian quantitative easing would likely focus on inflation.
- Expecting rates to remains near 0.25% through mid 2010.
12:04:06 PM
(EU) ECB's Stark: ECB will not allow inflation to occur; no financial danger for a EuroZone state has ever occured; economy may shrink in Q2 and Q3
- Notes that a Eurobond would not involve regulations on member state liabilities
- Additional stimulus measure requests could undermine the effects of recent stimulus measures and the finances of member states
- Comments that confidence in the banking sector is returning, money market has eased.
- It is sensible to spin off legacy assets into a "bad bad."
- Will no longer see periods of 5-6% world growth
- The ECB focused on previously announced non standard measures
12:56 PM
(UK) UK PM Brown: Does not intend to call a general election due to the Commons expense scandal
1:20:27 PM
(US) Fed's Stern: Market conditions have improved a bit; "too big to fail" must be addressed; larger financial companies in the future will likely be instructed to have more capital
- Recession to last several more months; consumer spending is stabilizing
- Notes that an economic recovery would reduce risks of deflation; healthy growth to resume in mid 2010
- Financial conditions improving on a broader basis
- Comments that a higher capital requirement may not be a solution to all issues
- Breaking up large bank is not the best option for reckoning with "too big to fail."
- Seeing constructive developments in derivatives, sees move to OTC trading as a positive.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equity indices have seen both positive and negative territory before noontime.
Headwinds remain in place, as April housing starts and building permits were both weaker than expected, hitting lows not seen since the series began in 1959. Commentators are making the best of the news, noting that slowing multi-family building starts were the culprits behind the declines, while single-family starts rose slightly on a sequential basis.
However, the figures are hardly the sort of green shoots anyone is hoping for. Investors should likely take note of comments from PIMCO's El-Erian, who called slower growth the "new normal." In any case, the flood of debt and equity secondary offerings continues, with companies from across the spectrum rushing to market to raise capital. Front-month NYMEX crude nosed above $60 briefly overnight, before trading off after the open of pit trading in NY. The June contract comes off the board after the close today.
- Treasury prices have been trading lower through the morning pushing the US benchmark yield back towards 3.25%.
Interbank lending rates continue to come down with the US 3-month LIBOR fixing down at 0.75%.
- Stocks of the largest US banks are behaving variably after various press reports that the US will let five or six big banks pay back TARP funds.
Bank of America and Citigroup have both made 4-5% gains early on, while most of the rest of the tier-1 financials muddled around in the red before heading higher. Goldman, JP Morgan and American Express are reportedly first in line to repay, according to the FT, followed possibly by Morgan Stanley, State Street and US Bankcorp.
At the JP Morgan AGM this morning, CEO Dimon also said that the government would authorize "some" TARP repayments within weeks. Note that yesterday STT priced its equity offering and raised the total deal to $2B from $1.5B (to repay TARP) at $39, and shares of the bank are still trading between $41-42 this morning. The New York Times took a look at the effect of early TARP repayments and warrant repurchases on banks and taxpayers, noting that the government holds warrants in 579 banks that could be worth $5 to $10B, depending on market conditions. On a related note, FASB approved two rules yesterday (FAS 140 and FIN 146) that could force financial firms to bring more off balance sheet assets onto their books.
- Investors are digesting another cluster of retail earnings this morning.
Home Depot followed up on Lowe's earnings performance from yesterday, beating earnings and revenue estimates by healthy margins, although its full-year forecast was decidedly weaker than Lowe's, with its numbers below analysts' estimates.
On the conference call, an HD executive said there has been improvement in comp transactions despite soft February sales. Shares of HD fell before and after the open, to around -6% mid morning, while LOW was down 2%, near yesterday's lows. Discount retailer TJX reported in line and reported mildly positive quarterly same-store sales, while luxury retailer Saks trimmed its quarterly loss to a figure that was much smaller than expected, although its quarterly SSS remain dismal. American Apparel's loss was higher than expected. Shares of SKS+23% are rocking this morning, while APP-19% are not. TJX is up a modest 4%.
- In tech, solar names Solarfun and JA Solar continue to be hit hard by the recession, reporting quarterly losses.
SOLF's loss was slightly better than expected, while JASO lost three times the expected amount. Both firms expressed nervousness about their outlook, noting that visibility is limited. JASO withdrew its full-year earnings guidance, while JASO said its previously planned capacity expansion is still on hold. Also note that Sprint said it would launch sales of the Palm Pre smartphone on June 6th, at a price of $199 with a two-year contract. Shares of Sprint are around even, while PALM is off its worst levels after losing nearly 10%.
- Currency trading hit some turbulence following the euphoric sentiment from the European session.
USD and JPY moved off their worst levels, with EUR/USD back below the 1.36 level and USD/JPY back around 96.00 after testing 96.60 overnight. Several officials’ uttered cautious remarks despite the recent signs of stabilization in the global economy, with the IMF's Berger noted that emerging Europe growth would not return to pre-crisis levels. Commodities took different paths during the New York session, with energy related and basic metals retreating while the precious metals retained its luster. AUD and CAD currencies held on to most of their session gains.
More Headlines
8:30:03 AM
*APR HOUSING STARTS: 458K V 520KE; BUILDING PERMITS: 494K V 530KE (record lows in both starts and permits)
- Prior Housing Starts revised from 510K to 525K.
- Prior Building permits revised from 516K to 511K (Second revision).
- record lows in both series since the data started being collected in 1959.
- Single Family April Housing Starts rose to 368K from 358K in March, while multi-family and apartment complex starts slowed substantially.
Fed comments on TARP payment requests; first reponse about repayments to come on or about Monday, June 8; monthly comments thereafter
- confirms supervisors and banks have been discussing the details of how to go about repayment of TARP funds.
- follow up 11:54amET: CNBC reports the Treasury plans to spread out TARP warrant auctions over time so the market is not flooded.
11:47:26 AM
(CA) BoC's Murray: Central banks are not out of ammunition yet; risks to inflation and deflation 'exaggerated'
- Canada needs unconventional measures less than other nations.
- Early results of unconventional policies worldwide have been encouraging.
- Canadian quantitative easing would likely focus on inflation.
- Expecting rates to remains near 0.25% through mid 2010.
8:30am April Housing Starts (last 510K), April Building Permits (last 516K)
10:00am TAF results
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
6:30:39 AM
Covanta Holding Corporation Narrows FY09 EPS guidance to $0.65-0.80 v $0.78e, ($0.75-0.90 prior); To issue $300M in convertible senior notes due 2014 (about 12.3% of the market cap),
- Co granted $45M in over-allotment option
- The notes will be offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933,
- Interest will be payable semi-annually on June 1 and December 1, and the notes will mature on June 1, 2014. Prior to March 1, 2014, the notes will be convertible into cash only upon specified events and, thereafter, at any time.
- Under applicable accounting rules, this debt will require the Company to recognize additional non-cash interest expense.
6:31 AM
(GE) German DIW think tank raises Q2 GDP forecast to -0.5% from -0.9% prior view
10:09:54 AM
WHO: Continues to expect H1N1's pattern of rapid expansion to continue; keeps pandemic alert level at 5
- Unclear how prior strains of bird flu will react when it is confronted with Swine flu
- Maintain level 5 alert
11:02:24 AM
NY Fed:Purchased $3.18B in $300B outright coupons purchase; Dealers submitted $15.2B for consideration (bid to cover 4.78)
- Heaviest purchase was $1.36B for the 08/15/20 maturity
- Note: avg bid to cover for prior four auctions is 5.33
1:00:02 PM
*MAY NAHB HOUSING MARKET INDEX: 16 V 16E; Highest since Sept 2008
- no revisions
- NAHB: "builders are responding to "what they perceive to be some of the best home buying conditions of a lifetime," citing low mortgage rates, affordability and the $8,000 tax credit for first-time homebuyers.
-This continued increase indicates that home builders feel we're at or near the bottom of the market and that positive signs lie ahead for builders and potential home buyers, provided that builder access to production credit significantly improves,"
1:02:02 PM
(US) Treasury Sec Geithner: Economy has clearly stabilized, credit markets are thawing; recovery will be "bumpy," feel fragile for a while
- Need to take a fresh look at the entire financial system, including the role of the Fed.
- The immediate need is to get growth back on track, in spite of deficits.
- Essential to reduce deficits to a sustainable level, or high interest rates could hurt a recovery.
- Must firmly establish economic recovery before withdrawing stimulus spending. Warns that officials often "step on the brakes too soon."
- US fiscal conditions are currently "unsustainable."
1:54:19 PM
WSJ: US Administration to ask Auto makers to reach a 35 mpg fuel economy by 2016, four years ahead of timeframe required by current federal law
- current standard for passenger cars (excluding trucks) is 27.5 mpg.
- Note: President Obama to make formal announcement tommorow on emissions standards.
-The National Highway Traffic Safety Administratin (NHTSA) has been targeting an industry-wide average of all new passenger cars and light trucks of 35 mpg by model year 2020.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Strength from the Asian and European sessions prompted by the Indian elections carried over into pre-market trading in New York this morning.
All three leading US indices made strong gains before the bell after three days of relative weakness, led by the DJIA and Lowe's strong quarterly earnings.
Front-month NYMEX crude is making strong gains up nearly $2 while copper prices are up more than 2%. Treasury prices are a little lower following another coupon purchase from the Fed. The 10-year yield is hovering above 3.1%.
- Various analyst moves are helping the tier-1 financials outperform this morning, lead by impressive gains at Bank of America.
Shares of BoA are on fire, up more than 10% after analysts at Goldman Sachs raised the name to a Buy. Goldman said that the bank's capital raise is about half over, noting that the impact on its shares should start to abate moving forward. Note that Fitch cut its ratings on BoA's preferred stock just before the open, warning the bank could face more mortgage and credit card losses over the medium term.
Wells Fargo is off its best levels this morning, after opening up 5% on news that Warren Buffet's Berkshire Hathaway had raised its stake in the bank by 16M shares (to 6.4% from 6% prior). Golman Sachs is up 3% after ratings and earnings estimate upgrades by analysts at Citigroup and JMP Securities. Analysts at JMP Securities also raised their ratings and earnings estimates for Morgan Stanley, sending its share up 3% or so in early trading. Note that Regions Financial jumped nearly 14% on takeover chatter, before trading off somewhat.
- Over the weekend GM Vice Chairman Bob Lutz told German newspaper Sonnntag that the company will not meet the Obama Administration's June 1st deadline for completing its restructuring plan.
Negotiations with the UAW continue apace, however. The union is not feeling cooperative, noting earlier this morning that it strongly objects to GM plans to close US plants and increase its imports of vehicles produced overseas.
- Lowe's reported first-quarter earnings that were ahead of consensus earnings and revenue estimates, and the home improvement giant also offered guidance for the year and the coming quarter that was well above targets.
On the conference call, Lowe's CEO said there are encouraging signs that the worst may be over, although the macro headwinds facing the firm remain strong for the rest of the year. Shares of LOW jumped 10% before the bell, before trading off substantially by mid morning.
Shares of HD were up 6% on the news. Textron cut its full-year forecast due to dilution from its recently announced public offering, although shares of the conglomerate are still up 2%. Carnival Cruise Lines said the impact of the Swine flu panic would trim its second quarter earnings by $0.05/shr, although share of CCL are steaming higher, up 5% in the early going. Shares of Dillard's are up 18% on an impressive Q1 showing, although the retailer's outperformance was buttressed by a one-time tax gain.
- In currencies, risk appetite kept USD and JPY pairs on the defensive.
EUR/USD tested above the 1.35 level while USD/JPY probed the 96.00 neighborhood. IMF Official Morsink noted that it had agreed that Hungary could tap its second loan tranche of €1.4B to sooth over fears over the Eastern European region.
GBP/USD led the way higher aided by the May Rightmove house price survey which registered its largest month/month gain since Feb 2008. GBP/USD tested the 1.53 level against the USD and probed the 0.8800 level against the euro. EUR/CHF cross was steady but unable to climb higher following the SNB intervention last friday after the European close. The pair ends the NY session at 1.5120 level. Higher energy prices aided the CAD and AUD related pairs.
More Headlines
6:30:39 AM
Covanta Holding Corporation Narrows FY09 EPS guidance to $0.65-0.80 v $0.78e, ($0.75-0.90 prior); To issue $300M in convertible senior notes due 2014 (about 12.3% of the market cap),
- Co granted $45M in over-allotment option
- The notes will be offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933,
- Interest will be payable semi-annually on June 1 and December 1, and the notes will mature on June 1, 2014. Prior to March 1, 2014, the notes will be convertible into cash only upon specified events and, thereafter, at any time.
- Under applicable accounting rules, this debt will require the Company to recognize additional non-cash interest expense.
6:31 AM
(GE) German DIW think tank raises Q2 GDP forecast to -0.5% from -0.9% prior view
10:09:54 AM
WHO: Continues to expect H1N1's pattern of rapid expansion to continue; keeps pandemic alert level at 5
- Unclear how prior strains of bird flu will react when it is confronted with Swine flu
- Maintain level 5 alert
11:02:24 AM
NY Fed:Purchased $3.18B in $300B outright coupons purchase; Dealers submitted $15.2B for consideration (bid to cover 4.78)
- Heaviest purchase was $1.36B for the 08/15/20 maturity
- Note: avg bid to cover for prior four auctions is 5.33
"Our greatest glory is not in never failing, but in rising up every time we fail."
Market Week Wrap-up
- Equity indices took a step down this week, closing out Friday at weekly lows as investors hunkered down and took profits. The economic data offered little in the way of green shoots.
There was no good housing news: the National Association of Realtors said prices for existing homes declined in most cities in Q1, while RealtyTrac reported that April foreclosures were +32% y/y and +1% m/m. Continuing unemployment claims hit their highest level on record once again and initial claims were higher than expected. April retail sales declined a bit more (versus expectations for flat sales) and the March figure was revised downward slightly. Friday's preliminary University of Michigan Confidence reading for May offered a bit of optimism, coming in slightly higher than expected. Some commentators indicated that a second week full to the brim with debt and equity offerings could indicate a short-term top, although others pointed out that despite all the dilution, the offerings show a strong return to liquidity and normality in capital markets. For the week, the S&P 500 fell 5%, the DJIA dropped 3.5% and the Nasdaq Composite slipped 3.4%.
- Energy futures retreated for most of the week, following equity markets lower. Crude briefly peaked above $60/bbl, but ended the week around $57.
Natural gas also sold off in the wake of a 25% gain over the prior two weeks. Copper futures were led lower by equities as well, dropping about 6%. Precious metals fared better, with spot gold gaining 1.6% on the week as risk aversion crept back in, closing out trade on Friday at a six-week high around $930.
- A flood of post-stress test secondary offerings from the banks has washed over markets this week.
The ability of banks to successful raise capital outside the government's purview is certainly a sign that capital markets are returning to health. Fed Chairman Bernanke complimented the banks on Monday, saying that he was impressed by their ability to raise funds so quickly, while later in the week FDIC Chairwoman Bair reiterated that the liquidity crisis is "over for good." However, in the short term all the supply has certainly weighed down trading. Wells Fargo priced its 341M share offer at $22/shr, Morgan Stanley priced 146M shares at $24/shr and BB&T priced 75M shares at $20; shares of all three banks have managed to stay above their secondary pricing level all week. Shares of Capital One and US Bancorp have fallen below secondary pricings of $27.75 and $18, respectively. Bank of America, is yet to price its $17B common equity sale. Citigroup is taking a slightly different path, expanding its program to convert preferred stock to common equity by an additional 1.6B shares. Citi now plans to exchange $33B in preferred shares, up from $27.5B prior.
- The banks are not the only ones taking advantage of all the froth, with multiple secondary offerings coming from outside the financials as well.
Ford priced 300M shares at $4.75/share as it tries to follow the road to solvency. Anadarko Petroleum launched a 30M offering at $45.50. Shares of Dow and Ford closed out the week above their secondary pricing levels, while shares of Anadarko have headed steadily below $45.50.
- On Thursday the Treasury extended TARP funding to insurance companies.
The industry had been denied access to the Treasury's Capital Purchase Program (CPP) program last fall, but various reports late on Thursday and on Friday indicated that several large insurers have been granted preliminary approval to apply for funding. Alllstate, Hartford, Prudential, Lincoln National, Ameriprise and Principal Financial were among the lucky firms reported to have been approved. So far Hartford, Lincoln and Allstate have confirmed the news, although all three have also noted that they plan to further evaluate whether or not participation makes sense for them or not before accepting any government cash. Ameriprise notably declined to take any CPP funding, stating that it remains confident in its capital position and access to adequate funding.
- The government began to make good this week on its repeated pledges to revamp financial industry regulation.
There were reports throughout the week that regulators are looking at ways to alter compensation across the financial industry, with options under consideration including legislation, SEC regulation or moral persuasion. Then on Wednesday the Treasury and CFTC outlined their plan to regulate over-the-counter derivative trading. The plan would set capital, reporting and margin requirements, as well as position limits on certain instruments, with the Treasury handing most oversight to the CFTC. Under the plan, the CFTC would establish an "audit trail" for the derivatives and have "clear unimpeded authority to police fraud, market manipulation and other market abuses" involving derivatives.
- GM looks to be close to a key deal with the UAW to slash labor costs.
On Friday the Wall Street Journal reported a potential deal with the union would cut hourly labor costs by more than $1B/year and reduce its $20B pledge to the UAW to cover health-care obligations in exchange for a 39% equity stake in the reorganized company. Reportedly the plan is still in flux, but the two parties could finalize terms as early as next week. In addition, the Treasury hopes to short-circuit protests from creditors by lining up deals before GM enters bankruptcy proceedings; the company is expected to begin negotiating with secured lenders soon to restructure about $6B in debt. Chrysler and GM both finalized their plans for trimming dealership networks, with Chrysler cutting its 3,200 dealers by 25% and GM cutting its network from over 5,900 to around 3,600 by 2010.
- Leading retailers Wal-Mart, Macy's and Kohl's offered decent quarterly results this week.
Wal-Mart came in a bit under revenue estimates, noting that the stronger USD reduced reported revenue by a considerable amount. Kohl's raised its full-year forecast a touch and Macy's said it could beat its fairly weak 2009 forecast if the economy picks up in the second half. Supermarket chains Winn Dixie and Whole Foods outperformed expectations, and Doctor Pepper Snapple beat the Street and raised its full-year forecast. Apparel retailers were mixed, with JC Penny and Nordstrom offering solid results and Liz Claiborne and Abercrombie & Fitch reporting substantial losses as sales among all its major brands continue to decline at a double-digit pace.
- In tech, semiconductor manufacturing firm Applied Materials met analysts' earnings expectations, although its gross margin retreated to 15% versus 44% y/y and its forecast for next quarter's earnings was well below expectations.
Intel confirmed that it is being fined $1.5B by the EU Commission. Representatives of the company took strong exception to the move, noting that the ruling ignores the reality of a highly competitive industry. Clearwire formed an alliance with Cisco to develop 4G mobile internet services. And Verizon reached a deal to sell wireline phone service areas outside its main Northeastern and Californian territories to Frontier Communications for $5.3B in Frontier stock and $3.3B in other payouts.
- In fixed income, the yield on the benchmark US 10-year note entered the week near the highest levels of 2009 approaching 3.4%.
But quickly prices rallied as equity weakness enabled traders to unwind a portion of the recent risk appetite induced rotation from bonds to stocks. With no Treasury auctions on the calendar and three Fed coupon purchases scheduled, yields moved decidedly lower through midweek. By Friday some sellers returned, pushing the benchmark yield back towards 3.15%, but still some 25 basis points below where it began the week. The calendar remains fairly light heading into next week with only the 2-, 5-, and 7-year note announcement scheduled for Thursday afternoon, so consolidation around these levels is likely with considerable focus remaining on equity markets.
- The action in the corporate bond market was anything but quiet.
Companies continue to come to market at a near record pace looking to take advantage of improving credit conditions. Both high and lower quality debt is finding solid demand. On Monday, Microsoft's first ever bond offering sold $3.75B in notes while Calpine sold some $1B in high yield paper. Drawing the most attention though were a group of offerings from some of largest US financial institutions who raised money through non FDIC backed bonds. Banks are eager to show the government they are not dependant on FDIC backing and hope to demonstrate the ability to repay TARP funds as soon as possible. Between last Friday and the middle of this week Citigroup, Banc of America, JP Morgan, US Bancorp, GE Capital and American Express sold some $12.5B in non guaranteed debt. Solidifying their position in the front row in the race to pay back TARP, JP Morgan for good measure sold $1B non-TALF eligible bonds backed by credit card receivables. Late on Friday reports emerged that JP Morgan and Goldman Sachs are well on their way to working through various governmental hurdles and could pay back TARP as early as next week.
- In currencies, central bankers maintained their cautiously optimistic tone this week while traders debated the degree of risk appetite present in markets.
The dollar's soft tone lingered over the concerns that the "AAA" US sovereign rating could come into question thanks to the revisions to the deficit projections. On Monday the Obama Administration revised its forecast for the 2009 federal deficit to $1.84T from $1.752T, while the 2010 deficit was also nudged higher, to $1.258T from $1.171T. Dealers have noted that comments from Fed Chairman Bernanke talking up the dollar were presumably designed to help fund massive deficits in the wake of the revisions. In any case, the greenback did manage to hold a few key technical levels during its weakest moments over the last few days, particularly the 1.13740 high from back in March and the 1.0980 level in the USD/CHF pair.
- The economic data from around the world seemed to belie the emerging dogma that the worst of the global recession has past.
China's April exports declined by 22.6% and imports also fared poorly. India's March industrial production figure declined by the largest amount in 16 years. Euro Zone industrial production registered its biggest annual decline on record. The IEA cut its global oil demand for the ninth straight month and saw few signs of any renewed demand. Don't forget the US RealtyTrac April Foreclosures data.
- EUR/USD consolidated within the 1.35 to 1.37 range for much of the week. Dealers were noting that the revised US deficit projections curbed some of the dollar's upside momentum.
The market is waiting to see if any serious rifts develop among the ECB members over quantitative easing. Members Kranjec and Weber aired diverging views over how much the central bank should spend on QE and the types of instruments that might be added to the program. Other members tried to smooth over any impression that dissent is loose inside the ECB. The Euro did dip below 1.35 late on Friday as US stocks finished near their lows for the week.
- The yen ended the week on a firm tone, propped up by continued chatter that Japan's FSA might amend the FX margin requirement to curb currency speculation.
FX chartists, meanwhile, were noting a potential H&S formation in the USD/JPY pair. Dealers are noting a break at 96.30 violated a neckline with a measured move objective of 500 bps to the 91.30 area. Recent currency moves have not been to the central bank expectations. Given the stronger JPY and CHF, dealers reiterated that in the past both the SNB and BoJ have expressed concerns about currency appreciation. Both the JPY and CHF are at near-term critical levels against the USD that could provide momentum for additional appreciation. Also aiding JPY were Japanese press reports the government would likely upgrade its economic assessment in May. If true, this would be the first upgrade in three years. Dealer chatter about an aggressive EUR/JPY option plays with a 3-month 110 strike position going through the market.
- The aforementioned critical levels for the Swiss Franc came sharply into focus early Friday afternoon.
Traders were locking in on the EUR/CHF cross as it neared the 1.50 mark, a level not breeched since the SNB's March 18th intervention. When the EUR/CHF cross reversed hard to trade up 140 pips in less than 1 hour. Dealer chatter quickly circulated that the SNB was in the market using a direct phone line to buy up to 800M euro. A SNB spokesperson declined to comment on the currency move but the EUR.CHF held gains while the USD/CHF rallied more than 2 big figures.
- Sterling managed to maintain a steady tone against the USD during the week.
The BoE lowered its economic growth outlook in its quarterly inflation report, indicating a relatively slow recovery taking hold in 2010 but warning the UK remains vulnerable to future shocks. AUD retraced from its best levels of the week after the release of the 2009 budget details from Treasurer Swan.
- The week in Asia was highlighted by April update from the closely monitored export, industrial, and retail sectors in China.
After a moderate bounce in March, China's trade numbers took a step back with $13.14B surplus as exports fell 22% while imports declined 23% - figure well below estimates across the board. While, there is little hope for surge in demand from credit strapped Western markets, most damaging for a case of regionally driven recovery was the 23.3% decline in Y/Y trade with ASEAN region. Industrial production was also short of estimates, coming in at 5.5% on Y/Y basis vs 6.2% expected - the lowest rate of growth seen in 2009. Retail sales figures were slightly above estimates at 14.8% on y/y basis, however that level of growth was also somewhat weak on a relative basis, with figures seen across 2008 residing predominantly above 20% growth threshold.
Week of 5/18/2009 thru 5/22/2009
Monday, May 18, 2009
10:00am TAF auction
1:00pm May NAHB Housing Market Index (last 14)
Tuesday, May 19, 2009
8:30am April Housing Starts (last 510K), April Building Permits (last 516K)
10:00am TAF results
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Wednesday, May 20, 2009
4:30am BoE minutes
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equity trading got off to an inauspicious start by focusing on weakness in Europe following a slew of disappointing GDP readings.
But a preliminary May University of Michigan Confidence reading picked things up mid morning. The Michigan reading came in higher than expected, and Fed Gov Stern appeared just after the data to say that the economy is near a bottom.
Note that this morning's April CPI was flat on a m/m basis, although the y/y figure fell deeper into negative territory on the heels of March's watershed negative y/y reading.
But overall the sentiment following the data seems to be positive, as hopes that a small amount of inflation is a good sign for growth recovery while the highest empire manufacturing reading since Oct 2007 could be yet another green shoot. Trading definitely feels a bit tentative heading towards equity options expiration this afternoon.
- Treasury prices are lower giving back some of the risk aversion gains seen early in the week.
The benchmark 10-year yield has drifted back towards 3.15%, but is still close to 25 basis points below where it entered the week. Citigroup is just the latest major financial institution looking to flex some healthiness in front of the US government following reports of a sale of 10-year non FDIC backed debt. Front-month gold is back above $930, at levels not seen since late March.
- With only two weeks to go to the government's deadline for a restructuring plan, GM looks to be close to a key deal with the UAW to slash labor costs.
The Wall Street Journal is reporting that a potential deal with the union would cut hourly labor costs by more than $1B/year and reduce its $20B pledge to the UAW to cover health-care obligations in exchange for a 39% equity stake in the reorganized company.
Reportedly the plan is still in flux, but the two parties could finalize terms as early as next week. In addition, the Treasury hopes to short-circuit protests from creditors by lining up deals before GM enters bankruptcy proceedings; the company is expected to begin negotiating with secured lenders soon to restructure about $6B in debt. Also note that AutoNation's CEO told CNBC this morning that Chrysler's bankruptcy process is on track to finish up quickly.
- The Treasury has extended TARP funding to the insurance industry at long last.
The industry had been left out of the program at first, but last night the Treasury confirmed that four names, including Hartford, Prudential, Lincoln National and Principal Financial have been granted access to TARP.
So far Lincoln is the only insurer to have confirmed its participation in the program, noting that it has be granted $2.5B in funding. Overnight Keefe Bruyette raised Harford and Lincoln to Outperform. All four names opened higher this morning but have traded off in the early going, with HIG+8%, LNC+6%, PFG+2% and PRU-2%
- Another crop of retailers reported quarterly results this morning. JC Penny and Nordstrom offered solid results meeting or exceeding analysts earnings and revenue expectations.
JCP's guidance for the coming quarter and the full year remained weak, however, well below estimates, while JWN raised its 2009 earnings guidance range. JCP noted that consumer spending and mall traffic would remain weak for the rest of 2009.
Apparel laggard Abercrombie & Fitch also reported this morning, offering twice the quarterly loss expected. On the conference call, ANF's CEO called 2009 a "transitional year," and finally admitted that the company would undertake price cuts, which they have resisted throughout the crisis. Shares of JWN are up 6% in early trading, while JCP and ANF are both in negative territory mid morning.
- In currency trading, the USD and JPY have retreated from their best levels after the light risk aversion resulting from European data wore off.
The better-than-expected US Empire Manufacturing data and Fed Gov Stern's comment that patches of green shoots were appearing everywhere helped tamp down risk aversion.
Oil and metal commodities have managed to hold steady to positive during the NY morning while European and US equities markets climbed back from earlier lows. EUR/USD is hovering around the 1.36 level while USD/JPY is drifting back above its 100-day moving average of 95.15.
More Headlines
7:35:17 AM
(EU) ECB's Trichet declines to make comment on ECB asset purchase plans
- Note: There has been speculation over the past two days over a rift within the ECB over asset purchases. Yesterday, Kranjec stated that more than the €60B worth of covered bonds could be purchased, this was later refuted by Weber.
- Today, Nowotny also appeared to indicate the ECB's asset purchase prorgam could be increased
8:30:02 AM
*MAY EMPIRE MANUFACTURING: -4.55 V -12.0E (Highest since Oct 2007)
Components:
- Prices Paid: -11.36 v -14.61 prior
- New Orders: -9.01 v -3.88 prior
- Employment: -23.86 v -28.09 prior
8:30 AM
*MAY EMPIRE MANUFACTURING: -4.55 V -12.0E (Highest since Oct 2007) - No Revisions Components: -
Prices Paid: -11.36 v -14.61 prior - New Orders: -9.01 v -3.88
8:30 AM
*APR CONSUMER PRICE INDEX M/M: 0.0% V 0.0%E
- CPI EX FOOD&ENERGY M/M: 0.3% V %0.1%E
-CPI NSA: 213.24 V 213.313E
-CPI Y/Y: -0.7% v -0.6%e
- Core CPI Y/Y: 1.9% v 1.8%e - No Revisions
9:00:02 AM
*MAR NET LONG TERM TIC FLOWS:
- $55.8B V $32.5BE; TOTAL NET TIC FLOWS: $23.2B V -$97B PRIOR
- Prior Total Net TIC Flows revised from -$97B to -$91.1B
- China holding of US Treasuries $767.9B v $744.2B m/m
- Japan Holdings of US Treasuries $686.6B v $661.9B m/m
9:15:02 AM
*APRIL INDUSTRIAL PRODUCTION: -0.5% V -0.6%E;
-CAPACITY UTILIZATION: 69.1% V 68.8%E
- Prior Industrial Production revised from -1.5% to -1.7%
- Prior Capacity Utilization revised from 69.3% to 69.4%
9:15:37 AM
(US) Fed's Fisher: Would be surprised if US economy returns to growth before the start of 2010
- Fed programs must be temporary in order to limit inflation risk
- Expects to see 10% unemployment before unemployment begins to decline.
- Sees green shoots emerging on Main St.
- Deflation has become somewhat of a concern, less now.
- Hopes Congress resists any moves to limit the role of regional Fed banks.
9:55:09 AM
*MAY PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 67.9 V 67.0E
- 1 yr median inflation expectations at 2.6% v 2.8% Apr final
- 5 yr median inflation expectations at 2.8% v 2.8% Apr final
10:00:23 AM
*(MX) MEXICO CENTRAL BANK CUTS OVERNIGHT RATE BY 75BPS TO 5.25%; AS EXPECTED
- Have seen strong contraction in econ activity in past months
- Expect contraction to intensify
- Impacts from flu to last for 3-4 months in the system
- See smaller interest rates moving foward
10:05:59 AM
(US) Fed's Stern: The economy is nearing a bottom, recovery is bound to be subdued at first - TV interview
- Performance of the banking sector has been quite mixed.
- Says new regulation on financial market should not be onerous; regulators may have to take forceful action occasionally if firms' exposure becomes too risky.
- Notes that the $300B in treasuries purchases seems as though it is the right amount
10:15:11 AM
(US) Fed's Fisher: Correction in commercial real estate is underway; Stress tests on banks 'did their job'
- Issues in commercial real estate markets remain manageable
- Low LIBOR rates mean that any future wave of mortgage resets will be easier 'to digest'
11:29:54 AM
(US) FDIC's Bair: Some banking CEOs will be replaced in next few months; Liquidity crisis is "over for good";
- Reminder: Bair has mentioned previously that the liquidity crisis is over and the economy is currently in the 'clean up phase.'
- Remarks that the Govt will conduct management evaluation at some of the banks; not appropriate for the Govt for set restrictions on compensation.
8:30am April CPI (last m/m -0.1%, y/y -0.4%; ex food & energy last m/m 0.2%, y/y 1.8%), March CPI Core Index SA (last 218.042), May Empire Manufacturing (last -14.65)
9:00am March Net Long-Term TIC Flows (last $22B), March Total Net TIC Flows (last -$97B)
9:15am April Industrial Production (last -1.5%), April Capacity Utilization (last 69.3%)
9:55am May prelim Univ of Michigan confidence (last 65.1)
Todays Headlines
7:35:17 AM
(EU) ECB's Trichet declines to make comment on ECB asset purchase plans
- Note: There has been speculation over the past two days over a rift within the ECB over asset purchases. Yesterday, Kranjec stated that more than the €60B worth of covered bonds could be purchased, this was later refuted by Weber.
- Today, Nowotny also appeared to indicate the ECB's asset purchase prorgam could be increased
8:30 AM
*APR PRODUCER PRICE INDEX
-M/M: 0.3% V 0.2%E; PPI EX FOOD&ENERGY: 0.1% V 0.1%E- PPI YoY: -3.7% v -3.7%e - PPI Ex Food & Energy YoY: 3.4% v 3.4%e - No Revisions
8:30:03 AM
*INITIAL JOBLESS CLAIMS: 637K V 610KE; CONTINUING CLAIMS: 6.560M V 6.400ME (highest on record)
- Prior jobless claims revised from 601K to 605K
- Prior Continuing Claims revised from 6.351M to 6.358M
9:47:09 AM
Nektar Therapeutics UCB's Cimzia Approved by U.S. FDA for Adult Patients Suffering From Moderate to Severe Rheumatoid Arthritis
- Cimzia utilizes Nektar''s polymer conjugate technology through an exclusive Nektar-UCB collaboration.
- Estimated that 5 million people suffer from RA globally. In the United States alone, an estimated 1.3 million people have the disease. Prevalence is not split evenly between genders, since women are three times more likely to be affected than men.
- Under the terms of the agreement between Nektar and UCB, Nektar receives manufacturing revenues during research, clinical development, and commercialization of Cimzia(R). Nektar also receives royalties on end product sales.
10:30 AM
*EIA NATURAL GAS INVENTORIES:
+95 BCF VS. +95 TO +100 BCF ESTIMATE RANGE
11:17:02 AM
(EU) ECB Gonzales-Paramo: Insists there are no divisions on ECB council; ECB will define the specifics of eligible covered bonds soon, bank still plans to buy €60B as it is 'enough for now'
- Notes that the ECB has not settled the details of bond buying, may decide to uy in both primary and secondary markets.
- Repeats ECB view that rates are appropriate, for now.
- ECB is not considering zero interest rates.
- Seeing a number of surprises to the upside in the Euro Zone economy, cannot exclude the chance a recovery could arrive sooner than expected.
- Expects 2010 growth to be very weak.
12:00 PM
(TU) Turkey Central Bank cuts base rate by 50bps to 9.25%; As Expected
12:26:37 PM
(EU) ECB's Stark: There are signs that the economic downturn is easing, seeing evidence the Euro Zone hit bottom in Q4 2008 and Q1 2009
- Warns that measure deployed to fight the crisis could cause problems in the medium term; ECB has the capabilities to withdraw liquidity quickly
- Calls on the ECB to revise economic forecast downwards at June meeting.
- Expects to see negative inflation in Germany this year, but not deflation.
- Inflation will return to accelerate toward the end of 2009, remain moderate in 2010.
- ECB meeting had a consensus to engage in QE.
- Reiterates there is no need for additional stimulus packages.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Equity indices opened a bit higher this morning despite the absence of improvement in weekly jobless claims.
Analysts estimate that auto layoffs (some temporary) were a big factor in higher-than-expected initial claims number, accounting for 27K of the 637K initial claims figure, which was in line when auto-related dismissals were factored out. Note that the continuing claims data hit their highest level on record once again.
The Labor Department's PPI reading said prices rose at a brisk pace in April after March's decline, driven by a surge in food costs. Front-month NYMEX crude is well below $58 after the IEA cut its world oil demand forecast for the ninth consecutive month in its monthly report today.
- Treasury prices were higher again ahead of the open of pit trade in Chicago, but have since slipped into the red.
Yields are only marginally higher ahead of the third and final NY Fed coupon purchase of the week. The benchmark yield is back above 3.1% while the long bond is approaching 4.1%.
There was a noticeable jump in interbank lending rates overnight with the US 3-month LIBOR surging 5 basis points to 0.85% to match the yield of the 2-year Treasury note. It is worth noting though, that it did not translate into an upward move in the TED spread.
- Yesterday afternoon the Treasury and CFTC outlined their plan to regulate over-the-counter derivative trading.
The plan would set capital, reporting and margin requirements, as well as position limits on certain instruments, with the Treasury handing most oversight to the CFTC. Under the plan, the CFTC would establish an "audit trail" for the derivatives and have "clear unimpeded authority to police fraud, market manipulation and other market abuses" involving derivatives.
Shares of CME have run up 20% over recent days on speculation the company would be a direct beneficiary of the move, with CME+5% after the bell today, while ICE is up 4%.
- Wal-Mart's first-quarter results are apparently not having a big impact today, with shares of WMT down a hair in early trading.
The worlds biggest retailer met earnings expectations and came in a bit under revenue estimates, and guided in line for next quarter. The company noted that the stronger USD reduced reported revenue by a considerable amount.
Same-store sales grew by a healthy 3%. On the conference call, WMT's CEO said he is optimistic about the long term and realistic about the short term.
Kohl's reported more or less in line with expectations and upped its full-year forecast a touch. Whole Foods' earnings outperformed analysts expectations, but same-store sales are still falling.
- Power transmission engineering name URS is up 8% after beating earnings expectations by a wide margin.
Oil and gas services firm WSP jumped 20% before the bell before losing ground in early trading, to around +14%, after the firm significantly outperformed Wall Street's expectations. Shares of autoparts giant Lear have been all over the map, dropping 14% before the open, climbing quickly to +10% after the bell and then diving back deep into negative territory.
The company's loss was much bigger than expected, thanks to restructuring costs and big sales declines. The tone of the conference call was grim, with the CEO insisting that Lear wants to restructure outside of bankruptcy.
- In currency trading, risk appetite reappeared following the weekly claims data. The USD saw its earlier gains against the European pairs erode, but maintained its recent overall weekly range for the most part.
EUR/USD was holding around the 1.36 area and GBP/USD hugging the 1.51 neighborhood. The USD/JPY pair continues to gather some technical momentum below the 96.30/50 head & shoulders neckline on the charts that has developed since early Feb. Currently the 100-day moving average providing support at the 95.10 level.
The Japanese press reported that the government would likely upgrade its economic assessment in May. If true, this would be the first upgrade in three years. Dealers are noting that any upgrade would be attributed to signs exports and production are bottoming out.
Overall trading has been quiet, but some rumors of bank defaults did circulate. Dealers noting that a small Russian bank did in fact default but it had few repercussions on price action.
More Headlines
7:35:17 AM
(EU) ECB's Trichet declines to make comment on ECB asset purchase plans
- Note: There has been speculation over the past two days over a rift within the ECB over asset purchases. Yesterday, Kranjec stated that more than the €60B worth of covered bonds could be purchased, this was later refuted by Weber.
- Today, Nowotny also appeared to indicate the ECB's asset purchase prorgam could be increased
8:30 AM
*APR PRODUCER PRICE INDEX
-M/M: 0.3% V 0.2%E; PPI EX FOOD&ENERGY: 0.1% V 0.1%E- PPI YoY: -3.7% v -3.7%e - PPI Ex Food & Energy YoY: 3.4% v 3.4%e - No Revisions
8:30:03 AM
*INITIAL JOBLESS CLAIMS: 637K V 610KE; CONTINUING CLAIMS: 6.560M V 6.400ME (highest on record)
- Prior jobless claims revised from 601K to 605K
- Prior Continuing Claims revised from 6.351M to 6.358M
9:47:09 AM
Nektar Therapeutics UCB's Cimzia Approved by U.S. FDA for Adult Patients Suffering From Moderate to Severe Rheumatoid Arthritis
- Cimzia utilizes Nektar''s polymer conjugate technology through an exclusive Nektar-UCB collaboration.
- Estimated that 5 million people suffer from RA globally. In the United States alone, an estimated 1.3 million people have the disease. Prevalence is not split evenly between genders, since women are three times more likely to be affected than men.
- Under the terms of the agreement between Nektar and UCB, Nektar receives manufacturing revenues during research, clinical development, and commercialization of Cimzia(R). Nektar also receives royalties on end product sales.
10:30 AM
*EIA NATURAL GAS INVENTORIES:
+95 BCF VS. +95 TO +100 BCF ESTIMATE RANGE
11:17:02 AM
(EU) ECB Gonzales-Paramo: Insists there are no divisions on ECB council; ECB will define the specifics of eligible covered bonds soon, bank still plans to buy €60B as it is 'enough for now'
- Notes that the ECB has not settled the details of bond buying, may decide to uy in both primary and secondary markets.
- Repeats ECB view that rates are appropriate, for now.
- ECB is not considering zero interest rates.
- Seeing a number of surprises to the upside in the Euro Zone economy, cannot exclude the chance a recovery could arrive sooner than expected.
- Expects 2010 growth to be very weak.
8:30am April PPI (last m/m -1.2%, y/y –3.5%, ex food & energy last m/m 0.0%, y/y 3.8%), Initial Jobless Claims (last 601K)
10:30am Natural Gas Inventories
Todays Headlines
5:30:17 AM
*(UK) BOE QUARTERLY INFLATION REPORT: SEES RELATIVELY SLOW RECOVERY, CPI BELOW 2% UNTIL 2012
- Economy is being aided by stimulus plan and weaker GBP.
- UK and global economies still "vulnerable to further shocks."
- Recovery to be hindered by continued squeeze on credit conditions.
- Lending recovery may take longer than initially projected in Feb forecast.
- Fiscal consolidation might dampen recovery.
- Rise in Govt debt might hit household and business spending, might take longer for bank lending to normalize.
- Current forecasts see final GDP trough at -4.5% in Q1 2009; To grow on annual basis from early 2010 and at +2.5% by mid-2011.
- Sees inflation at 1.2% in two years assuming market rates and £125B in Quantitatiove Easing; Both upside and downside risks and at 1.7% assuming constant nominal rates.
- Recovery to be aided by stimulus, increased savings and lower levels of destocking.
5:31:24 AM
(UK) BoE's King: UK is in a worse position than many other countries; there are "solid reasons" to question the economic recovery's durability - press conference
- Undershoot in nominal demand was bigger than previously thought.
- Output decrease reflects decline in confidence.
- Developments in the global economy remain key for the UK's recovery prospects.
- UK savings rate will need to rise. UK needs significant change in spending flows.
- Risk weighted to a slow, protracted recovery., may take a while for normal bank lending to resume.
- Recovery will begin next year, but it is questionable whether it will be sustained. GBP will drive recovery.
- Growth in next 12 months has an equal chance of being positive or negative.
- Supply of credit to remain restricted for some time.
8:03:51 AM
Clearwire Forms alliance with Cisco for 4G mobile internet services
- Under terms of the agreement, Clearwire has selected Cisco as its national Internet Protocol Next-Generation Network (IP NGN) core infrastructure provider, and Cisco has announced plans to build new mobile WiMAX devices for the CLEAR 4G mobile WiMAX service for the consumer, small office or home office (SOHO), and small- and medium-sized business (SMB) markets
- CLEAR 4G mobile WiMAX service will be available in major metropolitan areas across the United States. Clearwires open all-IP network, combined with significant spectrum holdings, provides substantive network capacity to deliver next-generation broadband access.
In addition, Cisco is aiming to introduce its first mobile WiMAX device later this year. Clearwire currently provides mobile WiMAX services in Baltimore, Md., and in Portland, Ore., and plans to bring its CLEAR 4G service to more than 80 markets across the United States by the end of 2010.
8:04:42 AM
(EU) ECB's Kranjec (Slovenia): ECB has not discussed lowering interest rates to Zero, Could spend more than €60B in Quantitative Easing (QE)
- Cannot exclude buying Corporate bonds and commercial paper
- ECB looking at all options except Government bonds
- Has not taken any action on further purchases; but has unlimited funds
- Covered bonds purchases in interest of all Euro area
- Cannot say recession has reached a bottom
- Rates could be cut further if required
- sees no signs of deflation
8:30 AM
*APR IMPORT PRICE INDEX M/M: 1.6% V 0.6%E; Y/Y: -16.3% V -16.8%E- Prior M/M revised from 0.5% to 0.2% - Prior Y/Y revised from -14.9% to -15.3%.
8:30:03 AM
*APR ADVANCE RETAIL SALES: -0.4% V 0.0%E; EX AUTOS: -0.5% V 0.2%E
- Prior Advance Retail Sales revised from -1.2% to -1.3% (Second Revision)
- Prior Less Autos revised from -1.0% to -1.2% (Second Revision)
10:00 AM
*MARCH BUSINESS INVENTORIES: -1.0% V -1.1%E- prior revised from -1.3% to -1.4%
10:30 AM
*DOE CRUDE: -4.7M V +1.1ME; GASOLINE: -4.1M V +500KE; DISTILLATE:+900K V +1.2ME
- CAPACITY UTILIZATION: 83.7% V 85.6%E- Distillate demand +180K bpd to 3.625M bpd - Gasoline demand -12K bpd to 8.91M bpd
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- The weak April retail sales data is weighing down US equity trading this morning as the rally continues to flatten out in the wake of earnings season and the stress tests.
The Commerce Department reported that April retail sales declined 0.4%, while economists had been expecting them to be flat. Also note that the March figure was revised downward slightly.
Front-month crude has been below yesterday's highs, around $59 after OPEC noted in its monthly report that members' compliance with output cuts has slipped to the 77% from above 82%.
Energy products briefly rallied following weekly inventory data from both the API and DOE which showed surprising draw downs in both crude and gasoline inventories, but any gains have been muted thus far by the weakness in stocks.
- Treasury prices are rallying for the second straight session as traders unwind a portion of the recent rotation we have seen from bonds to stocks.
With no Treasury auctions scheduled this week and a third Fed coupon purchase on tap for tomorrow yields have moved decidedly lower over the past two sessions. The benchmark yield is nearing 3.1% while the long bond is sub 4.1%. Corporate debt issuance continues to explode.
JPM and AXP announced non FDIC backed offerings this morning in hopes that the door to pay back TARP money will be opening up soon. We have also seen a slew of lower quality higher yielding offerings come to market over the past few sessions.
- Shares of the tier-1 US banks slipped before the open this morning as the realities of the current market have begun sinking in on investors, now that earnings and stress tests are behind us.
RealtyTrac offered a dose of dismal April data, noting that US foreclosures were +32% y/y and up one percent from the prior month, hitting their highest level since the data series began in 2005.
More ominously, the organization said foreclosures should only grow given that temporary freezes on the practice ended in March. Citi expanded its program to convert preferred stock to common equity, adding another 1.6B shares to the effort. Citi now plans to exchange $33B in preferred shares, up from $27.5B.
The WSJ reported that the US government is looking at ways to alter compensation across the financial industry, including legislation, SEC regulation or moral persuasion. And last but not least, Freddie Mac reported a $9.8B loss and said it will need another $6B in capital from the Treasury.
- The flood of secondary offerings continues, prompting many commentators to see in the offers more evidence of some kind of temporary top in equities.
BB&T priced 75M shares at $20 last night; shares of BBT opened about -10%, right above the offering price, and have gained a little ground in mid morning trading. Ford's 300M secondary priced at $4.75, with shares opening -4%, dropping briefly below $4.75 before heading up toward the $5 handle.
- Chip maker Applied Materials met analysts' diminished earning expectations, and managed to outperform revenue targets.
But the company's Q2 results were weak, with gross margin retreating to 15% versus 44% y/y and its forecast for next quarter's earnings well below expectations. Intel confirmed that it is being fined $1.5B by the EU Commission.
Representatives of the company took strong exception to the move, noting that the ruling ignores the reality of a highly competitive industry. Clearwire formed an alliance with Cisco to develop 4G mobile internet services.
And Verizon reached a deal to sell wireline phone service areas outside its main Northeastern and Californian territories to Frontier Communications for $5.3B in Frontier stock and $3.3B in other payouts. Shares of DPS and ANN are up 5%, while M is down 5%. LIZ is down -20%.
- In earnings, Doctor Pepper Snapple beat the Street and raised its full-year forecast.
Macy's quarterly loss was smaller than expected, and the company said it could beat its fairly weak 2009 forecast if the economy picks up in the second half.
Ann Taylor also offered some upbeat news, guiding its Q1 loss as smaller than analysts are predicting. Liz Claiborne is not doing so well, missing across the board as sales among all its major brands continue to decline at a double-digit pace.
- The news flow from both Europe and North American popped into high gear on Wednesday, with the USD recovering some of its recent losses against the European pairs aided by a renewed sense of risk aversion.
Mixed Chinese economic data, soft Euro Zone Industrial Production data and weak US retail sales data help the USD and JPY firm up in early New York trading. Dealers said the shortfall in April retail sales coupled with the downward revision in prior month was a factor, noting that the data suggested rising unemployment was prompting consumers to save more.
- EUR/USD tested the 1.3570 level but was unable to garner enough strength to make fresh weekly lows.
The 1.3550 level is proving to be formidable support in the pair. JPY was broadly firmer among the majors with USD/JPY hugging the 96.00 level for the bulk of the morning. The JPY's advance against its European counterparts was even more impressive, with EUR/JPY off 80 pips at 130.80 while GBP/JPY tested below 145 level before retracing.
Sterling recovered from its losses earlier in the trading day after the BoE said any economic recovery would be weaker and slower than previously suggested. GBP/USD re-approached the 1.51 area after testing the 1.5090 level. Like the euro, GBP did not make any fresh weekly low in today's sell off against the USD.
More Headlines
5:30:17 AM
*(UK) BOE QUARTERLY INFLATION REPORT: SEES RELATIVELY SLOW RECOVERY, CPI BELOW 2% UNTIL 2012
- Economy is being aided by stimulus plan and weaker GBP.
- UK and global economies still "vulnerable to further shocks."
- Recovery to be hindered by continued squeeze on credit conditions.
- Lending recovery may take longer than initially projected in Feb forecast.
- Fiscal consolidation might dampen recovery.
- Rise in Govt debt might hit household and business spending, might take longer for bank lending to normalize.
- Current forecasts see final GDP trough at -4.5% in Q1 2009; To grow on annual basis from early 2010 and at +2.5% by mid-2011.
- Sees inflation at 1.2% in two years assuming market rates and £125B in Quantitatiove Easing; Both upside and downside risks and at 1.7% assuming constant nominal rates.
- Recovery to be aided by stimulus, increased savings and lower levels of destocking.
5:31:24 AM
(UK) BoE's King: UK is in a worse position than many other countries; there are "solid reasons" to question the economic recovery's durability - press conference
- Undershoot in nominal demand was bigger than previously thought.
- Output decrease reflects decline in confidence.
- Developments in the global economy remain key for the UK's recovery prospects.
- UK savings rate will need to rise. UK needs significant change in spending flows.
- Risk weighted to a slow, protracted recovery., may take a while for normal bank lending to resume.
- Recovery will begin next year, but it is questionable whether it will be sustained. GBP will drive recovery.
- Growth in next 12 months has an equal chance of being positive or negative.
- Supply of credit to remain restricted for some time.
8:03:51 AM
Clearwire Forms alliance with Cisco for 4G mobile internet services
- Under terms of the agreement, Clearwire has selected Cisco as its national Internet Protocol Next-Generation Network (IP NGN) core infrastructure provider, and Cisco has announced plans to build new mobile WiMAX devices for the CLEAR 4G mobile WiMAX service for the consumer, small office or home office (SOHO), and small- and medium-sized business (SMB) markets
- CLEAR 4G mobile WiMAX service will be available in major metropolitan areas across the United States. Clearwires open all-IP network, combined with significant spectrum holdings, provides substantive network capacity to deliver next-generation broadband access.
In addition, Cisco is aiming to introduce its first mobile WiMAX device later this year. Clearwire currently provides mobile WiMAX services in Baltimore, Md., and in Portland, Ore., and plans to bring its CLEAR 4G service to more than 80 markets across the United States by the end of 2010.
8:04:42 AM
(EU) ECB's Kranjec (Slovenia): ECB has not discussed lowering interest rates to Zero, Could spend more than €60B in Quantitative Easing (QE)
- Cannot exclude buying Corporate bonds and commercial paper
- ECB looking at all options except Government bonds
- Has not taken any action on further purchases; but has unlimited funds
- Covered bonds purchases in interest of all Euro area
- Cannot say recession has reached a bottom
- Rates could be cut further if required
- sees no signs of deflation
8:30 AM
*APR IMPORT PRICE INDEX M/M: 1.6% V 0.6%E; Y/Y: -16.3% V -16.8%E- Prior M/M revised from 0.5% to 0.2% - Prior Y/Y revised from -14.9% to -15.3%.
8:30:03 AM
*APR ADVANCE RETAIL SALES: -0.4% V 0.0%E; EX AUTOS: -0.5% V 0.2%E
- Prior Advance Retail Sales revised from -1.2% to -1.3% (Second Revision)
- Prior Less Autos revised from -1.0% to -1.2% (Second Revision)
10:00 AM
*MARCH BUSINESS INVENTORIES: -1.0% V -1.1%E- prior revised from -1.3% to -1.4%
10:30 AM
*DOE CRUDE: -4.7M V +1.1ME; GASOLINE: -4.1M V +500KE; DISTILLATE:+900K V +1.2ME
- CAPACITY UTILIZATION: 83.7% V 85.6%E- Distillate demand +180K bpd to 3.625M bpd - Gasoline demand -12K bpd to 8.91M bpd
8:30am April Import Price Index (last m/m 0.5%, y/y -14.9%), April Advance retail sales (last -1.2%, ex autos last -1.0%)
10:00am March Business Inventories (last -1.3%)
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
8:30:03 AM
*(US) MAR TRADE BALANCE: -$27.6B V -$29.0BE
- Prior revised from -$26.0B to -$26.1B
***First time in 8 months that US trade deficit widened
Components
- Imports: $151.2B v $152.7B prior
- Exports: $123.6B v $126.6B prior
- China: -$15.6B v -$14.19B prior
- Japan: -$2.6B v -$2.2B prior
- Canada: -$830M v -$1.9B prior
- OPEC: -$2.4B v -$2.1B prior
- Mexico: -$3.9B v -$3.09B prior
- Euro Area: -$4.42B v -$3.34B prior
8:30:07 AM
USDA World Agricultural Supply and Demand Estimates for May
- Wheat Total US production for 2009/10: 2.03B bushels -19% y/y, total use -4% y/y, ending stocks 637M bushels (-5% y/y)
- Global Wheat production 2009/10: 657.6M tons (-4% y/y), endings stocks 181.9M tons (+9% y/y) highest in over 8 years
- U.S. corn production for 2009/10: 12.1B bushels (-11M bushels y/y), supplies 13.7B bushels (-35M bushels y/y), use +3% y/y
- World corn supplies 924.7M tons (+6.5M tons y/y), production 785.1M tons (third highest on record), ending stocks 128.2M tons (-8% y/y)
- U.S. soybean production 2009/10: 3.2B bushles (+236M bushels y/y), supplies 3.3B bushels (+5% y/y), exports 1.26B bushels (record high), ending stocks 230M bushels
- Global soybean production for 2009/10: 241.7M tons (+14% y/y), Argentina production 51M tons (+17M tons y/y), Brazil production 60M tons (+3M tons y/y)
- US Sugar supply 2009/10: 11.1M short tons (-923K tons y/y), imports 1.2M tons (minimal quota, total use 10.8M tons (flat y/y), ending stocks 289K tons
- Mexico Sugar supply 2009/10: 6.96M metric tons (-610K tons y/y), production 5.5M tons (-50K tons y/y), imports 535K tons (+135K tons), exports 150K tons (-715K tons y/y), ending stocks 1.16M tons
- U.S. 2009/10 cotton production 13.3M bales (flat y/y), Exports 11M bales (-12% y/y), Ending stocks 5.6M bales (-18% y/y)
- World cotton production 106.5M bales (-1.3% y/y), consumption 113.5M (+3% y/y), world trade +15% y/y, world stocks -7% y/y
9:02:16 AM
*(UK) MAR AVERAGE EARNINGS INCL BONUS 3M/Y: -0.4% V -1.0%E, EX BONUS: 3.0% V 3.0%E
- Manufacturing Unit Wage Cost 3M/Yr: 9.8% v 9.8% prior (revised from 10.0%)
- No revisions
- Lowest reading on record
9:19:01 AM
(GR) Fitch changes Greece's sovereign outlook to Negative from Stable; cites further fiscal deterioration
- Fitch notes that FC/LC IDR " A" ratings affirmed
- Future ratings will be determined by future actions taken by the state in regards to its public debts
- Fitch notes that Grece has shown “little capacity for sustained fiscal consolidation” since 2001.
9:36:14 AM
-(CH) China Banking Regulatory Commission: Sets a draft rule change that will allow both domestic and foreign companies to offer easier consumer finance to boost consumption
- The proposed companies will provide personal loans to finance purchases of consumer durables, in the latest measure by Beijing to promote consumption following a series of subsidies on purchases of goods from cars to televisions.
- The consumer finance firms will be allowed to issue bonds and borrow from the interbank market to raise money, subject to regulatory approval.
- Both domestic and overseas companies will be permitted to invest in the consumer finance firms, providing they meet a series of standards, including holding at least CNY80B in assets.
- Companies must have at least five years experience in providing consumer loans and have been profitable for the past two fiscal years
11:00:26 AM
-(EU) ECB's Weber: No need for additional purchases of private debt
- Does not see German economy recovering until 2010
- Purchase of covered bonds in Euro-zone to aid in liquidity operations
- Have seen some signs of recovery, not hopeful for a sharp economic recovery
- States that German firms in particular have relied heavily on shortened working hours to make it through downturn
- These actions could lead to major layoffs if the contraciton continues and those workers put on shortened hours are forced out
1:01:10 PM
Competitive Technologies Inc Granted US patent for nanoparticle bone biomaterial
- CTT's bone nanoparticle biomaterial technology has been issued a third patent supporting the first two patents and providing additional claims regarding the preparation of the primary components of the bone cement.
- CTT has an exclusive agreement with the University of South Carolina Research Foundation (USCRF) to license and commercialize the injectable, flowable, fast-curing, calcium phosphate-based nanotechnology biomaterial developed by Dr. Brian R. Genge, a research professor in the Department of Chemistry and Biochemistry at USC.
- CTT also announced the development of a financing unit, Competitive Technologies Financial Services (CFS), which offers customers opportunities for leasing of CTT''s pain therapy medical device in the U.S. market.
1:20 PM
-(SZ) SNB's Jordan: Unemployment may continue to increase; Sees Swiss economy returning to growth in mid 2010 "at the earliest"
2:30:17 PM
US Treasury Update on Medicare and Social Security: Social Security trust fund to be depleted by 2037 v 2041 prior forecast; Medicare to reach legal limit by 2014
- Medicare trust fund expenses to exceed revenues by 2017 v 2019 prior forecast
- Social Security Benefits payments to move beyond revenue by 2016 v 2017 prior forecast
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equity indices opened higher this morning after yesterdays sell off, but rapidly headed into the red.
The National Association of Realtors disclosed sale prices of existing homes declined in 134 out of 152 metropolitan areas in the first quarter of 2009 on a y/y basis (prices rose in the other 18 cities) and the Commerce Department reporting that the US trade deficit widened for the first time in eight months. Front-month NYMEX crude spiked to hit $60 earlier in the session for the first time since last fall before trading down to around $58.70.
- The financial sector continues to react to the stress test results and the recent flood of offerings over the course of the last few days.
Last night Fed Chairman Bernanke complimented the banks, saying that he was impressed by their ability to raise funds so quickly and that many tested banks are well ahead of schedule on raising private capital. Bank of America has sold a portion of its 17.4% stake in China Construction bank to a group of buyers in its ongoing quest to satisfy the US Treasury.
The Bank of New York became the latest of the "all clear" stress test candidates to announce its intention to sell shares ($1.2B worth, or 3.7% of shares outstanding) in order to pay back TARP funds. US Bancorp has priced its offering of $2.5B in common stock (7% of market cap) to pay back government funding.
- Ford has launched its own share offering, including 300M shares (about 10.7% of shares outstanding) to fund payments it is required to make to the UAW's Voluntary Employee Beneficiary Association (VEBA) retiree health care trust.
Over at GM, a day after the bondholder's committee said GM's latest offer, of 10% equity, must be improved materially and CEO Henderson said bankruptcy is looking more probable, the FT highlights that holders of GM's CDS could make billions if the company does file for Chapter 11, giving certain bondholders owning CDS even less incentive to negotiate in restructuring talks.
- Alpha Natural Resources said it would buy Foundation Coal in an all-stock deal valued at $2B that would create the third-largest coal producer in the United States.
The board of both companies have approved the deal, after which Alpha's current shareholders would hold 59% of the combined company. Shares of FCL jumped more than 30% before the bell, to just short of the $32.73/shr consideration offered to shareholders by Alpha. Shares of ANR are in the red.
- In earnings, engineering firms Fluor Corp and McDermott topped analysts' estimates and more or less met revenue targets, although Fluor trimmed its 2009 forecast somewhat.
Full-year backlogs at both firms fell slightly from last year's levels. Shares of FLR+5% and MDR+3% were up slightly in early trading.
Supermarket giant Winn Dixie came in above estimates, sending shares of WINN up 20%. Shares of Fossil were up 15% on a strong quarterly report. Foreign language teaching firm Rosetta Stone reported its first quarterly reports following its mid-April IPO, with shares down 5% on the news.
- In currency trading, the greenback extended its soft tone against all majors pairs in the New York session, as lingering concerns over the revised US deficit projections issued by the budget office on Monday weighed on sentiment.
Dealers are noting that Bernanke's optimistic take on the USD during the Asian session was presumably to aid funding of the even more massive budget deficits projected by the budget office revisions. The USD rebounded from its worst level as traders unwound day positions and equity markets moved into negative territory.
EUR/USD tested above the 1.3700 level to void any option barriers that might have lingered there. Dealers are noting that USD/CHF might hold the key to the overall trend in the dollar, eyeing the 1.1000 area as a key pivot level.
- Sterling has maintained its positive tone, with GBP/USD managing to pop up to test 1.5350.
UK claimant data was rescheduled to come out during the New York morning after a reported leak. ILO unemployment came in at 7.1% and marked largest rise in that series since 1981 while the average earning (including bonus) registered its lowest reading on record with its -0.4% performance for March.
GBP/USD retraced from its best levels to end the NY morning around the 1.5250 area. Note that sovereign ratings began to resurface as a potential issue after Moody's cut Ukraine's sovereign ratings by one notch to "B2" and Fitch placed Greece's "A" rating on watch negative due to the country's deteriorating fiscal situation
More Headlines
8:30:03 AM
*(US) MAR TRADE BALANCE: -$27.6B V -$29.0BE
- Prior revised from -$26.0B to -$26.1B
***First time in 8 months that US trade deficit widened
Components
- Imports: $151.2B v $152.7B prior
- Exports: $123.6B v $126.6B prior
- China: -$15.6B v -$14.19B prior
- Japan: -$2.6B v -$2.2B prior
- Canada: -$830M v -$1.9B prior
- OPEC: -$2.4B v -$2.1B prior
- Mexico: -$3.9B v -$3.09B prior
- Euro Area: -$4.42B v -$3.34B prior
8:30:07 AM
USDA World Agricultural Supply and Demand Estimates for May
- Wheat Total US production for 2009/10: 2.03B bushels -19% y/y, total use -4% y/y, ending stocks 637M bushels (-5% y/y)
- Global Wheat production 2009/10: 657.6M tons (-4% y/y), endings stocks 181.9M tons (+9% y/y) highest in over 8 years
- U.S. corn production for 2009/10: 12.1B bushels (-11M bushels y/y), supplies 13.7B bushels (-35M bushels y/y), use +3% y/y
- World corn supplies 924.7M tons (+6.5M tons y/y), production 785.1M tons (third highest on record), ending stocks 128.2M tons (-8% y/y)
- U.S. soybean production 2009/10: 3.2B bushles (+236M bushels y/y), supplies 3.3B bushels (+5% y/y), exports 1.26B bushels (record high), ending stocks 230M bushels
- Global soybean production for 2009/10: 241.7M tons (+14% y/y), Argentina production 51M tons (+17M tons y/y), Brazil production 60M tons (+3M tons y/y)
- US Sugar supply 2009/10: 11.1M short tons (-923K tons y/y), imports 1.2M tons (minimal quota, total use 10.8M tons (flat y/y), ending stocks 289K tons
- Mexico Sugar supply 2009/10: 6.96M metric tons (-610K tons y/y), production 5.5M tons (-50K tons y/y), imports 535K tons (+135K tons), exports 150K tons (-715K tons y/y), ending stocks 1.16M tons
- U.S. 2009/10 cotton production 13.3M bales (flat y/y), Exports 11M bales (-12% y/y), Ending stocks 5.6M bales (-18% y/y)
- World cotton production 106.5M bales (-1.3% y/y), consumption 113.5M (+3% y/y), world trade +15% y/y, world stocks -7% y/y
9:02:16 AM
*(UK) MAR AVERAGE EARNINGS INCL BONUS 3M/Y: -0.4% V -1.0%E, EX BONUS: 3.0% V 3.0%E
- Manufacturing Unit Wage Cost 3M/Yr: 9.8% v 9.8% prior (revised from 10.0%)
- No revisions
- Lowest reading on record
9:19:01 AM
(GR) Fitch changes Greece's sovereign outlook to Negative from Stable; cites further fiscal deterioration
- Fitch notes that FC/LC IDR " A" ratings affirmed
- Future ratings will be determined by future actions taken by the state in regards to its public debts
- Fitch notes that Grece has shown “little capacity for sustained fiscal consolidation” since 2001.
9:36:14 AM
(CH) China Banking Regulatory Commission: Sets a draft rule change that will allow both domestic and foreign companies to offer easier consumer finance to boost consumption
- The proposed companies will provide personal loans to finance purchases of consumer durables, in the latest measure by Beijing to promote consumption following a series of subsidies on purchases of goods from cars to televisions.
- The consumer finance firms will be allowed to issue bonds and borrow from the interbank market to raise money, subject to regulatory approval.
- Both domestic and overseas companies will be permitted to invest in the consumer finance firms, providing they meet a series of standards, including holding at least CNY80B in assets.
- Companies must have at least five years experience in providing consumer loans and have been profitable for the past two fiscal years
11:00:26 AM
(EU) ECB's Weber: No need for additional purchases of private debt
- Does not see German economy recovering until 2010
- Purchase of covered bonds in Euro-zone to aid in liquidity operations
- Have seen some signs of recovery, not hopeful for a sharp economic recovery
- States that German firms in particular have relied heavily on shortened working hours to make it through downturn
- These actions could lead to major layoffs if the contraciton continues and those workers put on shortened hours are forced out
2:00pm April Monthly Budget Statement (last $159.3B)
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
7:31:17 AM
-CF Industries AGU increases offer approx 14% to $40/cash plus exchange of one AGU shr/shr
- Agrium''s offer is not subject to a financing condition. Agrium has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the cash portion of the offer.
- Reminder: Terms of the prior offer stood at $35/shr in cash plus one common share/shr
7:40:30 AM
-(EU) ECB's Trichet: Central banks agree global economy is around 'inflection point' in cycle; Pace of downturn is slowing down but not yet out of 'uncharted waters'
- Central banks should keep extraordinary measures as long as they are necessary but avoid inflation risks
- Exit timings have not been discussed nor were any Forex issues
- Growth is already picking up in certain regions of the world
- Economy remains in 'ongoing process of correction'
- Notes news from banking sector is encouraging but there is no time for complacency
- Money markets show a 'pre Lehman' situation
8:30:18 AM
-Ambac Financial Group, Inc Reports Q1 -$1.36 v -$0.93e, R $1.13B v $298.8Me (unclear if comp)
- During the quarter Ambac increased its deferred tax asset valuation allowance by approximately $600M, causing the after-tax net loss.
- Q1 Net change in fair value of credit derivatives $1.55B v -$1.71B y/y
- Q1 Net Premiums Earned $196M v $186M y/y
9:30:24 AM
- (US) White House Budge Director: Reiterates that recovery to begin in H2 2009; Raises 2009, 2010 deficit projections
- Forecast 2009 deficit climbing to $1.84T v $1.752T prior; 2010 deficit at $1.258T from $1.171T prior
- Cumulative US deficit seen at $3.79T from 2010-2014 (approx 4.8% of GDP)
- See deficit falling to 2.7% by 2015, to 3.4% by 2019
- Expect publicly held debts at 59.9% of GDP in 2009, 67.1% of GDP in 2010 and 70.1% of GDP in 2011
11:04:02 AM
- NY Fed:Purchased $3.51B in $300B outright coupons purchase; Dealers submitted $10.42B for consideration (bid to cover 2.97)
- Heaviest purchase was $675M for the 08/15/27 maturity
- Note: avg bid to cover for prior four auctions is 4.02
4:05:14 PM
-Fluor Corp Reports Q1 $1.12 v $0.93e, R $5.80B v $5.75Be; Trims forecast
- Backlog was $29.1B, -7% y/y
- Guides FY09 EPS $3.80-4.10 v $3.76e (Guided FY09 EPS $3.90-$4.20 on 2/25)
4:11:18 PM
-SL Green Realty Corp. Files to offer 14.5M shares (25% of shares oustanding); Cuts dividend to $0.10 from $0.375
- Expects to grant to the underwriters for the public offering an option for 30 days to purchase up to 2,175,000 additional shares of common stock to cover overallotments, if any. Merrill Lynch & Co. will serve as the book-running manager for the offering.
- Pans to use the net proceeds from the offering for general corporate and/or working capital purposes, which may include investment opportunities, purchases of the indebtedness of its subsidiaries in the open market from time to time, and the repayment of indebtedness at the applicable maturity or put date
4:43:34 PM
-(MX) S&P revises outlook on Mexico to negative; maintains BBB+ rating
- The revision of the outlook on Mexico to negative reflects our assessment of the deterioration in its fiscal and external positions
- This is coupled with the prospect that the government might not adequately address lack of flexibility in its fiscal policy after this year''s Congressional midterm elections.
- S&P projects that Mexico''s fiscal position will deteriorate this year and next, along with those of many other countries. However, the deterioration in Mexico''s public finances heightens underlying structural fiscal vulnerabilities, such as a budgetary dependence on oil revenue, the absence of significant fiscal savings, and a low non-oil tax base.
- In 2009-2010, Standard & Poor''s expects that Mexico''s public-sector borrowing requirement could approach 4% of GDP, with net public-sector debt reaching 43%-44% of GDP.
- Standard & Poor''s projects that Mexico''s economy will contract by 5.5% in 2009 followed by modest 1% real GDP growth in 2010.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Investors have begun the week selling equities, with US stock indices opening in the red and the DJIA and S&P500 staying there through mid morning.
The Nasdaq has popped into positive territory as buyers step in looking for deals after three days of relative underperformance. Front-month NYMEX crude has regained the $1 it lost overnight to trade around $58.
US Treasury prices are rallying with the first of three coupon purchases by the NY Fed scheduled for this week adding to the upside momentum.
- Capital One, US Bancorp and BBT Corp launched significant share offerings (COF 13% of market cap, USB 7% market cap, BBT 10% of market cap) this morning in order to pay back their TARP borrowing.
All three banks had been declared "adequately capitalized" under the government's stress testing program. Morgan Stanley arranged another $600M in support via a common equity investment by Mitsubishi UFJ, after pricing around $3.5B worth of stock on Friday.
MUFG is reportedly swapping some of the preferred stock it acquired earlier for common shares. This orgy of dilution comes after Richmond Fed President Lacker said over the weekend that the Federal government should limit its aid to financial companies, as the aid could prompt excessive risk taking.
Warren Buffett's Berkshire Hathaway reported a $1.5B loss after the close on Friday, thanks to a write down of its ConocoPhillips investment and unrealized derivative losses. This was the company's first loss since 2001. Buffett had already acknowledged the mistake of buying COP stock when oil and gas prices were near their peak.
- Over the weekend the NY Times published a very cautious survey of the US credit card market.
According to the recent stress test results, the 19 largest US banks could see more than $82B in credit card losses by the end of 2010 under what was classified as a "worst case" scenario. If unemployment moves above 10%, losses at some banks could far exceed that level. AXP and DFS were down 5%, while MA and V were down 2% on the news.
- In earnings, satellite TV names Dish Network and close partner Echostar offered diverging quarterly results.
DISH is up 15% this morning after outperforming analysts' estimates, although it also said it lost 94K subscribers (with total subscribers of 13.6M at the end of the quarter). SATS reported a small loss, sending its shares down 4% in early trading.
Shares of Virgin mobile are on fire, rising more than 25% before the bell and sustaining those gains in the early going, after the firm blew out earnings estimates. In other news, Agrium raised its offer for CF Industries by 14% to $40/shr, plus stock; CF said it is considering the offer.
- In currencies, the firmer USD and JPY pairs have maintained strength against their European counterparts in New York trading.
After testing above the 1.3650 level, EUR/USD hovered below 1.3590 for the bulk of the New York morning. Dealers noted that the revised US deficit projections from the White House Budget Office curbed some of the dollar's upside momentum.
Several factors were cited for the stronger JPY, including press articles from the weekend insisting that the crisis in financial markets was not over.
In addition, there was continued chatter that Japan's FSA might amend the FX margin requirement to curb currency speculation. EUR/JPY tested 132.05 before consolidating its gains, while GBP/JPY lost around 350 pips at one point to test 146.75 area. EUR/GBP moved back above the 0.90 level in a trend that ensued following last Thursday's BoE and ECB monetary policy decisions on quantitative easing.
More Headlines
7:31:17 AM
CF Industries AGU increases offer approx 14% to $40/cash plus exchange of one AGU shr/shr
- Agrium''s offer is not subject to a financing condition. Agrium has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the cash portion of the offer.
- Reminder: Terms of the prior offer stood at $35/shr in cash plus one common share/shr
7:40:30 AM
(EU) ECB's Trichet: Central banks agree global economy is around 'inflection point' in cycle; Pace of downturn is slowing down but not yet out of 'uncharted waters'
- Central banks should keep extraordinary measures as long as they are necessary but avoid inflation risks
- Exit timings have not been discussed nor were any Forex issues
- Growth is already picking up in certain regions of the world
- Economy remains in 'ongoing process of correction'
- Notes news from banking sector is encouraging but there is no time for complacency
- Money markets show a 'pre Lehman' situation
8:30:18 AM
Ambac Financial Group, Inc Reports Q1 -$1.36 v -$0.93e, R $1.13B v $298.8Me (unclear if comp)
- During the quarter Ambac increased its deferred tax asset valuation allowance by approximately $600M, causing the after-tax net loss.
- Q1 Net change in fair value of credit derivatives $1.55B v -$1.71B y/y
- Q1 Net Premiums Earned $196M v $186M y/y
9:30:24 AM
(US) White House Budge Director: Reiterates that recovery to begin in H2 2009; Raises 2009, 2010 deficit projections
- Forecast 2009 deficit climbing to $1.84T v $1.752T prior; 2010 deficit at $1.258T from $1.171T prior
- Cumulative US deficit seen at $3.79T from 2010-2014 (approx 4.8% of GDP)
- See deficit falling to 2.7% by 2015, to 3.4% by 2019
- Expect publicly held debts at 59.9% of GDP in 2009, 67.1% of GDP in 2010 and 70.1% of GDP in 2011
11:04:02 AM
NY Fed:Purchased $3.51B in $300B outright coupons purchase; Dealers submitted $10.42B for consideration (bid to cover 2.97)
- Heaviest purchase was $675M for the 08/15/27 maturity
- Note: avg bid to cover for prior four auctions is 4.02
"Perhaps the very best question that you can memorize and repeat, over and over, is, “what is the most valuable use of my time right now?”"
Market Week Wrap-up
- The government's financial sector stress tests consumed markets this week, with rumors, leaks and then official results dispelling some of the uncertainty hanging over the financial sector.
Corporate results continue to be mixed as earnings season winds down, while April same-store sales showed a few patches of green among the dying weeds of the US retail sector. Housing and jobs data indicated again that the steep declines in these two key sectors are moderating somewhat. On Monday the March Pending Homes Sales index rose for the second straight month and March Construction Spending grew slightly after five straight months of decline. Wednesday's April ADP employment data and Friday's non-farm payrolls reading were both better than expected, with the latter coming in below 600K for the first time in five months. The unemployment rate rose to just shy of 9%, still its highest level since late 1983. For the week, the S&P 500 rose 5.9%, and the DJIA climbed 4.4%; the Nasdaq Composite lagged other indices but still managed a 1.1% gain, rising for the ninth straight week.
- After days of speculative media stories citing sources, most of the stress test results were leaked to the media on Wednesday, helping to take the edge off the official disclosure the following day.
Before the results dropped Treasury Secretary Geithner told PBS that none of the banks being tested were at risk of insolvency, and insisted that the results would be "reassuring." Regulators found that nine of the 19 banks being tested have enough capital to withstand a deeper recession, while the other ten need to raise a total of $75B to withstand potential future losses under the "adverse scenario." Bank of America, Wells Fargo and Citi were told to raise a total of more than $53B, with BoA alone requiring $33.9B. Banks in need of capital moved quickly to begin launching debt and equity offerings to satisfy government demands, with Morgan Stanley and Wells Fargo announcing offerings in the minutes before the official stress test results were released.
- Wards of the state GM, Fannie Mae and AIG reported titanic quarterly losses this week.
General Motor lost $6B, which is at least a bit better than its $9B+ loss last quarter. AIG managed to trim its loss down to the smallest seen in the last six quarters, to a mere $4.4B. Fannie posted a loss of $23.2B and asked for another $19B in government aid.
- In line with many other economic indicators, April same-store sales showed a few green shoots, with selected retailers outperforming analyst’s estimates thanks to the warmer weather and glimmers of economic improvement.
Wal-Mart led the pack, reporting April SSS of +5%, nearly twice estimates, with Costco reporting flat comps versus -6.5% estimates. Several mall chain apparel retailers also exceeded estimates (GPS -4% v -7.2%e, AEO -5.0% v -7.6%e, ANF -22% v -26.5%e). However, commentators are noting that estimates were badly beaten down in the wake of all the pessimism in the first quarter, making it easy for some retailers to outperform. Luxury retailers still struggled with sharp sales drops.
- Other names with broad consumer exposure posted strong quarterly results. CVS was more or less in line with the Street, and also reported firm quarterly same-store sales growth.
Kraft Foods beat earnings estimates and reaffirmed a solid full-year outlook, with executives noting that they are starting to see some signs of economic recovery. Molson Coors bested earnings estimates, doubling its quarterly profit over last year's levels. Gaming stocks had mixed results, with Wynn and MGM reporting quarterly losses thanks to travails in Las Vegas, and in Wynn's case, trouble in Macau. On the conference call, MGM's CEO said the quarter was "quite brutal" in Vegas. On the other hand, Las Vegas Sands and Boyd both beat earnings expectations, with LVS eking out a tiny profit on an adjusted basis after last quarter's loss.
- The Nasdaq has lagged the other major US indices, with profit taking hitting tech names across the board after eight weeks of sustained gains.
Cisco offered a solid quarterly report Thursday afternoon, with earnings and revenue slightly ahead of analysts' estimates, although that did not keep shares of CSCO from slipping from last week's nearly six-month high. Chipmaker NVIDIA lost a bit less than expected and beat revenue targets. Computer security firm Symantec reported solid results, although its big $413M goodwill write down prompted a round of analyst ratings cuts. Garmin missed estimates. Also note that Amazon made a splash this week with its new large-screen Kindle device, though question remain about the steep retail price of the unit. NYSE-listed Sprint surprised investors with a small quarterly profit, although this was overshadowed by the company's biggest ever quarterly net loss of wireless customers, which was blamed on the growing impact of pre-paid plans.
- In fixed income, treasuries found themselves at the mercy of growing economic confidence this week as the "flight to safety" trades so prevalent in recent months continued to unwind.
The benchmark 10-year yield moved out to fresh 2009 highs above 3.30% as investors scrambled to add risk to their portfolios. T-bill yields inched higher while interbank lending rates steadily improved, with 3M USD Libor notably fixing below 1.00% for the first time in history. Inflation hawks noted that 5- and 10-yr TIPS breakeven spreads were moving back to pre-crisis levels as the week drew to a close. The 3- and 10-yr note offerings went reasonably smoothly early in the week, but stock and bond traders alike highlighted the substantially higher yield needed to attract demand for the first 30-year bond to include a second reopening on Thursday. The Long Bond re-opening drew an almost unheard of yield tail of 9bps. The 30-year saw its yield top 4.30% along an ever-steepening curve. Note that across the pond, bunds and gilts both broke key support levels in the wake of QE announcements from the BoE and ECB, with 10-year yields in both markets reaching their highest levels of 2009.
- In currencies, traders ignored the EU Commission's downgrades of its 2009 and 2010 GDP forecasts for the entire 27-member Union and the smaller Euro Zone, instead focusing on continued improvements in economic data from emerging market countries and PMI readings from around the world.
Better PMI data in Europe and Asia, with PMI levels in China and India moving above 50, helped stimulate risk appetite. Brazil's April trade balance beat expectations. with exports rising more than expected. Naturally the rate decisions in Britain and Europe were central factors, with traders awaiting details on qualitative easing strategies.
- The Bank of England left its key interest rate unchanged at 0.50%, as expected, and increased its quantitative easing spend to £125B from £75B.
The GBP saw significant weakness in the aftermath of the announcement, with GBP/USD falling from the 1.5170 level to test 1.5030 and EUR/GBP moving back above the 0.8800 key intra-day chart level. Over on the Continent the ECB lowered its refi rate by 25bps to 1.00%, as expected, and said it would begin purchases of euro-denominated covered bonds. EUR/USD tested lower toward the 1.3280 level following this initial round of QE, but bearish euro sentiment quickly eroded gains when the bank admitted the operation would only be €60B for now. On the press conference, ECB President Trichet stressed that the bank is "not embarking on a quantitative easing policy."
- The greenback began the week at its best levels against the European pairs, aided by holidays in Japan and the UK.
But the rising risk appetite though the week kept both the USD and JPY softer, with European and commodity-related currencies firmer. The EUR/USD moved from its 1.3225 low seen on Monday to probe above 1.3520 by Friday and tested above its 200-day moving average for the first time since August of last year in the wake of the stress test results. USD/JPY maintained its recent range for the most part. Former Japanese Official Sakakibara (aka "Mr Yen") amended his view on the JPY, noting that he now sees the yen weak against the USD and likely to trend toward the 110 level (compare this to his USD/JPY around 100 prediction back in early March). The CAD and AUD commodity pairs were firmer on higher commodity prices and risk appetite. CAD was also aided by its first month increase in its employment data since last September.
- In Asia, the commodity drivers of the Far East growth engine dominated headlines for much of the week, with a generous portion of strong economic data coming out of Australia.
On Monday, March Building Approvals figure showed a second straight increase in housing activity (after nine months of contraction), while Tuesday saw Aussie consumer traffic register another big gain in monthly retail sales. Despite the prior month's accelerated unemployment growth and disinflationary trends, the Reserve Bank of Australia chose to put on the breaks to the pace of monetary easing and stood pat at 3%. In Japan, traders returning from the Golden Week holiday shrugged off disinflationary pressure and official growth downgrades from the prior week, sending the index above 9,400 - its best level since early November - even as Japan currency sellers continued to struggle with pushing USD/JPY above centennial mark.
As noted, the rebound in confidence and optimism about Chinese stimulus continued to bolster commodity prices this week.
Crude futures rose steadily throughout the week, posting a 10.2% gain, and reaching their best level in six month. Natural Gas finally joined in the energy complex rebound, with the generic futures rocketing up 22% on the week and moving above the 90 day SMA for the first time since July 2008. Spot gold also posted gains, ending up 3.4% on the week at $916.50.
Week of 5/11/2009 thru 5/15/2009
Monday, May 11, 2009
No News
7:30pm Fed Chairman Bernanke discusses the financial crisis in Georgia.
Tuesday, May 12, 2009
8:30am March Trade Balance (last -$26B)
2:00pm April Monthly Budget Statement (last $159.3B)
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Wednesday, May 13, 2009
8:30am April Import Price Index (last m/m 0.5%, y/y -14.9%),
- April Advance retail sales (last -1.2%, ex autos last -1.0%)
10:00am March Business Inventories (last -1.3%)
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
Thursday, May 14, 2009
8:30am April PPI (last m/m -1.2%, y/y –3.5%, ex food & energy last m/m 0.0%, y/y 3.8%),
- Initial Jobless Claims (last 601K), Continuing Claims (last 6.35M)
10:30am Natural Gas Inventories
Friday, May 15, 2009
8:30am April CPI (last m/m -0.1%, y/y -0.4%; ex food & energy last m/m 0.2%, y/y 1.8%),
- March CPI Core Index SA (last 218.042), May Empire Manufacturing (last -14.65)
9:00am March Net Long-Term TIC Flows (last $22B), March Total Net TIC Flows (last -$97B)
9:15am April Industrial Production (last -1.5%), April Capacity Utilization (last 69.3%)
9:55am May prelim Univ of Michigan confidence (last 65.1)
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Stress test closure and better than expected unemployment data energized early trading this morning, with the leading US equity indices opening higher and leading strong gains in early trading.
But some of the optimism has evaporated, as indices have rolled over and given up most of their gains in mid morning trade, with the Nasdaq dipping into negative territory.
The pace of job losses slowed in April, with the non-farm payrolls reading coming in below 600K for the first time in five months.
The unemployment rate fell just short of 9%, still its highest level since late 1983. Front-month NYMEX crude continues to rise, just shy of the $58 handle in morning trading.
- Now that the results of the stress tests are out and digested investors are grappling with the multitude of offerings unloaded on the market.
Nine of the 19 test candidate banks are said to have enough capital to withstand a deeper recession. The other ten need to raise a total of $75B in funds to withstand potential future losses under the 'adverse scenario'.
Bank of America, Wells Fargo and Citi have been told to raise a total of more than $53B, with BoA alone requiring $33.9B.
BoA CEO Lewis told CNBC this morning that his bank hopes to raise $17B in common equity over the course of next week, while also insisting that BoA's ability to raise capital is better than the US government thinks, further disputing the results (last night in its official statement, the bank said the Fed's income estimates for BoA were too low).
Wells Fargo announced a $6B common stock offering before the test results were even released, expanding this amount to $7.5B this morning. WFC's CEO said the offering should satisfy the government's demands (note that yesterday regulators said WFC needs $13.7B).
Citi said it would expand its previously disclosed public exchange offers by $5.5B, to $33B, fully satisfying government demands. Morgan Stanley also announced a $2B stock offering ahead of the test results, expanding the offering to $3.5B this morning.
In addition, MS is selling $4B in non-government supported bonds, presumably to repay TARP funds and its obligations to the Citi brokerage transaction. Shares of the major tier-1 banks are performing well this morning, with the exception of MS, which is -4%.
- There have also been several notable quarterly earnings reports out of the financials, including another round of massive losses from wards of the state AIG and Fannie Mae.
AIG managed to trim its loss down to the smallest seen in the last six quarters, to a mere $4.4B. Fannie posted a loss of $23.2B and requested $19B in additional government aid.
Insurance firms Allstate and Genworth Financial reported operating profits that were well below estimates and big losses after accounting for investment losses and impairments. Revenues at both companies were also disappointing.
- In other earnings, CBS surprised investors with a quarterly loss, which it said was driven by lower operating income.
CBS's CEO said that beyond the downturn unusual factors impacted the comparability of its results (including various special items in prior quarters) and insisted that its Q1 report is not indicative of its full-year performance.
Chipmaker NVIDIA lost a bit less than expected and beat revenue targets, although its margins are still down on a y/y basis. Video game firm Activision beat estimates and raised its full-year forecast to meet analysts' improved outlook.
Auto retailer Sonic blew out the Street's EPS view (but missed revenue target). Chemical manufacturer Huntsman (-9.5%) lost twice the expected figure and missed revenue estimates by a wide margin.
- In currencies, the greenback was weaker during the New York morning in the aftermath of the payroll report.
Although the headline number was better than the consensus, currency dealers were focusing on the birth/death adjustment of the data (+226K), noting that it kept the data from hitting a -700K reading.
EUR/USD tested above its 200-day moving average of 1.3456 for the first time since Aug 8th. The question remains whether the pair can close above this level by the end of trading today. EUR/USD tested 1.3520 at one point this morning.
CAD was firmer following the Canadian employment report, which saw almost 36K jobs created in April; in addition to stronger crude prices. Canadian PM Harper commented that there were signs that the economy might be near a "plateau" but was unsure whether additional stimulus spending was necessary. USD/CAD retested the 1.1555 level, up over 120 pips in the session
More Headlines
6:00 AM
-(GE) GERMAN MARCH INDUSTRIAL PRODUCTION M/M: 0.0% V -1.3%E; Y/Y: -20.4% V -1.3%E
7:02:26 AM
-VNUS Medical Technologies, Inc To be acquired by Covidien at $29/shr in cash or a total of approximately $440M (last: $21.32)
- On a non-GAAP basis, excluding IPR&D, the transaction is expected to be slightly dilutive to Covidien's 2009 earnings per share; however, the underlying strength of Covidien''s existing businesses is expected to offset this dilution.
- VNUS had 2008 revenues of $101 million and is based in San Jose, CA
- Board of directors approved the transaction
- Transaction expected to be completed by June 30, 2009.
7:25:30 AM
-Bank of America Corp CEO Lewis: Planning to raise $17B in common equity over the course of next week; stress test results provide "clarity" - CNBC interview
- Believes BoA's ability to raise capital is better than the US government believes; affirms intent to sell First Republic and Columbia Asset Management
- Some time in the second half of 2009 there will be signs of economic improvement.
- Currently seeing "mixed signals" in financial markets, but the bottom is near.
- Countrywide business is "on fire" (in the positive sense).
- Calls to break up the firm are 'absurd'
- Bank has internally gamed worse case senarios below Treasury guidlines, still expect to outperform in current environment
8:30:02 AM
-APR CHANGE IN NONFARM PAYROLLS: -539K V -600KE; CHANGE IN MANUFACTURING PAYROLLS: -149K V -155KE
- Prior nonfarm payrolls revised from -663K to -699K
- Prior Manufacturing Payrolls revised from -161K to -167K
- Apr Birth/Death adjustment was +226K v +114K in Mar
8:30 AM
-APR UNEMPLOYMENT RATE: 8.9% V 8.9%
11:32:56 AM
-The Goldman Sachs Group Inc CEO: no intention of giving up its holding company status; my guess is that business is "off its lowest ebb" - comments from annual shareholder meeting
- No decision has been made on whether to participate in the PPIP.
- The end of the crisis is in sight.
*BOE WILL BUY ADDITIONAL £50B OF ASSETS IN QUANTITATIVE EASING (QE), HAS SEEN PROMISING SIGNS THAT DECLINE HAS BEGUN TO MODERATE
- Will keep scale of asset purchases under review
- To complete extra £50B of asset purchases in 3 months
- States timing and strength of recovery highly uncertain
- Global stimulus will eventuall lead to recovery
- Private savings and bank restructuring will curb recovery
- Decline in GBP will put upward inflation, but spare capacity should limit inflation
7:45:14 AM
*(EU) ECB CUTS INTEREST RATES BY 25BPS TO 1.00%, AS EXPECTED
- Keeps deposit rate at 0.25% - in line with expectations (spread now 75bps)
- Lowers marginal rate by 50bps to 2.25%
9:22:05 AM
(EU) ECB's Trichet: The ECB is "not at all" embarking upon quantitative easing - Q&A
- ECB's credibility is totally intact. Market was in a freefall but now entering a phase of stabilization.
- German data was encouraging, Q2 will be much less negative than Q1
9:30:21 AM
(US) Fed Chairman Bernanke: Stress testing has been rigorous
-Could improve banking supervision
-Urges banks to overhaul pay policies
- Calls on banks, financial firms to plan for "stressed market conditions."
- A more "macroprudential" approach to banking supervision would enhance financial stability.
- Boosting the effectiveness of banking supervision is the Fed's "top priority."
10:00:59 AM
(DE) Danish Central Bank: Cuts rate to 1.65% from 2.0% (unexpected)
- Currency levels have remained stable, bordering to the strong side for a period of time
- This strength justifies banks reasoning to only cautiously narrow rates towards ECB level (currently at 1%)
12:01:04 PM
(EU) ECB's Weber: Solid economic conditions are needed before discussing policy exit; sees positive CPI by end of 2009
- The bank's unconventional steps are targeted at medium-term rates.
- ECB will buy some assets, believes the repo extension is important.
- ECB will withdraw non-standard measures once lending and the overall economy has improved.
- Reiterates that there is no credit crunch in the Euro Zone, but notes that banks are having trouble with new lending.
- Euro Zone economy has improved somewhat, seeing "signs of hope."
1:01:52 PM
*TREASURY'S $14B 30-YEAR BOND AUCTION BID-TO-COVER RATIO:
-2.14 V 2.02 PRIOR AND 2.05 AVE OVER THE LAST 5 AUCTIONS
- Indirect bidders take 33% of competitive bids
-Bonds draw 4.288%, 57.1% alloted at high
3:00:27 PM
*MAR CONSUMER CREDIT:
-$11.1B V -$4BE; a record decline
- Prior revised from -$7.5B to -$8.1B
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Much like yesterday, equity indices made strong gains before the bell this morning and then traded off from the open before finding a floor.
This afternoon will see the official public disclosure of the stress test results, although at this point most of the results have already leaked out in one form or another.
Last night, Treasury Secretary Geithner told PBS that none of the banks being tested are at risk of insolvency, and insisted that the results to be "reassuring." Same-store sales showed some improvement among selected retailers, although commentators debate whether these count as green shoots or not.
The weekly initial jobless claims were a bit lower than expected; together with Wednesday's ADP surprise, the claims data may indicate positive news in tomorrow's April payrolls reading.
However, investors may be looking for "much better" rather than "less bad" from data at this point. Front-month NYMEX crude is extending the strong gains of the week, up another $1.20 in the $57 handle.
- US Treasuries continue to be at the mercy of the unwinding of previous flight to safety trades.
Yesterday's strong 10-year note auction results on the back a Tuesday's decent auction have not sparked much enthusiasm surrounding demand's ability to absorb oncoming supply.
Instead the benchmark yield has moved out to new 2009 highs at 3.25% as investors scramble to add risk to their portfolios. T-bill yields have also been inching higher while interbank lending rates steadily improve.
The long bond is down nearly a full point yielding 4.14% ahead of this afternoon's $14B auction. Bund and Gilt futures are also lower despite the ECB's announced rate cut/new repo operations, and the BOE announcement that would be purchasing another £50B worth of assets under their QE mandate.
- General Motor coughed up a $6B quarterly loss this morning, which is at least a bit better than its $9B+ loss last quarter.
But that is about the only good news for the crippled automaker, which burned through $10.2B in cash in the quarter and saw revenue fall 47% y/y.
Keep in mind that the firm has already been given $15.4B in federal loans and recently asked for another $11.6B more. Bankruptcy is looking more and more likely, with the June 1st restructuring deadline around the corner, although on the conference call one exec insisted the company had to get "bankruptcy speculation behind it."
GM's sorry results contrasts markedly with Ford, where CEO Mulally, who launched a major electric car initiative yesterday and said his company has sufficient resources to fund its own restructuring.
- Network hardware giant Cisco offered a solid quarterly report yesterday afternoon, with earnings and revenue slightly ahead of analysts' estimates.
CEO Chambers noted that Cisco's customers are seeing stabilization in their businesses for the first time in many quarters, but also called the level of stabilization disappointing. Investors are not impressed with the results, with CSCO opening in the red and falling further in early trading.
Symantec reported solid results, ex a $413M goodwill write down. The latter prompted a round of analyst ratings cuts, sending shares of SYMC down 16%, which with CSCO are dragging down the overall tech sector.
Like competitor Time Warner Cable last week, Cablevision and DirectTV missed Q1 EPS estimates. But CVC opened higher and extended its gains in mid-morning trading after the company said it was mulling a spin-off of its Madison Square Garden business, with shares of CVC up 16%. Shares of DTV are in the red mid morning.
- In line with many other economic indicators, April same-store sales are showing a few green shoots of their own, with some retailers outperforming analysts estimates thanks to the warmer weather and glimmers of economic improvement.
Wal-Mart led the pack, reporting April SSS of +5%, nearly twice estimates, with Costco reporting flat comps versus -6.5% estimates.
Several mall chain apparel retailers also exceeded estimates (GPS -4% v -7.2%, AEO -5.0% v -7.6%e, ANF -22% v -26.5%e). However, commentators are noting that estimates were badly beaten down in the wake of all the pessimism in the first quarter, making it easy for some retailers to outperform.
Luxury retailers still struggled with sharp sales drops. Shares of many retailers made gains before the open (ANF was up 12% at one point), but are generally loosing ground mid morning.
Note that WMT will no longer report monthly same-store sales figures from now on; the firm plans to offer quarterly comps with earnings.
- Currency trading has hinged on European central bank decisions this morning, with dealers highly focused on more information about quantitative easing.
The Bank of England left its key interest rate unchanged at 0.50%, as expected, and increased its quantitative easing spend to £100B from the £75B prior.
The GBP saw significant weakness in the aftermath of the announcement, with GBP/USD falling from the 1.5170 level to test 1.5030 and EUR/GBP moving back above the 0.8800 key intra-day chart level. Over on the Continent the ECB lowered its refi rate by 25bps to 1.00%, as expected, and said it would begin purchases of euro-denominated covered bonds.
EUR/USD tested lower toward the 1.3280 level following this initial round of QE, but bearish euro sentiment quickly eroded gains when the bank admitted the operation would only be €60B for now. This compares to the Fed's $300B QE spending and the BoE's £125B operation.
On the press conference, ECB President Trichet stressed that the bank is "not embarking on a quantitative easing policy." After these comments the EUR/USD proceeded to test its 200-day moving average of 1.3466 before consolidated and EUR/GBP moved above the 0.8930 level.
Also note that today's rotation into equities and out of bonds helped to weaken the JPY against its major pairs. The unexpected drop in US new jobless claims ahead of tomorrow's key non-farm payroll report helped increase in risk appetite.
More Headlines
7:00:40 AM
*BOE WILL BUY ADDITIONAL £50B OF ASSETS IN QUANTITATIVE EASING (QE), HAS SEEN PROMISING SIGNS THAT DECLINE HAS BEGUN TO MODERATE
- Will keep scale of asset purchases under review
- To complete extra £50B of asset purchases in 3 months
- States timing and strength of recovery highly uncertain
- Global stimulus will eventuall lead to recovery
- Private savings and bank restructuring will curb recovery
- Decline in GBP will put upward inflation, but spare capacity should limit inflation
7:45:14 AM
*(EU) ECB CUTS INTEREST RATES BY 25BPS TO 1.00%, AS EXPECTED
- Keeps deposit rate at 0.25% - in line with expectations (spread now 75bps)
- Lowers marginal rate by 50bps to 2.25%
9:22:05 AM
(EU) ECB's Trichet: The ECB is "not at all" embarking upon quantitative easing - Q&A
- ECB's credibility is totally intact. Market was in a freefall but now entering a phase of stabilization.
- German data was encouraging, Q2 will be much less negative than Q1
9:30:21 AM
(US) Fed Chairman Bernanke: Stress testing has been rigorous
-Could improve banking supervision
-Urges banks to overhaul pay policies
- Calls on banks, financial firms to plan for "stressed market conditions."
- A more "macroprudential" approach to banking supervision would enhance financial stability.
- Boosting the effectiveness of banking supervision is the Fed's "top priority."
10:00:59 AM
(DE) Danish Central Bank: Cuts rate to 1.65% from 2.0% (unexpected)
- Currency levels have remained stable, bordering to the strong side for a period of time
- This strength justifies banks reasoning to only cautiously narrow rates towards ECB level (currently at 1%)
*APR ADP EMPLOYMENT CHANGE: -491K V -645KE
Prior revised from -742K to -708K
- Small businesses -183K v -284K m/m
- Medium businesses -231K v -330K m/m
- Large businesses -77K v - 128K m/m
- Goods-producing sector -262K v -327K m/m
- Service-providing sector: -229K v -359K m/m
- Chairman of Macroeconomic Advisers, LLC: "Construction employment -95K.
-This was its twenty-seventh consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,261,000. April''s decline, however, was the smallest since November of 2008
- Despite some recent indications that stock prices, consumer spending, and housing activity may be bottoming out, employment, which usually trails overall economic activity, is likely to decline for at least several more months, although perhaps not as rapidly as during the last six months
8:41:35 AM
(US) FDIC's Bair: Urges Congress to create a "systemic risk council," to include FDIC, Treasury, Fed and SEC representatives - Congressional testimony
- Larger firms must face capital restrictions and liquidity buffers.
- Govt is looking for a resolution mechanism, not a bailout mechanism.
10:11:04 AM
US Rep Frank formally announces internet gambling legislation to seek to establish a regulatory framework; would give Treasury Dept authority to grant and revoke licenses and impose fines and set rules
- looking to move foward on online legislation before august break
- note: HET and UBET are among the US gaming companies that are on record in support of Frank's bill. Others may oppose it for fear of lost revenue at casinos.
1:01:46 PM
*TREASURY'S $22B 10-YEAR NOTE AUCTION BID-TO-COVER RATIO: 2.47 V 2.21 IN FEB AND 2.34 OVER THE LAST 5 AUCTIONS
- indirect bidders take 31.9% of competitive bids
- notes draw 3.19% with 22.05% allotted at the high
5:16:24 PM
(US) Regulators say banks needing capital must submit a plan by June 8 and must execute a plan by Nov 9; Regulators expect banks to hold Tier 1 capital above 4% minimum by 2010
- Regulators say banks needing capital should review management.
- says capital buffer for each firm is "sized to achieve a Tier 1 risk based ratio of at least 6% and Tier 1 common risk based ratio of at least 4% at the end of 2010."
- Financial firms must also outline how they plan to repay govt stakes and reduce reliance on FDIC guaranteed debt program.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
-Equity indices opened sharply higher this morning as investors shrugged off widespread reports that the government would ask Bank of America to raise billions in additional capital and concentrated on the much better-than-expected April ADP employment reading.
With the ADP small and medium-sized business sub-indices showing less weakness than expected, commentators are fixing on the report as just one more sign that the sharp declines of Q1 are moderating.
However, equities traded off from the open, with some caution in the wind ahead of the expected release of stress test results as well as the government's conditions for banks to repay TARP funds. Note that tech stocks have been hit especially hard in early trading, forcing the Nasdaq into negative territory led by declines in Amazon.
Front-month NYMEX crude continues to gain ground, up more than $2 to trade near the 2009 highs of $56 a barrel.
- Treasury markets remain fairly quiet with prices and yields settling into the new trading range.
The 10-year note if marginally lower with yields just a few basis points from 2009 highs ahead of a $22B 10-year auction this afternoon. Both the BOE and Fed continued to buy up government bonds in two more reverse auctions this morning.
Lots of trader talk is focused on the $10.6B TALF loans requested in last night's third round of auctions. That was more than the first two TALF auctions combined.
Credit markets are also focusing on the increased issuance of junk paper and continued improvements in interbank lending rates as hope the government policies are continue to have the desired effects.
- Earnings season is slowly winding down, with the bulk of the most watched large- and mid-cap firms having already disclosed their quarterly results.
Oil services leader Transocean missed earnings targets thanks to the overall weakness in the energy sector, although utilization and day rates held up on a q/q basis. Engineering firm Foster Wheeler came in below analysts estimates, hurt in part by FX impact.
Cooper Tire's loss was smaller than expected, although tire revenues still not growing, demand remains weak and overcapacity still an issue. Canadian fertilizer maker Agrium is still getting hit by the overall collapse in demand for its products.
AGU reported a small profit ex hedging losses, write downs and compensation expenses, significantly below expectations. Agrium said it remains committed to the CF Industries acquisition.
- Gaming names Las Vegas Sands and Boyd both beat earnings expectations.
LVS eked out a $0.01 per share profit on an adjusted basis (-$0.14 unadjusted), and said it was still looking to sell assets to shore up liquidity. BYD reported twice the expected amount, before a big write off for acquisitions.
Disney offered solid quarterly results, a bit ahead on the bottom line and a bit behind on revenue. The CEO did admit results have been impacted by the weak economy.
Tech darlings Garmin and Electronic arts offered lackluster earnings; GRMN missed estimates, while ERTS's quarterly loss was smaller than expected.
Revenue lagged at both firms. Shares of GRMN are down a whopping 16%, while ERTS is down 3%. Also note that Amazon's is launching its new large-screen Kindle device in New York this morning.
- In currency trading, risk appetite returned in the New York session following the better-than-expected ADP employment report.
EUR/USD rebounded to move to 1.3370 before consolidating. Scandinavian currencies were firmer in the NY morning after the Norwegian Central Bank cut their deposit rate by 50bps to 1.50%, as expected.
EUR/NOK was lower in the aftermath of the rate decision. Sweden's Riksbank commented that it could stimulate the economy further without cutting the repo rate to zero and noted that it would not intervene to weaken its currency.
More Headlines
8:15:09 AM
*APR ADP EMPLOYMENT CHANGE: -491K V -645KE
Prior revised from -742K to -708K
- Small businesses -183K v -284K m/m
- Medium businesses -231K v -330K m/m
- Large businesses -77K v - 128K m/m
- Goods-producing sector -262K v -327K m/m
- Service-providing sector: -229K v -359K m/m
- Chairman of Macroeconomic Advisers, LLC: "Construction employment -95K.
-This was its twenty-seventh consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,261,000. April''s decline, however, was the smallest since November of 2008
- Despite some recent indications that stock prices, consumer spending, and housing activity may be bottoming out, employment, which usually trails overall economic activity, is likely to decline for at least several more months, although perhaps not as rapidly as during the last six months
8:41:35 AM
(US) FDIC's Bair: Urges Congress to create a "systemic risk council," to include FDIC, Treasury, Fed and SEC representatives - Congressional testimony
- Larger firms must face capital restrictions and liquidity buffers.
- Govt is looking for a resolution mechanism, not a bailout mechanism.
10:11:04 AM
US Rep Frank formally announces internet gambling legislation to seek to establish a regulatory framework; would give Treasury Dept authority to grant and revoke licenses and impose fines and set rules
- looking to move foward on online legislation before august break
- note: HET and UBET are among the US gaming companies that are on record in support of Frank's bill. Others may oppose it for fear of lost revenue at casinos.
7:30am April Challenger Job Cuts y/y (last 180.7%)
8:15am April ADP Employment Change (last -742K)
10:00am TAF results
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
1:00pm Treasury's 10-year note auction
Todays Headlines
9:29:09 AM
(EU) ECB's Nowotny: There are clear signs of improvement in Eastern Europe
- CEE to benifit from continued support from the IMF.
- Sees no need to nationalize any Austrian Banks.
- Deflation is a greater threat than inflation "for the foreseeable future."
- Believes that most of the banking crisis is behind us
10:00:02 AM
*APR ISM NON-MANUFACTURING COMPOSITE: 43.7 V 42.2E (highest since Oct 2008)
- No Revisions
**Sub-indices:
- Non-Mfg Prices Paid Index: 40 v 39.1 prior
- Employment: 37 v 32.3 prior
- New Orders Index: 47 v 38.8 prior
10:00:08 AM
(US) Fed Chairman Bernanke: Expects economy to pick up later in 2009; seeing signs of a bottom in US housing market; any relapse in credit crisis could stall the emerging recovery - Congressional testimony
- Pace of US contraction may be slowing, while demand, especially among households, may be stabilizing
- Even after the recovery begins, any economic growth will likely be "below potential" for a while.
- Housing is stabilizing, but expects drops in inventory to slow.
- Business investment remains weak, commercial property market is poor.
- Conditions in financial markets have improved, but financial markets are still under "considerable strain."
- Inflation will decline in 2009 and remain low.
- Weaker US exports are a drag.
- US likely to see more "sizable" job losses.
- Fed plans to issue monthly data on the collateral in its programs.
10:23:00 AM
CNBC's Liesman: Banks wil be given one month to come up with capital raising plan if deemed necessary by stress tests
- unclear if that is any different to the original framework that the required banks raise the capital within 6 months of the stress test results
10:27:07 AM
(US) Fed Chairman Bernanke: Many banks will satisfy capital needs deemed necessary by stress tests without public money - Q&A
- Banks can raise capital through private sources or through conversion of preferred shares
- Liquidity operations will be withdrawn at 'appropriate time,' Fed's activity will not stiffle a recovery
- Fed continues to have ability to drain extra banking reserves
- Outlines a 5 step program to reduce balance sheet and withdraw accomodation and stimulus programs; one option is to sell assets into the market.
11:33:10 AM
(US) Fed Chairman Bernanke: Does not believe unemployment will hit 10%, may reach into the 9% range
- Sees unemployment rising into 2010, peaking in early 2010.
- Notes has not observed large changes in purchases of US assets by foreign countries
1:01:17 PM
-TREASURY'S $35B 3-YEAR NOTE AUCTION BID-TO-COVER RATIO: 2.66 V 2.42 PRIOR AND 2.46 AVG OVER THE LAST 10 AUCTION- indirect bidders take 37.7% of competitive bids - notes draw 1.473% with 43% allotted at high.
2:01:43 PM
-JPMorgan Chase and Co WSJ: CEO Dimon notes that the economy may be at the bottom- believes most banks will discuss the stress test results with shareholders on Friday
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Equity markets are giving up a small portion of yesterday's gains as doubt creeps in ahead of Thursday's stress test disclosures.
Rhetorical hedging out of Fed Chairman Bernanke also seems to be a factor; Bernanke noted that he sees a recovery coming in late 2009, but warned that even then growth would remain below potential.
Spot gold tested above the $915 level for one-week highs, with dealers calling for more upside momentum if gains above the $930/oz level are sustained.
Front-month NYMEX crude is struggling to maintain the $54 handle but still well within reach of 2009 highs.Treasury markets are quiet ahead of this afternoon's 3-year not auction, with prices and yields little changed.
- Financial stocks are all over the map this morning in the wake of the Wall Street Journal's front-page assertion that 10 out of 19 banks undergoing government stress tests may need to raise capital.
This news comes two days before the results of the testing are due. Topping the WSJ's list of banks in need of a bigger cushion are Bank of America, Citi, Wells Fargo and a handful of regional banks.
After the open this morning CNBC reported that banks would have one month to come up with a plan for raising the needed capital (which officials have said needs to come from private sources).
Note that yesterday afternoon S&P put BoA, Citi and Wells Fargo on Watch Negative, along with ratings from a raft of other tier-1 and regional banks.
S&P also warned that Citi and BoA would likely need more capital. Oppenheimer is damming the torpedoes this morning, choosing to upgrade Wells Fargo to outperform.
- In earnings, consumer-facing names continue to either meet or beat expectations.
Retail powerhouse CVS reported Q1 results more or less in line with the Street, and said it was firm quarterly same-store sales growth as well.
CVS's 2009 forecast was up a hair over last quarter's outlook. On the conference call, CVS's CEO said its retail business continues to perform at the top of the industry, but warned it is "not entirely recession-proof."
Kraft Foods beat earnings estimates and miss a bit on the top line, but reaffirmed its solid full-year outlook. Executives at KFT said they are starting to see some signs of economic recovery but expect to continue seeing weakness in Central and Eastern Europe.
Molson Coors destroyed earnings estimates, doubling its quarterly profit y/y, before the JV arrangement with SABMiller.
- Two of the gaming world's biggest names, Wynn Resorts and MGM, are both up substantially despite fairly weak earnings reports.
Wynn slipped to a quarterly loss due to softness in its big Macau play. MGM's travails in the quarter are well known, although it chalked its quarterly loss up to double digit declines in slots and table games, with total casino revenue -16%. Occupancy was also "unusually soft" in the quarter.
On the conference call, MGM's CEO said the quarter was "quite brutal" in Vegas, noting that he expects the convention business to be down 25% in 2009.
- Unlike its larger brethren last week, mid-cap healthcare are companies are outperforming.
Managed-care name Health Net beat analysts' expectations and reaffirmed a 2009 forecast that was well above target.
HealthSouth also beat earnings expectations and guided to the high end of its 2009 range. Two big pharma names were mixed, however.
Drug distributor McKesson exceeded earnings estimates (ex a $0.22 investment write down) although revenue was a bit behind. Guidance for the full year also fell short of expectations. Generic drug power Teva's earning were in line, while revenues fell short of expectations.
- In currencies, EUR/USD moved back to retest highs from Asia around 1.3420, with risk appetite was behind the support for weaker USD and JPY, not to mention strength in energy and metals.
Sterling continued to maintain a firm tone throughout the New York session, initially helped by the better-than-expected PMI contraction data for April.
Additional GBP strength was attributed to a rumor circulating that UK consumer confidence would hit 50 (the consensus expectation is for 43); the data is scheduled to be released later today at 7pmET.
GBP/USD tested above the 1.5160 level for the first time since early January, while EUR/GBP probed closer towards the key technical level of 0.8800 as it printed 0.8846 in the session.
Take note also that the ECB's Nowotny cited "clear signs of improvement" in Eastern Europe, saying that the region would benefit from continued support from the IMF. CAD and AUD-related pairs were firmer on steady to higher energy and metal prices.
- Economic data will really pick steam up as the week progresses, especially with rate decisions on tap from the BoE and ECB on Thursday and key US employment figures coming out in the Wednesday through Friday period.
The banking sector stress test results are expected to be made public on Thursday.
More Headlines
9:29:09 AM
(EU) ECB's Nowotny: There are clear signs of improvement in Eastern Europe
- CEE to benifit from continued support from the IMF.
- Sees no need to nationalize any Austrian Banks.
- Deflation is a greater threat than inflation "for the foreseeable future."
- Believes that most of the banking crisis is behind us
10:00:02 AM
*APR ISM NON-MANUFACTURING COMPOSITE: 43.7 V 42.2E (highest since Oct 2008)
- No Revisions
**Sub-indices:
- Non-Mfg Prices Paid Index: 40 v 39.1 prior
- Employment: 37 v 32.3 prior
- New Orders Index: 47 v 38.8 prior
10:00:08 AM
(US) Fed Chairman Bernanke: Expects economy to pick up later in 2009; seeing signs of a bottom in US housing market; any relapse in credit crisis could stall the emerging recovery - Congressional testimony
- Pace of US contraction may be slowing, while demand, especially among households, may be stabilizing
- Even after the recovery begins, any economic growth will likely be "below potential" for a while.
- Housing is stabilizing, but expects drops in inventory to slow.
- Business investment remains weak, commercial property market is poor.
- Conditions in financial markets have improved, but financial markets are still under "considerable strain."
- Inflation will decline in 2009 and remain low.
- Weaker US exports are a drag.
- US likely to see more "sizable" job losses.
- Fed plans to issue monthly data on the collateral in its programs.
10:23:00 AM
CNBC's Liesman: Banks wil be given one month to come up with capital raising plan if deemed necessary by stress tests
- unclear if that is any different to the original framework that the required banks raise the capital within 6 months of the stress test results
10:27:07 AM
(US) Fed Chairman Bernanke: Many banks will satisfy capital needs deemed necessary by stress tests without public money - Q&A
- Banks can raise capital through private sources or through conversion of preferred shares
- Liquidity operations will be withdrawn at 'appropriate time,' Fed's activity will not stiffle a recovery
- Fed continues to have ability to drain extra banking reserves
- Outlines a 5 step program to reduce balance sheet and withdraw accomodation and stimulus programs; one option is to sell assets into the market.
11:33:10 AM
(US) Fed Chairman Bernanke: Does not believe unemployment will hit 10%, may reach into the 9% range
- Sees unemployment rising into 2010, peaking in early 2010.
- Notes has not observed large changes in purchases of US assets by foreign countries
10:00am Fed Chairman Bernanke testifies before Congress's Joint Economic Committee
10:00am April ISM Non-Manufacturing (last 40.8), TAF auction
1:00pm Treasury's 3-year note auction
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
8:11 AM
(EU) ECB's Papademos: Inflation pressures have diminished; ECB's efforts have ensured the flow of credit
8:28:14 AM
(EU) ECB's Papademos: Economy shows signs of stabilizing; Will take time for economy to fully recover
- Sees positive signs in data
- Collapse of global trade has worsened situation
- Need to prevent formation of a negative feedback loop and restoring confidence and uncertainty remains key
- New capital for EU banks exceeds write downs
- Will take time before global economy fully recovers and resumes growth
- Inflationary pressures subsided as economic crisis spread; lower CPI has allowed ECB to act to stimulate its economy
- Euro area money market conditions have improved
- EU commission forecasts indicate serious public finances deterioration
8:35:02 AM
Warren Buffet: Expresses optimism on US long term outlook, but short term outlook "tough" - CNBC
- Economy will be fine in 5 years, but unsure of outlook in 3 months or up to 2 years
- Residential real estate improving in some key areas
- Does not know outcome of stress tests
- Remains important that Chrysler exits bankruptcy as soon as possible
- Economy can handle higher taxes, will need higher taxes in the future
- Expects to own WFC within five or ten years
- Plans to maintain stake in Washington Post
- says BAC has a very good deposit collection system
9:56:32 AM
(EU) ECB's Papedemos: Does not see immediate inflation risks, must insure that risks to inflation do not increase
- Remain committed to price stability operations
- Actions to increase bank liquidity will not push up CPI
- Remains easy to drain excess liquidity from interbank markets
10:00 AM
*MAR PENDING HOMES SALES (M/M): 3.2% V 0.0%E- prior revised from 2.1% to 2.0%
10:00 AM
*MAR CONSTRUCTION SPENDING (M/M): 0.3% V -1.6%E- prior revised from -0.9% to -1.0%
3:06:40 PM
(EU) EU's Juncker: The Euro Zone is headed for a social crisis, unemployment is headed for levels are of concern
- Euro Zone inflation outlook remains good, inflation is below target. No real risk of deflation in Euro Zone.
- Seeing the first signs of stabilization in Europe; no need to increase stimulus measures.
- Stimulus measures will only work if there is confidence in markets.
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- Equity prices are surging higher to begin the week, with the three leading US indices making strong gains in the wake of much stronger than expected homes sales and construction spending data.
The March Pending Homes Sales index rose 3.2%, making for two straight months of advances after it hit a record low in January.
March Construction Spending grew slightly after five straight months of decline. Front-month NYMEX crude has sustained the big run-up seen on Friday, with prices just shy of $54.
Treasury prices are slightly lower as yields begin the week finding traction above key levels for both 10 and 30-year paper. The calendar is full with 3 auctions scheduled this week as well as continued coupon purchases from the NY Fed.
- Another round of stress test related rumors made the rounds this weekend, with the financial press reporting that Bank of America and Citigroup will raise around $10B a piece in response to the tests.
Bank of America denied the reports this morning, although its denial seemed somewhat revealing, as it noted that it has not "been given a final number by the Federal Reserve." In a certain light that could mean the bank will need to raise a certain amount of capital.
Not a word has been heard from Citi in response to the press reports. Warren Buffet has been making comments about selected banks this morning, complementing BoA for its "very good" deposit collection system and saying that he expects to own Wells Fargo in five or ten years.
- In earnings, Sprint surprised investors with a small quarterly profit, against expectations for a slight loss, although the company also announced its biggest ever quarterly net loss of wireless customers.
Sprint warned that an increasing number of customers may choose pre-paid services like the company's Boost Mobile product, rather than post-paid monthly wireless bills. Sprint lost a net 1.25M postpaid customers in the quarter, with executives blaming the economic pressure in its business segment for some of these losses.
Cosmetics maker Estee Lauder also surprised markets, earning nearly three times the expected amount in its Q3, although its guidance was a bit more pessimistic. While executives note they are beginning to see economic improvements in the US, they expect current trends to hold through the rest of 2009.
Earnings from foodservice giant Sysco and Tyson Foods were more or less in line, while the companies' revenue performance lagged expectations.
- In M&A action, Liberty Media is planning to split off its Liberty Entertainment unit and combine it with DirectTV.
The unit controls assets such as the Game Show Network, FUN Technologies and three regional sports networks; the new company will be called DirecTV Group. Existing DTV holders will receive one share of DirecTV Class A stock for each share they already own. Holders of Liberty Entertainment shares will receive 1.1111 shares of DirecTV Class A for each share Liberty Entertainment. Pepsi Bottling Group rejected PepsiCo's $29.50/share acquisition proposal, calling deal "grossly inadequate."
- Currency price action was whippy in the New York session as thin conditions, lots of data and various speakers prompted a certain amount of volatility.
Initially, the dollar started the New York morning on a firm footing after the ECB's Weber commented that any recovery in Germany would not arrive until the second half of 2010. These remarks followed the EU Commission's downward revisions of 2009 & 2010 GDP forecasts for the entire union as well as the smaller Euro Zone.
However, continued improvements in economic data from emerging market countries helped risk appetite take the upper hand, with improving PMI data in Europe and Asia aiding the cause of risk (China and India PMI data moved above 50, suggesting growth).
In addition, Brazil's April trade balance beat expectations with exports raising more than expected. Commodities were firmer across the board in both metals and energy and the CAD and AUD pairs reflected this strength. EUR/USD tested the 1.3211 level in early New York trading before moving back towards its Asian session highs of 1.3347. USD/CAD was set for its first daily close below its 200-day moving average in almost 12 months, around 1.1770.
More Headlines
8:11 AM
(EU) ECB's Papademos: Inflation pressures have diminished; ECB's efforts have ensured the flow of credit
8:28:14 AM
(EU) ECB's Papademos: Economy shows signs of stabilizing; Will take time for economy to fully recover
- Sees positive signs in data
- Collapse of global trade has worsened situation
- Need to prevent formation of a negative feedback loop and restoring confidence and uncertainty remains key
- New capital for EU banks exceeds write downs
- Will take time before global economy fully recovers and resumes growth
- Inflationary pressures subsided as economic crisis spread; lower CPI has allowed ECB to act to stimulate its economy
- Euro area money market conditions have improved
- EU commission forecasts indicate serious public finances deterioration
8:35:02 AM
Warren Buffet: Expresses optimism on US long term outlook, but short term outlook "tough" - CNBC
- Economy will be fine in 5 years, but unsure of outlook in 3 months or up to 2 years
- Residential real estate improving in some key areas
- Does not know outcome of stress tests
- Remains important that Chrysler exits bankruptcy as soon as possible
- Economy can handle higher taxes, will need higher taxes in the future
- Expects to own WFC within five or ten years
- Plans to maintain stake in Washington Post
- says BAC has a very good deposit collection system
9:56:32 AM
(EU) ECB's Papedemos: Does not see immediate inflation risks, must insure that risks to inflation do not increase
- Remain committed to price stability operations
- Actions to increase bank liquidity will not push up CPI
- Remains easy to drain excess liquidity from interbank markets
10:00 AM
*MAR PENDING HOMES SALES (M/M): 3.2% V 0.0%E- prior revised from 2.1% to 2.0%
10:00 AM
*MAR CONSTRUCTION SPENDING (M/M): 0.3% V -1.6%E- prior revised from -0.9% to -1.0%
"It doesn’t matter how much power, brilliance or energy you have, if you don't harness it and focus it on a specific target, and hold it there, you're never going to accomplish as much as your ability warrants."
- It has been an eventful week in markets, with a potential global pandemic, and a giant bankruptcy offset by "green shoots" prompting hope an economic recovery in the works.
Swine Flu, recently re-branded as the 2009 H1N1 influenza virus, emerged as a global issue and weighed down equity trading on Monday, hitting the travel industry especially hard.
Wednesday saw the US Q1 Advance GDP reading come in worse than expected (-6.1% versus -4.7%e) and the Fed keeping interest rates steady with only a minor revision to the FOMC policy statement.
On Thursday Chrysler filed for bankruptcy and began its reorganization. But none of these events prompted significant declines; investors instead turned to data and statements showing improvements in the economy, or more aptly indicating that things are getting worse more slowly.
The dreadful GDP report also included hopeful metrics showing 2.2% growth in consumer spending and a 3.4% decline in inventories. The February Case-Shiller housing data did not register another record-setting decline. Treasury Secretary Geithner told the Senate that no more bailout funds would be requested (in the near future, anyhow), and the White House said a second stimulus package was not being planned.
The final April University of Michigan Confidence and ISM Manufacturing numbers were better than anticipated. Despite the swine flu sell off on Monday, the pigs came back to the trough leading to gains for the week in the three major US indices: the S&P 500 rose 1.3%, the DJIA climbed 1.7%, while the Nasdaq Composite managed a 1.5% gain. June S&P500 futures ended the week just above the key 875 level.
- Chrysler, the smallest of the Big Three Detroit automakers, filed for Chapter 11 protection on Thursday, entering what the White House said would be a brief one- or two-month bankruptcy process.
Negotiations with bondholders continued until the last possible moment on Wednesday evening, but the White House Auto Task Force and company executives failed to get lenders accept a final offer of around 30 cents on the dollar for their collective $6.9B in debt.
Fiat has agreed to take a 20% stake in the company, with the right to another 15% stake over time if certain criteria are met, in exchange for small car technology. The US Treasury will hold 8%, Canada gets 2%, while the UAW's VEBA retirement association will hold 55%. But there is no question who is in the driver's seat, as the US Treasury will nominate six of the nine board seats, with the remaining three seats going to Fiat. According to President Obama, the arrangement will give Chrysler a "new lease on life."
- Over at GM, negotiations with the UAW and bondholders continue.
On Thursday, the bondholders countered GM's latest offer (involving a debt for equity swap and the UAW owning 39% of the company), calling for an allocation of new GM equity equally across the board to union VEBA and GM bondholders, pro rata to the level of financial obligation owed to each by GM, with no cash component and no government equity stake. Ford, meanwhile, seems to be getting by.
According to press reports, Chrysler's bankruptcy filing will not lead Ford to ask for government loans, and Ford does not foresee and disruptions to its business from the situation. Still on Friday, the auto manufacturers reported a 34% decline in April sales compared to year ago.
- This week the US Treasury pushed back the date of the public release for the bank stress test results, to May 7th.
Earlier in the week some information about the results apparently leaked: on Tuesday, the WSJ reported that Citigroup and Bank of America have been told to raise billions of dollars in fresh capital based on the results. Along with the rescheduling, sources reported that publicly available information from the tests will include capital needs for each bank and estimated losses for certain loan categories.
- Executives from Bank of America, Morgan Stanley and Wells Fargo wrangled with shareholders at annual general meetings throughout the week.
The media reported that attendees would attempt to strip Morgan Stanley CEO John Mack and BoA CEO John Lewis of their titles, but both survived in place, although shareholders did manage to split the Chairman and CEO roles at BoA. Wells Fargo's shareholders rejected a proposal to require an independent chairman.
The troubled Citigroup sold off its Japanese retail brokerage operation, Nikko Cordial Securities, to Sumitomo Mitsui for ¥774.5B ($7.9B). The deal, which includes an investment banking alliance, is expected to close at the beginning of October.
- Dow components Exxon, Chevron, Procter & Gamble and Verizon all reported quarterly results this week.
Exxon missed earnings estimates while Chevron came in ahead of expectations, but these results were overshadowed by both companies' big declines in quarterly profits on a y/y basis (CVX -64% y/y, XOM -58% y/y), which they blamed on recession and sharply lower commodity prices. Strong gains in wireless and FiOS subscriber additions helped Verizon do better than expected in the quarter.
Note that there were widespread reports this week that Apple was talking with Verizon about launching iPhone service as soon as 2010; executives refused to confirm or deny the reports. PG offered solid, in-line performance, and offered a much improved revenue outlook for the year.
- Most of the leading insurance names reported results.
Earnings from MetLife, Cigna and Hartford Financial fell short of expectations, with the firms missing estimates as weaker markets cut into their businesses across the board.
Hartford has been much harder hit than the rest, with the firm reporting its third consecutive quarterly loss and slashing its full-year forecast.
Aetna, Humana and pharmacy benefits manager Medco Health reported solid quarterly results, although executives warned that rising job cuts among its employer customers are a concern, with layoffs and increased Cobra membership a threat. Travelers' offered mixed results.
- In other earnings, pharmaceutical titans Bristol-Myers Squibb and Pfizer offered solid quarterly results and reaffirmed their 2009 forecasts.
Note that Pfizer reported substantially lower revenues for several of its leading drugs, including the blockbusters Lipitor (-13% y/y) and Chantix (- 36% y/y). Time Warner's EPS was firmly ahead of the Street despite the overall weakness in the sector, noting that better results at its cable properties offset other losses.
Consumer-facing names Burger King and Reynolds American offered results in line with expectations, although BKC noted that worldwide sales rapidly decelerated in the month of March.
- Snowballing risk appetite and $101B in 2-, 5- and 7-year supply on offer this week combined to send treasury prices sharply lower, pushing the yield on the 10-year Note firmly above 3%.
With the fed funds rate set to remain at the zero bound for the foreseeable future the 2-year remains anchored between 0.90% and 0.95%, helping the 2-/10-year yield spread sail though 200 bps to trade above 220 bps at the week's close.
Some observers had expected the Fed to be more aggressive with its buybacks in response to the rising yields, but this proved unfounded as the FOMC merely affirmed its commitment to its prior $300B commitment.
- Wednesday's Quarterly refunding announcement revealed $71B in re-openings for next week, in line with market expectations.
However, the Treasury's plan to offer long bonds on a monthly basis did raise some eyebrows, and sent the yield on the long bond well above 4%, to levels not seen since November 2008.
- Corporate credit conditions continued to ease.
Three month USD-Libor improved by another 5bps over the week to fix just below 1.01% on Friday. Note that Harley Davidson sold $500M worth of loans as part of the TALF program and perhaps most significantly, Goldman Sachs sold $2B in 5-year notes, sans FDIC guarantee.
- Currency trading saw its share of rotational themes this week.
Over recent sessions a growing chorus of government and central bank officials have said the global economy is getting worse less quickly.
Early in the week USD and JPY benefited from risk aversion stemming from the swine flu hysteria, but by mid week confidence seemed to be spreading faster than the virus as 'less bad' US & European data and firmer equities helped spur risk appetite and soften up USD and JPY, with European and commodity-related currencies strengthening.
- EUR/USD saw a 400-pip range for the week.
It tested below the 1.30 handle on initial flu jitters before heading back above the pivotal 1.3070 level to test near 1.34 by week's end. Next week brings a pivotal ECB monetary policy meeting.
Dealers discussed rumors that there has been bickering within the ECB over which non-standard measures should be implemented to grapple with the crisis, and Trichet has reportedly imposed a vow of silence on Governing Council members ahead of the meeting.
- GBP/USD fell short of the 1.50 handle, where considerable GBP selling emerged earlier this month. USD/CAD bounced off support around its 200-day moving average of 1.1847 (last violated back in early June 2008).
Currently the pair is seen consolidating with resistance pegged at 1.1970/90 level. Weaker energy and metal price action did little to derail the recent positive momentum for the commodity-related currencies. USD/JPY retested its historical pivot point of 95 early in the week and then probed toward parity of 100 as the week progressed.
Sterling also firmed against the major pairs during the week aided by the best CBI distributive data out of the UK since January 2008.
- Spot gold pivoted around the $900/oz level all week, prompting bouts of long liquidation and managed to hold above its key support level of $860/oz level.
Additional chatter circulated that an imminent new Central Bank gold pact that might lead to changes to increase the amount of gold that can be sold. The central banks are currently in the fifth and final year of their current Central Bank Gold Agreement (CBGA).
- The week in Asia was highlighted by a rally in Taiwan, where the government opened the island's markets to Chinese investments for the first time in decades.
Investors sent Taiex index up 6%, the biggest gain for that market since 1991. In New Zealand, RBNZ lowered interest rates by 50bps as expected, to 2.50%, however NZD was punished by central bank's forecast of rates remaining at or below that level through 2010 amid ongoing regional economic malaise.
Notable damage inflicted against the Aussie, with AUD/NZD rising to its highest level since July of 2008. Japan took another step on the familiar path of deflation, with National CPI reported on Thursday declining in March for second consecutive time and by the widest margin since November of 2005.
Also, the Bank of Japan cut its GDP forecast for the economy to -3.1% from the prior -2.0% target, but kept rates and monthly JGB buying levels unchanged. That "wait and see" approach to quantitative easing may be reconsidered, particularly if the green shoots of recovery in Japan's industrial production seen this week are undermined by poor external demand going forward.
Week of 5/4/2009 thru 5/8/2009
Monday, May 04, 2009
10:00am March Pending Home Sales m/m (last 2.1%),
March Construction Spending m/m (last -0.9%)
Tuesday, May 05, 2009
10:00am April ISM Non-Manufacturing (last 40.8), TAF auction
4:30pm API Crude Oil/Gasoline/Distillate Inventories
1:00pm Treasury's 3-year note auction
10:00am Fed Chairman Bernanke testifies before Congress's Joint Economic Committee.
Wednesday, May 06, 2009
7:30am April Challenger Job Cuts y/y (last 180.7%)
8:15am April ADP Employment Change (last -742K)
10:00am TAF results
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
- US equity trading was mixed this morning after a notably lower session in the early going.
Things picked up more or less where they left off yesterday afternoon, continuing the post-Chrysler bankruptcy slide to the downside. More green shoots seen in data momentarily took things higher, with better-than-expected final University of Michigan Confidence and April ISM Manufacturing numbers. Traders are paying attention to the much improved new orders component of the ISM data. Note that the U of Michigan Confidence index registered its largest one-month increase since October 2006. Then mid morning CNBC announced that the Treasury had pushed the release of the stress tests back to May 7th, noting that the publicly available information will include capital needs for each bank and estimated losses for certain loan categories, which has helped the DJIA nearly recoup its losses for the day. Front-month NYMEX crude is pushing out to its highest level of the week, gaining a $1.50 to test over $52. Yesterday closed out a very strong month of trading, with the DJIA up 685 points (+9%) in April, the Nasdaq up 212 points (+14%) and the S&P500 up 79 points (+9.9%).
- Citigroup has finally chosen a buyer for its Japanese retail brokerage operation, Nikko Cordial Securities, ending its attempts to build a full-service operation in Japan.
Sumitomo Mitsui will buy the unit for ¥774.5B ($7.9B) and also tie up with Citi in a wholesale and investment banking alliance. The deal is expected to close at the beginning of October.
- Earnings from insurance giants MetLife and Hartford Financial fell short of expectations, with both names missing estimates on the bottom line as weaker markets cut into their businesses across the board.
Hartford has been much harder hit than Met, with the firm reporting its third consecutive quarterly loss and slashing its full-year forecast to a broad range that's just above breakeven at its lower end. The company is severely limiting its overseas activities, suspending writing new business in Japan and the UK, and putting on ice plans to launch sales in Germany. Note that MasterCard's earnings were better than expected, although on the conference call an executive did warn that the firm's 2009 revenue growth would fall short of its annual long-term growth target of 12%.
- Dow component and second-largest US oil company Chevron beat the Street this morning, with revenues well ahead of estimates.
Quarterly profit was down 64% y/y, making for an even steeper drop than Exxon's 58% y/y profit drop yesterday. Like the rest of the energy sector, the firms are dealing with what various OPEC officials refer to as the reality of $50 crude. Note that Reliant Energy is down more than 15% after completing the sale of its Texas retail business to NRG.
- In other earnings, consumer names Dean Foods, Fortune Brands and Chiquita offered strong quarterly earnings, with all three firms beating analysts' EPS expectations.
Full-year guidance at the three was firm and without surprises. Shares of DryShips are up 14% after the firm exceeded expectations and provided insight into their operations. Shares of Manitowoc have been hoisted up 20% on a very mixed earnings report, with the firm beating on an adjusted basis (and in the red thanks to hefty impairment charges).
- International data is aiding the climate of risk appetite:
China's April PMI Manufacturing came in at 53.5, compared to the prior reading of 52.4, for its highest level in a year and the second consecutive month of expansion. European PMI readings in Ireland, UK and Denmark also improved on prior readings. Note that the US PMI manufacturing continued this trend as well, with a 65.1 reading above the 61.9 estimate. But these hopeful figures are being balanced by chatter that the EU Commission will forecast a 6.0% deficit-to-GDP for EU bloc for 2009, with a forecast of 3.9% for Germany and 8.6% for Spain. The Maastricht Treaty binds most EU member states to maintain debt-to-GDP ratios of 3.0%. EUR/USD ending the NY morning at 1.3250 area and little changed from opening levels in Tokyo. USD/CAD is again testing its 200-day moving average at 1.1855, failing to sustain any momentum below that level. That specific moving avg has not been breached since late May 2008.
More Headlines
9:55:04 AM
*APRIL FINAL UNIVERSITY OF MICHIGAN CONFIDENCE:
65.1 V 61.9E
- 1 yr median inflation expectations at 2.8% v 2.0% Mar final
- 5 yr median inflation expectations at 2.8% v 2.6% Mar final
- Largest 1-month increase since Oct 2006 in Confidence number
10:00 AM
*MAR FACTORY ORDERS:
-0.9% V -0.6%E- Prior revised from 1.8% to 0.7%
10:00:03 AM
*APR ISM MANUFACTURING: 40.1 V 38.4E; PRICES PAID: 32 V 34.0E
**Sub Indices:
- Employment Index: 34.4 v 28.1 prior
- New Orders Index: 47.2 v 41.2 prior
- Inventories index: 33.6 v 32.2 prior
**ISM says April data was a ''Significant Improvement'' ; Q2 off to a good start
- Index at its highest level since Nov 2008
10:46:03 AM
*US REGULATORS TO REVEAL STRESS TEST RESULTS MAY 7;
to include capital needs for each bank and estimated losses for certain loan categories
- the results will also detail the banks' resources for absorbing losses. The report will give an overall view for the industry and some specifics for individual banks.
- CNBC reports release will be in the "late afternoon" on Thursday.
- Earlier reports suggested that Stress test results would be later next week; potentially May 6 (back from May 4 as initially reported)
- follow up: WSJ reports the stress tests are still expected to show that several banks will need more capital.
EUREX MARKETS CLOSED FOR MAY DAY HOLIDAY, WILL RE-OPEN ON MONDAY
10:00am AprilFinal U. of Michigan Confidence (last 61.9),
• April ISM manufacturing (last 36.3),
• April ISM Prices Paid (last 31),
• March Factory Orders (last 1.8%)
Todays Headlines
8:30:03 AM
*INITIAL JOBLESS CLAIMS: 631K V 640KE; CONTINUING CLAIMS: 6.271M V 6.200ME
- Prior jobless claims revised from 640K to 645K
- Prior Continuing Claims revised from 6.137M to 6.138M
***Highest continuing claims on record
8:37 AM
(US) White House: Chrysler will proceed with Chapter 11 filing
9:45:06 AM
*APRIL CHICAGO PURCHASING MANAGERS INDEX: 40.1 V 35.0E
**sub-indices:
- Prices Paid: 28.4 v 34.1 last
- New Orders: 42.1 v 30.9 last
- Employment: 31.8 v 28.1 last
- Inventories: 30.6 v 34.9 last
- Supplier Deliveries: 45.4 v 48.4 last
- Production: 38.1 v 32.7 last
- Order Backlogs: 36.9 v 21.3 last
12:00:21 PM
(US) Obama Administration: Chrysler to file for bankruptcy in New York, Fiat to take 20% stake in reorganized company
- GMAC to provide the financing for new Chrysler car loans.
- US Treasury to have 8% equity stake in new Chrysler; Govt of Canada and Ontario to have 2% stake. VEBA to own 55% stake. Fiat can take an added 15% in 3 increments of 5% if it meets certain criteria.
- White House confirms sees a 'surgical' bankruptcy to last approx 30-60 days.
- Chrysler network of US dealers to be reduced as part of bankruptcy.
- US govt will help select the new board.
- US to provide $3-3.5B in bankruptcy support, provide another $4B after restructuring and bankruptcy is complete.
2:21 PM
(US) White House Press Sec Gibbs:
There are no plans at the moment for another economic stimulus package
2:35 PM
Senate budget committee chairman:
Geithner tells Senate that no added bailout funds will be requested any time in the near future
3:04 PM
US Senate rejects cram down amendment to home mortgage legislation;
amendment would have allowed judges to cut mortgage payments- 40 votes were opposed; vote ongoing
Please read our disclaimer:
Trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the markets. The videos are neither a solicitation nor an offer to Buy/Sell futures or options. The past performance of any trading system or methodology is not necessarily indicative of future results.
Rule 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Learn to trade futures forex stocks.
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