10:00am June ISM Manufacturing (last 42.8),
June ISM Prices Paid (last 43.5),
May Construction Spending m/m (last 0.8%),
May Pending Home Sales (last m/m 6.7%, y/y 3.3%)
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.
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.
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.
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.
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.
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.
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.
"We all live under the same sky, but don’t all have the same horizon."
Market Week Wrap-up
- Trading was lackluster and choppy as the DJIA lost ground on the week for the first time in a month and commentators speculate whether the rally was growing long in the tooth.
Recall that the DJIA returned to positive territory YTD for the first time since early January just last week. Green shoots were observed in positive German ZEW sentiment and the Philly Fed business outlook readings, but they didn't prove to move markets higher. Instead the spotlight was on hefty new government programs to address health care and overhaul financial market regulations. And although bullish commentators have not vanished from the scene, pessimistic voices seemed stronger than ever. Goldman Sachs Chief Economist said he still sees the potential for a market correction over next several weeks, and PIMCO's El-Erian insisted it is wrong to assume return of "business as usual" despite the recent stability. On the bright side, reports emerged this week that GM is likely to emerge from bankruptcy a month ahead of schedule, by mid July. For the week, the S&P 500 fell 2.6%, the DJIA dropped 3% and the Nasdaq Composite slipped 1.7%.
- Monday's disappointing June Empire Manufacturing index (-9.41 v -4.60e) spooked investors, as the survey of manufacturing conditions in the North East indicated much steeper declines than expected instead of another sign of improvement.
The Philadelphia Fed Index on Thursday provided a stark contrast to the earlier data, with its survey of business conditions dramatically better than expected (-2.2 V -17.0e). The May housing starts and buildings permits data came in slightly above estimates, rising at the fastest rate in three months. On Wednesday the May Consumer Price Index was barely positive on a m/m basis, while the y/y figure showed the biggest annual drop in the series since 1950. The data provides evidence that the recession is keeping inflation in check and could raise concerns about deflation, depending on one's point of view. Initial jobless claims remained above the 600K level for the 20th week in a row, while the continuing claims fell on a w/w basis for the first time in six months. Some commentators observed that the improvement in the latter might have had more to do with benefits running out for long-term unemployed than any uptick in hiring, however.
- The Obama Administration rolled out a major overhaul of the US financial regulatory system this week.
Treasury Secretary Geithner and White House advisor Larry Summers primed the pump on Monday, releasing some details of the proposal in a Washington Post editorial piece. Then on Wednesday, President Obama officially announced the new program in a policy speech, noting that his proposals aim for "careful balance" and that scrapping the old regulatory system would be a "mistake." The salient points of the plan foresee the regulation of all derivatives contracts, requiring originators to retain interests in asset-backed securities ("skin in the game"). Systemically important firms will face "stringent" supervision by the Federal Reserve and a new Council of Regulators with broad responsibility for policing the entire financial system for risky products. A new consumer financial protection agency would be created to set rules for mortgage lending, hedge funds will be required to register with the SEC and the Office of Thrift Supervision would be dismantled under the plan. Congress will begin digesting the plan in July, although key player Rep. Barney Frank said that he does not expect Congress to finish its work on the legislation before the end of 2009. Note that across the pond, EU leaders agreed to establish new pan-European financial watchdogs, with some limited authority over UK affairs.
- TARP repayments, master trust data and multiple S&P ratings downgrades, not to mention the potential for more regulation, have kept pressure on financial names this week.
The ten financial institutions that won approval to repay TARP last week moved to return the funds to the Treasury on Wednesday. Monthly master trust data from the major credit card issuers showed a broad trend toward higher charge offs but lower overall delinquency rates, although it is worth noting that delinquency rates have moved lower in part due to recent accounting rule changes. S&P downgraded ratings and outlook on 22 US banking names on Wednesday, noting that operating conditions for the industry are becoming less favorable, characterized by greater volatility in financial markets during credit cycles and tighter regulatory supervision. The downgrades encompassed numerous super-regional banks, including such institutions as Wells Fargo, Fifth Third, BB&T, KeyCorp, and Capital One.
- Earnings from FedEx and monthly order data from Caterpillar provided ammunition for economic recovery skeptics.
While FedEx's earnings soundly beat expectations, its guidance for next quarter was substantially below analysts' forecasts, as the recent run-up in fuel prices would have a significant negative impact (several airlines echoed concerns about rising fuel costs this week, including US Airways and Lufthansa). Caterpillar's three-month retail sales in North America fell 57%, compared with declines of 51% and 41% in April and March, respectively.
- Potash names had their growth potential questioned, after German fertilizer manufacturer K+S slashed its 2009 sales forecast to 4-4.5M tons from 6M due to weak demand.
The company said there were no signs of recovery in European demand, putting pressure on prices. UBS shined some light on the solar industry in a sector report, raising its 2010 global demand estimates thanks to the emerging recovery in China and the US, but also lowering its solar module price estimates to near marginal cost.
- US Treasury prices started off on a firmer footing after a wild few weeks in bond trading, featuring a surge in yields to 8-month highs.
With the G8 and BRIC meetings thoroughly telegraphed to markets and offering little in the way of surprises, as well as no coupon supply scheduled for auction, US yields moved lower for much of the week. Note also that S&P said the US government's AAA rating was unlikely to change anytime soon. December fed fund futures have seen the odds of a rate hike by year's end move back below 50% for the first time since the release of May non-farm payrolls.
- The stronger than expected Philly Fed reading as well as the first week-over-week decrease in continuing jobless claims since January set a floor in rates on Thursday, when afternoon trade saw prices come under further pressure from mortgage-related selling and the US Treasury's announcement of $104B in supply.
This amount surprised some observers, given the increase in the size of the 5- and 7-year note auctions. Bond prices opened lower on Friday but quickly reversed course, buoyed by some risk aversion flows after Moody's placed California's A2 rating on watch for a possible downgrade. Bids came into the long end of the curve and the benchmark yield stabilized just above 3.75% while the long bond is gravitating towards 3.5% as the week came to a close. Outside of the coupon supply traders are also looking ahead to the FOMC rate announcement and Fed Chairman Bernanke's testimony before Congress regarding the BofA/Merrill deal. Both are expected in the middle of next week.
- In currencies, the price action was choppy but muted as EUR/USD bounced around in a narrow 250-pip range.
Persistent reserve currency comments aimed at the dollar made USD forex trading a game of "headline roulette" as government officials continued to express their opinions on the topic. There were plenty of cautious comments on economic conditions from officials and central bankers throughout the week, but their impact paled in comparison to the EU Summit draft statement on Friday stating the Euro Zone economy was on course for a "sustainable recovery" and reports that the IMF would raise its 2010 global growth forecast to +2.4% from +1.7% prior.
- The reserve currency issue remained in headlines all week. Early on a Kremlin aide noted that Brazil, Russia, India and China would not discuss reserve currencies at the inaugural BRIC summit on Tuesday.
But the vocal Russian dollar reserve skeptics evidently couldn't contain themselves, and in the end the BRIC nations issued a vaguely worded communiqué which called for a "diversified, stable, predictable currency system." IMF Chief Strauss-Kahn insisted that dollar was not weak and that the market has correctly valued the dollar. The IMF's Lipsky said the dollar would remain the central global reserve currency for a long time. The ECB's Constancio warned there were problems with the USD's international role and acknowledged the recent discussions between China and Russia about developing a new reserve currency. Actions speak louder than words, and the April US TIC data demonstrated falling global demand for US financial assets, with China, Japan, Brazil and Russia seen trimming their treasury holdings.
- Economic data around the world continues to paint a mixed picture of the global economy. In Germany, the ZEW Economic
Sentiment survey registered its highest reading since May 2006 while the DIHK Business Survey cuts its forecast for 2009 German GDP to -6.0% from -3.0%. In the US, the initial jobless claims remained above the 600K level, while continuing claims declined for the first time in months (and made the largest weekly decline since Nov 2001), although some commentators believe the improvement had more to do with benefits running out for long-term unemployed rather than any uptick in hiring. The World Bank raised China's 2009 GDP forecast to 7.2% from 6.5%, although former PBoC adviser Li Yang said he expects the global economy needs at least five years to fully recover from the recession. In addition, China's Minmetals said Chinese commodities demand will be flat for the next one or two years.
- In Europe the Maastrict Stability Pact issue is simmering as the recession adversely impacts the finances of member states.
The French budget minister said his country's 2009 deficit-to-GDP ratio could hit 6%, which is well above the 3% level permitted by the pact. The German Finance Minister said his country's deficit could exceed the EU limit of 3% of GDP through 2012. The 2010 Netherlands budget deficit is forecasted at 6.7%. ECB's Gonzales-Paramo insisted that the current Maastrict Stability Pact has the flexibility it needs to work and that its rules should not be changed.
Week of 6/22/2009 thru 6/26/2009
Monday, June 22, 2009
None Seen
Tuesday, June 23, 2009
10:00am April House Price Index m/m (last -1.1%),
May Existing Home Sales (last 4.68M, m/m 2.9%),
June Richmond Fed Manufacturing Index (last -9)
1:00pm Treasury's 2-yr note auction
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Wednesday, June 24, 2009
8:30am May Durable Goods Orders (last 1.9%, ex-transport 0.8%)
10:00am May New Home Sales (last 352K, m/m 0.3%)
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
1:00pm Treasury's 5-yr note auction
2:15pm FOMC rate decision
Thursday, June 25, 2009
8:30am Final Q1 Annualized GDP q/q (last -5.7%),
Q1 GDP Price Index (last 2.8%),
Q1 Personal Consumption (last 1.5%),
Q1 Core PCE q/q (last 1.5%),
Initial Jobless Claims (last 608K),
Continuing Claims (last 6.687M)
10:00am Fed Chairman Bernanke testifies before Congress on BoA/Merrill Lynch deal
10:30am Natural Gas Inventories
1:00pm Treasury's 7-yr note auction
Friday, June 26, 2009
8:30am May Personal Income (last 0.5%),
May Personal Spending (last -0.1%),
May PCE Deflator y/y (last 0.4%),
May PCE Core (last m/m 0.3%, y/y 1.9%)
9:55am June Final U. of Michigan Confidence (last 69)
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 Automobile Sector raised to Attractive from Neutral at Goldman
- Firm discloses automobile sector still in middle phase of cyclical rebound
- States: We think the rising tide of auto sales is likely to drive shares much higher supported by lower auto interest rates at captive fincos, improving consumer confidence, and a scrappage plan which is likely to come into effect in September.
- States: We think we are still in the middle phase of a cyclical rally and would use any weakness to build positions and are moving our coverage view to Attractive from Neutral.
- ARM raised to buy from neutral
- BWA cut to neutral from buy
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 608K V 604KE
- CONTINUING CLAIMS: 6.687M V 6.840ME (first drop in Continuing Claims of 2009)
- Prior Jobless Claims revised from 601K to 605K
- Prior Continuing Claims revised from 6.816M to 6.835M
10:00:34 AM
*MAY LEADING INDICATORS:
-1.2% V 1.0%E
- Prior revised from 1.0% to 1.1%
10:30:26 AM
*EIA NATURAL GAS INVENTORIES:
+114 BCF VS. +100 TO +110 BCF ESTIMATE RANGE
11:00:19 AM
US Treasury to sell $40B in 2 year, $37B in 5 year, $27B in 7 year notes
- 5-year is $2B larger than the prior, 7-year is $1B larger than the prior
2:13:52 PM
Euro vs US Dollar
- Hearing USD strength attributed to a report that the British Bankers Assoc (BBA) fixing panel plans to broaden number of banks contributing to LIBOR; annoucement expected to come tomorrow
- banks with a physical presence in London will be allowed to apply for membership to a panel that contributes to the LIBOR fixing.
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 are generally making the first real advances of the week as the blowout Philly Fed data prompts investors to buy stocks.
The tech heavy NASDAQ is the notable laggard in front of tomorrow's quadruple witching and this afternoon's earnings results from RIMM. The initial jobless claims remain above the 600K level, while the continuing claims have fallen on a w/w basis for the first time in months. Some commentators believe the improvement had more to do with benefits running out for long-term unemployed rather than any uptick in hiring, however. The Philadelphia Fed provided a stark contrast to Monday's disappointing June Empire Manufacturing data, with its survey of business conditions dramatically better than expected (-2.2 V -17.0e), for the best reading since last September. Front-month crude is back above $71 in early trading.
- The brighter picture on the data front and the Treasury announcement that they would be auctioning off $104B in new coupon supply next week has brought sellers back into the bond market.
The benchmark 10-year has popped back above a 4.75% yield with the long bond rate nearing 4.6% once again.
- Financial stocks are bouncing back a bit after three days of declines now that the broad outlines of the new financial regulation proposals have been made clear.
However, commentators are showing some doubts about Citigroup, which many assume will not benefit from the new regulatory regime. GE Capital is also likely to face more regulation under the new system. The WSJ points out that GE's finance arm does not currently fall under the purview of a bank regulator, while under the new regulations GE Capital would likely be classified as a systemically important firm because of its size and be forced to operate under stricter regulatory oversight. Shares of GE fell as much as 5% in early trading, before heading back toward positive territory.
- Major industrial names Caterpillar and Emerson Electric disclosed order data that hardly indicates any recovery is under way for these two companies.
Cat's three-month retail sales in North America fell 57%, compared with declines of 51% and 41% in April and March, respectively. Retail sales for the rest of the world fell 35% over the period, also at a faster pace than in the prior two months. Emerson said order trends improved sequentially in May from the month before, but continued to show weakness across its global markets. Emerson's three-month order rate was down 25% in May, compared with declines of 25-30% in March and April.
- In earnings, J.M. Smucker crushed analyst estimates in its Q4 report and also guided full-year earnings above expectations.
The company also managed impressive y/y margin and US retail growth. Carnival Cruise Lines came in ahead of expectations in its Q2, despite higher fuel prices and disruptions from H1N1. The firm guided slightly below par for next quarter, and cut its full-year forecast slightly. Discover Financial reported a profitable Q2 thanks to a big payout from its lawsuit victory against Visa and MasterCard. Before this special item, TTN analysis suggests that the firm lost $0.15 per share in the quarter, compared to analysts estimates for a $0.30/shr loss.
- In currencies, rising risk appetite helped EUR/USD and EUR/CHF move higher following the US weekly claims data, which saw the first w/w drop in continuing claims since Jan 2nd and the largest weekly decline since Nov 2001.
Overall, risk appetite improved as participants took the data at face value. The better Philly Fed and leading indicators also cemented the view that the worst of the economic crisis has past. EUR/USD tested the alleged "Chinese" 1.4000 option barrier but encountered some stiff selling nonetheless.
- The sharp move in Swiss Franc-related pairs prompted renewed chatter of currency intervention, with the Bank of International Settlements cited as the intermediary.
Dealers are noting it remains unclear whether 1.50 is the clear "line in the snow" for SNB intervention. The market has significant long EUR/CHF positions, and the cross was testing the 1.5000 in early New York trading where plenty of option barriers seemed vulnerable. SNB's Jordan commented that the SNB had no fixed FX threshold. Nonetheless, the cross soared to 1.5140 on rumors of intervention, with the BIS, the SNB and the ECB all having "no comment" on whether actual intervention had occurred. Dealers are now focusing on the key resistance level of 1.5230, which corresponds to the downtrend line from the 1.6330 highs made in late July 2008.
- Oil and metals encountered a choppy session and the price movement was reflected in the AUD and CAD pairs that mirrored the commodity price action.
USD/CAD tested the 1.1360 area before moving back to 1.1250. The pair was also aided by the higher-than-expected Canadian CPI data. AUD/USD is back above the 0.80 handle as rising risk appetite put oil back in positive territory.
More Headlines
7:27:06 AM
US Automobile Sector raised to Attractive from Neutral at Goldman
- Firm discloses automobile sector still in middle phase of cyclical rebound
- States: We think the rising tide of auto sales is likely to drive shares much higher supported by lower auto interest rates at captive fincos, improving consumer confidence, and a scrappage plan which is likely to come into effect in September.
- States: We think we are still in the middle phase of a cyclical rally and would use any weakness to build positions and are moving our coverage view to Attractive from Neutral.
- ARM raised to buy from neutral
- BWA cut to neutral from buy
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 608K V 604KE
- CONTINUING CLAIMS: 6.687M V 6.840ME (first drop in Continuing Claims of 2009)
- Prior Jobless Claims revised from 601K to 605K
- Prior Continuing Claims revised from 6.816M to 6.835M
10:00:34 AM
*MAY LEADING INDICATORS:
-1.2% V 1.0%E
- Prior revised from 1.0% to 1.1%
10:30:26 AM
*EIA NATURAL GAS INVENTORIES:
+114 BCF VS. +100 TO +110 BCF ESTIMATE RANGE
11:00:19 AM
US Treasury to sell $40B in 2 year, $37B in 5 year, $27B in 7 year notes
- 5-year is $2B larger than the prior, 7-year is $1B larger than the prior
8:30am Initial Jobless Claims (last 601K), Continuing Claims (last 6.816M)
10:00am May Leading Indicators (last 1.0%), June Philadelphia Fed (last -22.6)
10:30am Natural Gas Inventories
11:00am Treasury's note announcement
Todays Headlines
8:30:01 AM
*MAY CONSUMER PRICE INDEX M/M: 0.1% V 0.3%E
-CPI EX FOOD&ENERGY M/M: 0.1% V 0.1%E
- CPI NSA: 213.85 V 214.445
- CPI Y/Y: -1.3% v -0.9%e ; Largest annual decline since 1950
- Core CPI Y/Y: 1.8% v 1.8%e
10:23:08 AM
Update: Raymond James maintains bullish long-term outlook on the global oil market
- Firm believes exposure to refining can sometimes provide a useful source of diversification for investors, but their near-term outlook for the industry is fundamentally cautious.
- Firm discloses: On the heels of a three-year "golden age" for refining margins beginning in 2005, the global economic crisis triggered a sharp decline in petroleum product demand in 4Q08 and 1H09, weighing on global crack spreads.
-While the eventual global economic recovery would certainly set the stage for a tighter refining supply/demand balance, and hence some margin improvement, the backlog of capacity expansion set to come online over the next several years creates the prospect of industry overcapacity through at least 2012.
Barring a dramatic rebound in petroleum demand, there are minimal catalysts for this overcapacity to disappear anytime soon.
10:30:54 AM
-DOE CRUDE: -3.87M V -1.8ME
-GASOLINE: +3.38M V +750KE
-DISTILLATE: +308K V +1ME
-CAPACITY UTILIZATION: 85.9% V 86.1%E
- Distillate demand -188K bpd to 3.38M bpd
-Gasoline demand +213K bpd to 9.35M bpd
11:23:40 AM
(US) President Obama: Planning to take "decisive action" to fix damage to economy; regulatory reform proposals aim for "careful balance"
- Believes that scrapping of old regulatory system would be a "mistake."; will dismantle the Office of Thrift Supervision(OTS); there will be one Federal banking charter regulated by strengthened supervisor
- Rules will require hedge fund registration with the SEC
- Expects the new system will require larger firms to meet higher capital and liquidity levels.
- Believes market reforms will promote innovation.
- Proposed oversight council will also identify gaps in regulation.
- Consumer financial protection agency will have the power to set rules for mortgage lending.
12:00:47 PM
(EU) ECB's Quaden: More national and international structures are needed to fix fundamental flaws in the financial system; exit strategies need to be closely coordinated
- Need a better balance between regulation and market discipline, it was "delusional" to focus regulation on banks only.
- Complete review of compensation levels for banks and traders is needed.
- Central banks need to do "macro-prudential" analysis
3:00:15 PM
(UK) BOE's King: UK banks may need more capital for recovery; financial markets have improved 'markedly'
- Seeing tentative signs asset purchase program have had effect; decline in GBP may encourage switch to purchase UK Goods
- comments that banks in the UK should not be too big too fail; banks should not combine investment and retail banking operations
- Notes that it is unclear whether the BoE has the tools to ensure financial stability
- Sees signs that bond buying has increased the broad money
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 markets are having trouble finding any real momentum one way or another this morning.
European bourses remain heavy while stock prices both here and abroad have been held back by cautious comments from FedEx, a broad slate of bank ratings downgrades from S&P and a CPI reading suggesting an economic recovery is minimal at best. The May Consumer Price Index was barely positive on a m/m basis, while the y/y figure showed the biggest annual drop in the series since 1950. The data provides evidence that the recession is keeping inflation in check or that deflation is around the corner, depending on one's point of view. Front-month NYMEX crude is down again this morning, with the contract under $70 led by a decline in gasoline prices and on the back of increasing supplies.
- The CPI data has enabled bond bulls to remain in charge.
Another coupon purchase from the Fed and no new supply coming to market this week has kept yields retreating. The 10-year is backed off some 40 basis points from last week's run towards 4% while the long bond is moving away from the 4.5% level. Fed fund futures continue to rebound from the selling experienced post the jobs report and now price in roughly a 40% the Fed hikes rates by the end of the year.
- The White House is expected to officially present its plan for a total overhaul of the US financial regulatory structure later today, although the broad contours of the plan have been discussed by various officials over recent days.
Last night a senior Obama Administration official confirmed earlier reports that the plan would require firms that create various asset-backed securities to retain a 5% stake in their securitizations and would address money market mutual funds. This morning, White House Advisor Goolsbee told CNBC that the Fed would be tapped as a "day-to-day" supervisor of financial institutions. Note also that yesterday afternoon Senator Reed introduced a bill to regulate hedge funds, with legislation that would require hedge funds, private equity funds and venture capital funds to register with SEC.
- Financial names have been loosing ground since the open after S&P downgraded ratings and outlook on 22 US banks.
S&P said that it believes operating conditions for the banking industry will become less favorable than they have been in the past, characterized by greater volatility in financial markets during credit cycles and tighter regulatory supervision. It also warned that the loss content of loan portfolios should increase, but recent capital rebuilding will likely help banks defray these losses. Most of the downgrades were for regional banks, although Wells Fargo was a notable national bank that was downgraded as well. Shares of WFC are down 5%. Regionals are getting hit across the board, with ZION and FITB leading the charge, both down around 8%. USB is a an exception, with its repayment of $6.6N in TARP funding buoying its shares. Shares of all the leading banks are in the red, with Citi and BoA down more than 5% in early trading.
- In earnings, FedEx's earnings soundly beat expectations, although revenue was well below par.
The firm's guidance for next quarter was notably below analysts' forecasts; FedEx's CFO noted that the recent run-up in fuel prices would have a significant negative impact on its results next quarter. A lack of visibility on fuel prices kept FedEx from offering full-year guidance. On the conference call, the CEO said that if oil stays where it is, FedEx should recoup fiscal Q1 losses related to fuel charges in fiscal Q3 & Q4. Adobe reported in line with expectations, and offered very broad guidance ranges for next quarter. Executives said the firm's North American market has continued to stabilize, while Europe has remained weak. Scotts Miracle Gro fertilized its outlook for the full year, strengthening its earnings forecast on double-digit y/y sales increases year to date. Silicon Labs has joined other semiconductor names in raising guidance thanks to stronger consumer demand.
- Potash names are getting slammed this morning after German fertilizer manufacturer K+S slashed its 2009 sales forecast to 4-4.5M tons from 6M prior due to weak demand.
The company said there were no signs of recovery in European demand, and that declining demand was putting pressure on prices. Shares of MOS, POT and AGU are down around 8% on the news mid morning, while the Frankfurt-listed shares of K+S [SDF.GE] are down a whopping 16%. Solar names are weak after Canadian Solar said it would ramp up module production to 800MW this year from its prior forecast of 620MW. CSIQ is down 8%, while solar sector ETF TAN is down 4%. Also note that Star Scientific lost a major case in its ongoing attempts to enforce patents against Reynolds American, sending shares of STSI down 80%. Star has vowed to keep fighting in this case.
- In currencies, the greenback maintained a softer tone against the euro during the New York session but continued to consolidate within a 1.3800-1.3930 range, with price action capped by sovereign names.
Overall the dollar's tone weighed down by the largest annual CPI drop since 1950, cautious quarterly guidance by FedEx and the banking jitters from S&P's big move. The soft US CPI number fuelled expectations that the Fed would keep interest rates low. Risk aversion is helping the JPY firm up against most of its major pairs, with USD/JPY probing below the 96 area and GBP/JPY dipping below the 156 handle. China's Premier Wen Jiabao commented earlier that the potential economic recovery was at a critical juncture and this weiged upon equity prices and commodities. The CAD and AUD saw the bulk of their European gains erode on the back of softer oil and metal prices. NYMEX crude back below the $70/barrel while spot gold hugging the lower end of the $930/oz level. USD/CAD tested the 1.14 level for fresh 3-week highs. AUD/USD unable to retake the 0.80 level.
More Headlines
8:30:01 AM
*MAY CONSUMER PRICE INDEX M/M: 0.1% V 0.3%E
-CPI EX FOOD&ENERGY M/M: 0.1% V 0.1%E
- CPI NSA: 213.85 V 214.445
- CPI Y/Y: -1.3% v -0.9%e ; Largest annual decline since 1950
- Core CPI Y/Y: 1.8% v 1.8%e
10:23:08 AM
Update: Raymond James maintains bullish long-term outlook on the global oil market
- Firm believes exposure to refining can sometimes provide a useful source of diversification for investors, but their near-term outlook for the industry is fundamentally cautious.
- Firm discloses: On the heels of a three-year "golden age" for refining margins beginning in 2005, the global economic crisis triggered a sharp decline in petroleum product demand in 4Q08 and 1H09, weighing on global crack spreads.
-While the eventual global economic recovery would certainly set the stage for a tighter refining supply/demand balance, and hence some margin improvement, the backlog of capacity expansion set to come online over the next several years creates the prospect of industry overcapacity through at least 2012.
Barring a dramatic rebound in petroleum demand, there are minimal catalysts for this overcapacity to disappear anytime soon.
10:30:54 AM
-DOE CRUDE: -3.87M V -1.8ME
-GASOLINE: +3.38M V +750KE
-DISTILLATE: +308K V +1ME
-CAPACITY UTILIZATION: 85.9% V 86.1%E
- Distillate demand -188K bpd to 3.38M bpd
-Gasoline demand +213K bpd to 9.35M bpd
11:23:40 AM
(US) President Obama: Planning to take "decisive action" to fix damage to economy; regulatory reform proposals aim for "careful balance"
- Believes that scrapping of old regulatory system would be a "mistake."; will dismantle the Office of Thrift Supervision(OTS); there will be one Federal banking charter regulated by strengthened supervisor
- Rules will require hedge fund registration with the SEC
- Expects the new system will require larger firms to meet higher capital and liquidity levels.
- Believes market reforms will promote innovation.
- Proposed oversight council will also identify gaps in regulation.
- Consumer financial protection agency will have the power to set rules for mortgage lending.
12:00:47 PM
(EU) ECB's Quaden: More national and international structures are needed to fix fundamental flaws in the financial system; exit strategies need to be closely coordinated
- Need a better balance between regulation and market discipline, it was "delusional" to focus regulation on banks only.
- Complete review of compensation levels for banks and traders is needed.
- Central banks need to do "macro-prudential" analysis
8:30am May CPI (last m/m 0.0%, y/y -0.7%; ex food & energy last m/m 0.3%, y/y 1.9%), May CPI Core Index SA (last 218.594)
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
8:30:01 AM
*MAY PRODUCER PRICE INDEX M/M: 0.2% V 0.6%E; PPI EX FOOD&ENERGY: -0.1% V 0.1%E
- PPI YoY: -5.0% v -4.4%e (largest annual decline since 1949)
- PPI Ex Food & Energy YoY: 3.0% v 3.2%e
8:30:04 AM
*MAY HOUSING STARTS: 532K V 485KE; BUILDING PERMITS: 518K V 508KE
- Prior Housing Starts revised from 458K to 454K.
- No further revision to Building Permits from 498K (first revision)
9:15:02 AM
*MAY INDUSTRIAL PRODUCTION: -1.1% V -1.0%E; CAPACITY UTILIZATION: 68.3% V 68.4%E
- Prior Industrial Production revised from -0.5% to -0.7%
- Prior Capacity Utilization revised from 69.1% to 69.0%
- Note: Capacity Utilization has hit new record lows in each of the last four months.
9:41:29 AM
American Bankers Assoc (ABA): Unemployment in US to peak at 10% and will stay above 9.5% throughout 2010
-Expect recession to end in Q3 2009; Forecasts US GDP over 3% by 2H 2010.
- See US Treasury 10 year note to stay in 3.75% to 4.25% level through 2010.
- Expects a rise home starts in 2009 and forecast home prices rising in 2010.
11:05:06 AM
NY Fed: Purchased $6.45B in $300B outright coupons purchase; Dealers submitted $31.3B for consideration
- Heaviest purchase was $5.95B for the 06/15/12 maturity
- Note: avg bid to cover for prior four auctions is 3.26
1:15:37 PM
Fed's Warsh: Unemployment will remain higher than previous economic downturns; must not pursue regulation that goes too far
- Sees consumer spending low for several quarters; calls recent asset price increases a one time 'bounce'
- notes that there remains weakness in private final demand which is the key for the economy
- Calls for a 'credible' return to sustainable budgets
2:03:25 PM
Congressional Budget Office (CBO) revises fiscal 2010 deficit forecast to $1.43T based on the Obama Administration's budget plan
- Reminder on 3/20 the CBO revised 2009 budget to $1.8T v $1.18T prior, 2010 budget deficit up to $1.4T v $703B prior; and on 5/11 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
3:36:16 PM
(US) Senator Reed (D): Introduces bill to regulate hedge funds; legislation would require hedge fund advisors, private equity funds and venture capital funds to register with SEC
- Note that on 6/11 White House Advisor Volcker said there is no need to supervise hedge & private equity funds as closely as banks. Very big funds might need capital and leverage requirements.
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 are moving sideways this morning as another round of grim industrial production data clouds out any sunshine from the mildly positive housing data.
The May housing starts and buildings permits data came in slightly above estimates, rising by the biggest amount in three months. However, the May industrial production and capacity utilization data provided herbicide for green housing shoots, with both readings still in negative territory. The industrial production data showed its seventh straight month of contraction, while capacity utilization marked its fourth consecutive record low. Bearish comments from various quarters are also weighing on sentiment: Goldman Sachs Chief Economist said he still sees the potential for a market correction over next several weeks, while the American Bankers Association forecasted US unemployment peaking at 10% and above 9.5% throughout 2010. Note also that Morgan Stanley expects to repay its TARP funds sometime today. NYMEX crude has recouped its losses from yesterday on the weaker USD, with the front-month contract back over $72 mid morning.
- US Treasury prices opened to the downside after it was reported Russian President Medvedev would raise the reserve currency issue at today's BRIC meeting.
But the official outline of the communiqué failed to really spook investors and another coupon purchase from the NY Fed sent prices into positive territory and yields lower. The 10-year is yield has returned towards 3.7% while the long bond offers 4.53%.
- In earnings, shares of Best Buy are down 5% after the company came in more or less even with analysts' estimates and reaffirmed its 2010 forecast.
Smithfield Foods' loss was slightly less than expected, while its revenue was well below estimates. The company believes the A(H1N1) virus only had a short-term effect on US pork demand. As consumers received more accurate information about the virus, Smithfield saw domestic market conditions begin to move back to more normal levels.
International markets still face some restrictions, however. La-Z-Boy was in the black in its Q4 crushing estimates for an $0.11 loss. Shares of LZB are up 15% but off their best levels.
- In other equity news, Genzyme temporarily shut down drug production at its Allston Plant after it detected a virus that impairs cell growth in one of six bioreactors at the facility.
The company expects the plant to be fully operational by the end of July. Shares of GENZ fell 7% before the open and have recovered somewhat in early trading. Steelmaker Nucor essentially reiterated their earlier qualitative guidance for Q2 with hard numbers before the open. The company said its loss in the quarter would be smaller than expected, sending its shares up 4%. According to Nucor's CEO, order entry has improved in recent weeks, although the economic outlook remains very uncertain in light of the continuing structural economic challenges. Shares of Tyco are up 8% after the firm guided substantially higher than the Street for its Q3, citing additional revenue in consumer markets and undersea telecom segments.
- In currencies, the greenback was softer headed into the New York session on price movement ahead of the BRIC summit in Russia and better German ZEW data.
EUR/USD tested the 1.3930 level before meeting solid selling from sovereign names in Asia. Dealer chatter of euro buy-stop orders above the 1.3950 level are safe for the time being. The BRIC draft communiqué came out just before the equity open, calling for a "diversified, stable, predictable currency system," with no mention of the role of the dollar or any supra-national currency. The statement indicates there are conflicting views among Russian and other BRIC finance officials, given that the reserve currency issue was brought up in a general sense but without any specific mention the dollar's role.
- JPY price action has been choppy as dealers continue to debate the situation at Japan's public pension fund, the worlds largest.
There was news the fund might sell JGBs to cover payments; dealers were noting that this could mark the beginning of the end for Japan as a capital exporter. In addition, Japanese tax laws could encourage repatriations of funds back home. These raise question about whether you can expect the JPY to be in demand for the foreseeable future. The steady dollar during the mid-NY morning helped the energy and metals consolidate their earlier gains. The CAD and AUD currencies were paring their gains as a result.
More Headlines
8:30:01 AM
*MAY PRODUCER PRICE INDEX M/M: 0.2% V 0.6%E; PPI EX FOOD&ENERGY: -0.1% V 0.1%E
- PPI YoY: -5.0% v -4.4%e (largest annual decline since 1949)
- PPI Ex Food & Energy YoY: 3.0% v 3.2%e
8:30:04 AM
*MAY HOUSING STARTS: 532K V 485KE; BUILDING PERMITS: 518K V 508KE
- Prior Housing Starts revised from 458K to 454K.
- No further revision to Building Permits from 498K (first revision)
9:15:02 AM
*MAY INDUSTRIAL PRODUCTION: -1.1% V -1.0%E; CAPACITY UTILIZATION: 68.3% V 68.4%E
- Prior Industrial Production revised from -0.5% to -0.7%
- Prior Capacity Utilization revised from 69.1% to 69.0%
- Note: Capacity Utilization has hit new record lows in each of the last four months.
9:41:29 AM
American Bankers Assoc (ABA): Unemployment in US to peak at 10% and will stay above 9.5% throughout 2010
-Expect recession to end in Q3 2009; Forecasts US GDP over 3% by 2H 2010.
- See US Treasury 10 year note to stay in 3.75% to 4.25% level through 2010.
- Expects a rise home starts in 2009 and forecast home prices rising in 2010.
11:05:06 AM
NY Fed: Purchased $6.45B in $300B outright coupons purchase; Dealers submitted $31.3B for consideration
- Heaviest purchase was $5.95B for the 06/15/12 maturity
- Note: avg bid to cover for prior four auctions is 3.26
8:30am May PPI (last m/m 0.3%, y/y -3.7%, ex food & energy last m/m 0.1%, y/y 3.4%), May Housing Starts (last 485K), May Building Permits
9:15am May Industrial Production (last -0.5%), May Capacity Utilization (last 69.1%)
10:00am TAF results
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
8:30:11 AM
*JUNE EMPIRE MANUFACTURING: -9.41 V -4.60E
- Components
- Prices Paid: -5.75 v -11.36 prior
- New Orders: -8.15 v -9.01 prior
- Employment: -21.84 v -23.86 prior
8:45:25 AM
(US) Fed's Tarullo: smaller banks should be more aware of risk management, systemic risk increasingly important for regulators
- Crisis revealed major flaws in risk management
- Community banks should focus on sound loan and credit quality
9:00:03 AM
*APR NET LONG TERM TIC FLOWS: $11.2B V $60.0BE; TOTAL NET TIC FLOWS: -$53.2B V $23.3B PRIOR
- Prior Net Long-term TIC revised from $55.8B to $55.4B
- Prior Total Net TIC Flows revised from 23.2B to $25.0B
9:00:15 AM
(US) IMF confirms speculation; raises 2009 US economic forecast to -2.5% from -2.8% prior; notes financial conditions have improved but risks remain tilted towards downside
- Expects a "modest recovery" in the US in late 2010 with GDP forecasted at 0.75%
- Sees Federal deficits in 2009-2011 averaging 9% of GDP, public debt around 75% of GDP. Expects deficit to decline by around 3.5% of GDP through 2019.
- Unwinding the role of the US govt poses major challenges. US financial rescue exit strategy needs to be coordinated with other countries, given the interconnected nature of markets.
- Yield curve change reflects beginning of risk appetite normalization
10:20:28 AM
Fed's Evans: Fed will raise rates when economy is growing robustly, defined as 2.5% growth - Q&A
- Has seen reduced downside risks to macro economy
- Current higher bond yields are restricting the recovery in housing markets
- Continue to see disinflationary risk
- Rise in US savings rates to be a persistent trend
11:00:35 AM
ECB's Papademos presents June Financial Stability Report: Forecasts EuroZone banks experiencing additional writedowns in excess of €280B by 2010 due to bad loans
- Notes credit cycle has not reached the bottom, indications that there is a reverse feedback loop of real economy and financial sector
- Financial stability risks are still high; have observed signs that the pace of economic weakness has moderated; weak corporate profits will continue in 2010 for Europe
1:00:01 PM
*JUNE NAHB HOUSING MARKET INDEX: 15 V 17E (first decline in index m/m since Jan)
- NAHB: "Home builders are facing a few headwinds, includingexpiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack ofcredit for housing production loans,"
- NAHB Chief Economist: "The housing market continues to bump along trying to find a bottom, Builders are taking their cue from consumers, who remain uncertain about the economy and their own situation,"
1:13:08 PM
(US) Fed's Bullard: Still cautiously optimistic for the second half of 2009, encouraged that various measures of stress in the banks have come off their crisis highs; FOMC will think very hard about exit strategy "this summer" - CNBC interview
- Views higher rates for Treasuries as a mixed bag, indicating recovery on the one hand and rising inflation on the other.
- Believes the US economy will avoid a "deflationary outcome."
3:30:21 PM
(EU) ECB's Nowotny: Europe is in "very deep depression," warns against instituting premature exit strategies, "very dangerous" to consider exit strategy too soon
- Does not expect any further downward revisions of European economic forecasts.
- Europe does not need further measures at the moment, ECB measures are adequate for the time being.
- Europe is reaching the lowest level of the downturn, return to growth will be very slow.
- Exiting stimulus measures early could prolong the recession.
- Interest rates may remain low for quite a long time given the downturn in the real economy.
- Concerned by the significant divergence between UK and continental European interests.
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.
- A big disappointment in the June Empire Manufacturing index spooked investors before the open this morning, as the survey of manufacturing conditions in the North East indicated much steeper declines than expected instead of another sign of moderation.
Major US indices opened slightly to the downside and have headed steadily downwards in mid morning trading. With things looking shaky, mid-morning comments from Fed Governor Evans that there is a risk US unemployment could get close to 10% added to the downward momentum. The ECB's Papademos, Meredith Whitney, and NYU's Nouriel Roubini have added to the steady chorus of cautious commentary as well. Equity weakness and the stronger dollar have pushed front-month crude to session lows below $70. Bond markets are bid up after TICS data that showed foreign countries have yet moved to substantially cut US Treasury holdings. The US 10-year yield is back below 3.75% while the benchmark spread has narrowed back below 250 basis points.
- Treasury Secretary Geithner and White House advisor Larry Summers filled in more details on the Obama Administration's proposals to regulate derivatives and securitized products in this morning's Washington Post.
According to the piece, the administration will propose that all derivatives contracts and dealers be regulated and require originators to retain interests in asset-backed securities. Systemically important firms will face "stringent" supervision by Federal Reserve and a new Council of Regulators with broader responsibility across the system. President Obama is scheduled to announce a major overhaul of financial sector regulations on Wednesday morning.
- Bank of America and Morgan Stanley are notable laggards this morning, with both down 2.5% or so in early trading.
Overnight Rochdale's Dick Bove said BoA would suffer "horrific" loan losses, while the bank's May Master Trust data showed net charge offs jumping to 12.50%, versus 10.47% in April. Capital One's May Master Trust charge offs rose nearly 1% over April levels. Master Trust data from the other leading credit card issuers is expected throughout the day.
- Illinois Tool Works revised its Q2 earnings guidance slightly upwards and reaffirms its revenue growth target after deciding to keep a business segment that had been slated for divestiture.
Shares of the company are off nearly 3%, weighing down competitors Snap-On, Stanley Works and Black & Decker as well. Small semi manufacturer O2Micro joined the competition in raising guidance, citing increased demand for LCD TVs. Shares of OIIM rose 10% in the pre-market and have sustained gains in early trading. Struggling retailer Limited Brands reduced the lower end of its 2009 earnings range and predicted same-store sales would down 5% to 10% for the year. Note also that Canaccord Adams has soured on all the smartphone exuberance, downgrading AAPL, NOK and RIMM this morning.
- In currencies, the greenback has firmed up on weekend comments out of Russia to the effect that there were no plans to discuss the reserve currency issue at tomorrow's meeting of BRIC nations (Brazil, Russia, India and China).
Note also that French President Sarkozy said the G20 would have to address the currency issue at some point. IMF's Lipsky commented that the USD would remain the world's reserve currency for the foreseeable future. European currencies were hampered by continued concern regarding the Continent's banking sector. EUR/USD remains in the lower quarter of its session range throughout the NY morning. Dealers are discussing the technical importance of 1.3800 in the pair, with chatter circulating of euro sell stops building up below 1.3800 down through the 1.3720 area.
- Not all the news was rosy for dollars, however.
The April TIC data showed global demand for US financial assets, with China, Japan, Brazil and Russia trimming treasury holdings in a shift that may reinforce concerns that demand for American debt will wane amid record deficits and the decline of the dollar's reserve status. Risk aversion helped the JPY firm against the majors, with EUR/JPY off 200 pips at 135.50, while GBP/JPY was lower by 150 pips to test below the 160 handle during the New York session. CAD and AUD were softer as the stronger USD weighed upon most energy and metal markets. Additional weight hit USD/CAD, sending the cross below the 1.13 level after the Bank of Canada said significant stresses remain in financial markets and that risks to household balance sheets have increased since December. AUD/USD is moving back below the 0.80 handle.
More Headlines
7:07:41 AM
(US) Treasury Sec Geithner & White House advisor Summers discuss the Obama Administration's proposals to regulate derivatives markets and securitized products - Washington Post
- The administration plans to propose that all derivatives contracts and dealers be regulated
- Regulators will have power to enforce rules against manipulation of derivatives markets
- Proposals will include a resolution mechanism for systemically important firms to ensure government " is no longer forced to choose between bailouts and financial collapse"
- To require originators to retain financial interest in asset backed securities.
- Systemically important firms will face "stringent" supervision by Federal Reserve and a new Council of Regulators with broader responsibility across the system
8:30:11 AM
*JUNE EMPIRE MANUFACTURING: -9.41 V -4.60E
- Components
- Prices Paid: -5.75 v -11.36 prior
- New Orders: -8.15 v -9.01 prior
- Employment: -21.84 v -23.86 prior
8:45:25 AM
(US) Fed's Tarullo: smaller banks should be more aware of risk management, systemic risk increasingly important for regulators
- Crisis revealed major flaws in risk management
- Community banks should focus on sound loan and credit quality
9:00:03 AM
*APR NET LONG TERM TIC FLOWS: $11.2B V $60.0BE; TOTAL NET TIC FLOWS: -$53.2B V $23.3B PRIOR
- Prior Net Long-term TIC revised from $55.8B to $55.4B
- Prior Total Net TIC Flows revised from 23.2B to $25.0B
9:00:15 AM
(US) IMF confirms speculation; raises 2009 US economic forecast to -2.5% from -2.8% prior; notes financial conditions have improved but risks remain tilted towards downside
- Expects a "modest recovery" in the US in late 2010 with GDP forecasted at 0.75%
- Sees Federal deficits in 2009-2011 averaging 9% of GDP, public debt around 75% of GDP. Expects deficit to decline by around 3.5% of GDP through 2019.
- Unwinding the role of the US govt poses major challenges. US financial rescue exit strategy needs to be coordinated with other countries, given the interconnected nature of markets.
- Yield curve change reflects beginning of risk appetite normalization
10:20:28 AM
Fed's Evans: Fed will raise rates when economy is growing robustly, defined as 2.5% growth - Q&A
- Has seen reduced downside risks to macro economy
- Current higher bond yields are restricting the recovery in housing markets
- Continue to see disinflationary risk
- Rise in US savings rates to be a persistent trend
11:00:35 AM
ECB's Papademos presents June Financial Stability Report: Forecasts EuroZone banks experiencing additional writedowns in excess of €280B by 2010 due to bad loans
- Notes credit cycle has not reached the bottom, indications that there is a reverse feedback loop of real economy and financial sector
- Financial stability risks are still high; have observed signs that the pace of economic weakness has moderated; weak corporate profits will continue in 2010 for Europe
"Many of life's failures are people who did not realize how close they were to success when they gave up."
Market Week Wrap-up
- With equity trading subdued, the focus was firmly on bonds and commodities this week.
Entering the week there was palpable anxiety among bond traders as the Treasury geared up to sell $65B in 3-, 10- and 30-year debt. Despite shaky results in the 10-yr auction, fears of a buyers strike ultimately proved unfounded as all three auctions were easily covered with particularly robust bidding from foreign central banks.
US equity indices repeatedly tested weekly highs only to retreat, with little economic data to fix on and relatively light volume. The preliminary June University of Michigan Confidence survey came in a hair below expectations, with both one- and five-year inflation expectations above the 3% level. The initial jobless claims were a bit lower than expected, while continuing claims moved out to yet another all-time high. Dispute continued over the state of a hypothetical economic recovery. Yale economist Robert Schiller told Bloomberg TV that "We may have a recovery, but I suspect it will be a disappointing one." Senior White House Advisior Paul Volcker commented that prospects for a strong recovery were unlikely, despite some growth in late 2009.
On Wednesday morning, Goldman Sachs's CEO Blankfein, who seldom makes public comments, said he expects a long, protracted recession and insisted the current upturn is not the real recovery. Later the same day, PIMCO's McCulley responded, stating that he believes the recovery is for real. Crude oil futures continued to drive higher as a trade on a weaker dollar and stronger economy, ending the week at just above $72/bbl, near seven-month highs.
On the geopolitical front it was Axis of Evil week, with the UN agreeing new sanctions on a recalcitrant North Korea, and Iran at the polls to select its next president. Stocks moved sideways on the week, with the S&P 500 gaining 0.7%, the Nasdaq rising 0.5%, and the DJIA edging up 0.4%, closing in positive territory YTD for the first time since early January trading.
- On Tuesday the Treasury approved the TARP repayment plans of 10 banks holding a total of $68B in government funds.
Goldman Sachs, Morgan Stanley, JP Morgan, American Express, Capital One, Bank of New York, US Bancorp, State Street, BB&T Corp and Northern Trust are expected to begin buying back preferred shares and warrants held by the Treasury next week.
The absence of Wells Fargo from this list was widely noted; an executive from the bank said the firm has not applied to repay government funding as of yet. President Obama called the TARP repayments a positive sign, while also warning they are not a signal the crisis is over.
The administration confirmed that paying back TARP meant that firms were no longer bound by various pay and other restrictions. On Wednesday the administration appointed a special official, a so-called "Pay Tzar," to oversee executive compensation at companies that are still relying on government aid. In other finance sector news, BlackRock consummated its purchase of Barclays investment unit for $13.5B, making it the world's largest money manager, while Bank of America and Citigroup were said to be facing pressure from various quarters to dump their CEOs.
- Various players in the semiconductor segment offered conflicting views on whether the industry is recovering or not.
Texas Instruments and Qualcomm raised earnings and revenue forecasts for the coming quarter citing returning demand for chipsets, although some analysts have wondered how much of this is due to judicious restocking of inventories and how much is from direct customer demand. In its quarterly industry survey, semi analyst firm iSuppli said forecast 2009 global microprocessor revenue would decline 16% y/y, after a 21% decline in Q1 y/y. Executives from the big PC processor manufacturers offered conflicting views: AMD's CEO echoed recent comments from the likes of Michael Dell and said it is too early to say the PC market has hit bottom and predicted Q4 is the earliest time for year-on-year growth in revenue or demand. Intel's CEO said he is confident the bottom has already been reached in the PC market.
Taiwan Semi said it believes the worst is over for the chip industry and expects industry growth of 5-6% in 2009.
- The smartphone wars heated up this week, with significant new product introductions from Palm and Apple.
Over the weekend Palm launched the Pre smartphone; more than one commentator dubbed the phone an "iPhone killer," although others have noted its popularity may be limited by the lack of an "app store" and exclusivity on the second-tier Sprint network. At its annual developer conference, Apple rolled out new laptop models, an update to its OSX operating system and a lower $99 price point for an entry-level iPhone.
But the main event was the new 3GS iPhone model, which sports a faster processor and more memory than the existing 3G models. If the contest between the two names were judged on share price alone, Palm would be the winner, with its shares up more than 15% on the week, while Apple was down about 4%.
Note that Nuance and TomTom are riding Apple's iPhone coattails, as software from both firms are integral to the new 3GS's speech recognition and GPS capabilities. Share of NUAN are up around 15% on the week, while the Netherlands-listed shares of TomTom have shot up nearly 45% on the week.
- With earnings season on the horizon, companies are taking the opportunity to shape expectations and fine tune guidance.
Visa said it sees high single-digit growth in 2009 and believes it will return to 15-20% revenue growth in 2010, depending on the course of the crisis.
Cardinal Health said its full-year earnings would be at the low end of its stated $3.50-3.60 range. Home Depot fixed up its full-year earnings outlook, saying EPS would be -7% to flat y/y (better than its prior -7% view). Clorox reaffirmed its forecast for 2010 and raised its dividend by a bit.
- Landmark legislation granting the FDA the power to regulate tobacco was approved by Congress late in the week, and President Obama has pledged to sign the bill.
Passage was more or less assured, and the news has been priced into tobacco stocks.
Note that there has also been chatter making the rounds that Star Scientific may soon reached a settlement in its long-running patent infringement suit against Reynolds American as the two continued to battle in court this week.
- US Treasury investors are clearly demanding higher yields; whether this is primarily due to the more attractive returns available in other asset classes or concerns over the country's fiscal situation is still hotly debated.
The angst over rising US rates reached a crescendo on Wednesday ahead of the 10-year auction when a Russian official suggested they were considering diversifying away from US debt and buying IMF bonds. Sellers entered the market at the open and ultimately the $19B 10-year notes were reopened at an average yield of 3.99%, a staggering 80bps higher than at their original sale in May.
Concerns rose among bond vigilantes over the prospects for the subsequent Long Bond offering on Thursday thanks to the large yield tail of 4 basis points, which briefly sent the benchmark above 4%. The nervousness also translated into the highest Long Bond yield since October of 2007 nearing 4.85%.
- By Thursday, traders seemed to be digesting the higher rates with increased casualness.
The concessions in price and higher yields proved attractive to buy and hold investors and the Long Bond auction registered above average results on every available metric.
The 30-year bonds reopened at 4.72% with indirect bidders taking nearly half of the competitive bids. Prices remained bid into the week's final session and were further buoyed by comments from Japanese Financial Minster Yosano who called his nation's trust in US Treasuries "unshakeable". The US curve saw noticeable flattening on Friday as both 30 and 10-year paper yields declining some 20 basis points from the mid-week highs.
- Looking ahead traders are searching for some more consolidation and settling of nerves in US government debt markets.
If yields can find a tradable range below 4% in the benchmark, trepidation the recent surge rates could cut of a recovery can abate. If not markets will continue to speculate on the emergence of a "Bernanke conundrum", a notion that despite the Fed funds rate having reached a nominal floor, the Fed appears to have lost control over long term rates.
The 3-month USD Libor finished the week at a new low of 0.62%, whilst according to the Mortgage Bankers Association, the average rate on a 30-year mortgage shot up another 32bps to 5.57%, its highest level since November 2008. With no new supply on the calendar for next week, extra focus will be given to this weekend's G8 ministers meeting and even more so to the Tuesday meeting of BRIC nations in Moscow.
China Russia and Brazil have all verbally committed to diversifying some portion of their reserves away from US Treasuries and into IMF backed bonds and India is expected to follow suit.
- In currencies, the dollar began the week on a firm note on momentum from Friday's US payroll data and rising bond yields.
But pricing got back in sync with commodities in no time, as oil continued to firm on economic optimism and reports that China's industrial production data would exceed consensus expectations.
In addition, the IEA raised its global oil demand forecast for the first time in 10 months. By mid-week, sentiment soured on holding dollars, with Goldman Sachs offering five reasons for a weaker dollar in a research note, including rising risk appetite, the continued climb in commodity prices and lingering doubts about its reserve currency status.
- The reserve currency issue has become a primary focus ahead of the G8 finance ministers' meeting this weekend in Italy and the BRIC (Brazil, Russia, India and China) summit next Tuesday.
The four BRIC nations are expected to discuss alternatives to holding dollars in reserves, a theme that Russia hammered away at on numerous occasions this week. Russian Central Bank First Deputy Ulyukayev commented that Russia was mulling plans to reduce its share of reserves held in US Treasuries in exchange for IMF bonds. However, its also worth noting that a Chinese Vice Foreign Minister said any talk of "dumping" USD was not realistic. Brazil said it was not attempting to weaken the USD but would likely purchase IMF bonds, insisting that it would not benefit from a weaker USD.
There has been more talk about Special Drawing Rights (SDRs, which are an accounting chit only, not a circulated currency) as a new synthetic reserve currency, which has in turn undermined confidence in the dollar. China got the conversation about SDRs going earlier this spring, though at that time the Chinese Vice Foreign Minister insisted that the sovereign currency question was being discussed "at an academic level." (Note that the current IMF SDR basket contains about 40% USD and 37% for the EUR, compared to the current share of about 60% USD and 30% for the EUR in central bank reserves globally).
- The dollar also faced a home-grown verbal barrage this week.
Fed Governor Lockhart acknowledged that the dollar's role as a reserve currency might decline on a relative basis over time, while also insisting the USD would remain reserve currency for quite some time.
White House Advisor (and former Fed Chairman) Paul Volcker said some sort of special reserve currency would ultimately be logical but warned there were no practical alternatives to the dollar today or "for many tomorrows."
A Goldman Sachs economist chimed in as well, noting that central banks need to hold fewer dollars and forecasted a softer dollar in the medium- and long-term thanks to the growing risk of reserve diversification.
- The G8 Finance Minister meeting will take place this weekend.
On the topic of currencies both the German and French finance ministries noted that currencies would not likely be discussed since no central bankers would be attending the meeting (we would point out that finance ministries are the very officials who would give the actual order at the appropriate point to their respective central bankers to intervene in FX). The G8 may discuss exit strategies for the raft of unconventional measures that have been enacted to deal with the crisis.
- EUR/USD began the week around 1.3855.
The euro failed to react negatively to news the Swedish Central Bank had activated a currency swap line with the ECB to ensure the stability of its financial sector as concerns in Baltic region continued to simmer throughout the week. The USD was adversely impacted most by the Russian Central Bank comment of possible diversifying its $408B in reserves away from its 30% allotment in US Treasuries.
The Fed's Lacker and White House Advisor Volker acknowledgment that the USD's reserve role could diminish over time also packed a hefty punch. However, The USD did manage to retrace half of its weekly losses as the week drew to a conclusion aided by some risk aversion and simple position covering ahead of the G8 finance minister summit.
- Sterling was again vulnerable on continued political uncertainty in the U.K as the week began.
However, perceived M&A flows helped the currency rebound from lows around 1.5800 on Monday, with dealers citing the potential $13B Blackrock-Barclays deal as the main catalyst. The UK quarterly inflationary expectations survey was higher on a q/q basis, helping precious metals and energy commodities move higher, indirectly supporting GBP.
- The yen showed little initial reaction to reports that the Japanese government abandoned its long-held FY2011 primary surplus objective and moved the target out ten years.
Throughout the week, the USD/JPY pair held below the key Aug downtrend resistance line with 99.00 seen as the critical level. The JPY was maintaining a softer tone against the European and commodity related currency pairs.
- The week in Asia saw the major regional indices hit fresh multi-month highs on continued evidence of recovery unfolding in China, along with rosier than expected employment picture in Australia and rising speculation for an economic conditions upgrade from Japan.
China's May industrial production rose 8.9%-- well above the expected 7.7% and last month's 7.3% increase that marked the lowest growth rate this year. Retail sales also painted a brighter picture of domestic demand, rising 15.2%.
Australia's May jobs report echoed the implied improvement of private job advertisement data seen early in the week, as the economy lost only 1.7K jobs vs the 30K decline forecasted by analysts.
Over in Japan, final Q1 GDP saw a lower contraction than initially reported, contracting -3.8% vs the preliminary figure of -4.0%.
The most recent round of industrial production, which saw its best rate of growth in decades, was revised higher to +5.9% from the initial +5.2% ahead of the BOJ decision expected to acknowledge improving conditions early next week.
The Nikkei225 took out 10,000 to end the week at 10,135, its best levels since early October, and Sydney's S&P/ASX rose above 4,060 for the first time since mid-November.
Week of 6/15/2009 thru 6/19/2009
Monday, June 15, 2009
8:30am June Empire Manufacturing (last -4.55)
9:00am April Net Long-Term TIC Flows (last $55.8B),
April Total Net TIC Flows (last $23.2B)
10:00am TAF auction
1:00pm June NAHB Housing Market Index (last 16)
BoJ Rate decision.
Tuesday, June 16, 2009
8:30am May PPI (last m/m 0.3%, y/y -3.7%, ex food & energy last m/m 0.1%, y/y 3.4%),
May Housing Starts (last 485K),
May Building Permits (last 498K)
9:15am May Industrial Production (last -0.5%),
May Capacity Utilization (last 69.1%)
10:00am TAF results
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Wednesday, June 17, 2009
8:30am May CPI (last m/m 0.0%, y/y -0.7%; ex food & energy last m/m 0.3%, y/y 1.9%),
May CPI Core Index SA (last 218.594),
Q1 Current Account Balance (last -$132.8B)
9:00am Fed Chairman Bernanke speaks at conference in Washington DC.
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
BoE minutes.
President Obama to announce plans for financial regulatory overhaul.
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.
"Think enthusiastically about everything; but especially about your job. If you do, you'll put a touch of glory in your life. If you love your job with enthusiasm, you'll shake it to pieces. You'll love it into greatness."
8:30am May Import Price Index (last m/m 1.6%, y/y -16.3%)
9:55am June prelim Univ of Michigan confidence (last 68.7)
Todays Headlines
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 601K V 615KE; CONTINUING CLAIMS: 6.816M V 6.780ME
- Prior jobless claims revised from 621K to 625K
- Prior Continuing Claims revised from 6.735M to 6.757M
8:30:02 AM
*MAY ADVANCE RETAIL SALES: 0.5% V 0.5%E; EX AUTOS: 0.5% V 0.2%E
- Prior Advance Retail Sales revised from -0.4% to -0.2%
- Prior Less Autos revised from -0.5% to -0.2%
8:34:28 AM
(US) White House Advisor Volcker: Prospects for a strong recovery are unlikely, although there will be some growth in late 2009
- Does not expect any inflation pressure for "some time to come."
- A global reserve currency would ultimately be logical, but there are no practical alternatives to the USD reserve currency today or "for many tomorrows."
- Maintaining the value of USD is in the interest of both the US and China
- It is unwarranted to allow firms that have deposit insurance to conduct proprietary trading.
- There is no need to supervise hedge & private equity funds as closely as banks. Very big funds might need capital and leverage requirements.
- There is a strong case for reviewing fair value accounting standards for banks and insurers.
10:00 AM
*APRIL BUSINESS INVENTORIES:
-1.1% V -1.0%E
- Prior revised from -1.0% to -1.3%
10:30 AM
*EIA NATURAL GAS INVENTORIES:
+106 BCF VS. +105 TO +115 BCF ESTIMATE RANGE
10:30:38 AM
Boeing Co *CUTTING LONG TERM MARKET FORECASTS; Sees 29K plane orders over 20 years, v 29,400 prior
- Sees total value of new commercial orders at $3.2T, unchanged
- Sees long term commercial airplane market as 'resil
1:01:40 PM
*TREASURY'S $11B 30-YEAR BOND REOPENING BID-TO-COVER RATIO: 2.68 V 2.40 PRIOR AND 2.42 AVE OVER THE LAST 5 REOPENINGS
- indirect bidders take 49% of competitive bids
- bonds draw 4.720% with 83.4% alloted at the high
- note median 4.684%, low 4.599%
4:00:23 PM
National Semiconductor Corp Reports Q4 -$0.28 v -$0.38e, R$281M v $273.4Me
- Guides Q1 R$285-305M v $282.5Me
- Q4 Gross Margin 58.3% v 57.5% y/y
- Q4 bookings up 30% q/q
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.
- Equities continued their post-beige book rally before and then after the bell taking heart from the Fed's assertion that the slump is moderating in nearly half its districts.
However indices did encounter some early resistance around 950 on the S&P keeping a lid on gains thus far. Before the open May advance retail sales came in even with estimates, at +0.5%, making for the biggest gain in the series in four months. Data was aided by consumers snapping up discounted auto deals and then paying higher prices at the pump. The initial jobless claims were a bit lower than expected, while continuing claims moved out to yet another all-time high. Front month crude continues to rally, trading above $72 after the IEA raised their monthly demand forecast.
- Sellers returned to the US Treasury markets in the early going.
Talk still centered on the 4 basis point tail required in yesterday's 10-year reopening which briefly sent the benchmark yield above 4%. But following another loss of 600K jobs for the latest week buyers stepped in and yields have backed off. The long bond is only fractionally lower yielding 4.775% ahead of this afternoon's auction results.
- Ratings upgrades are moving selected financial stocks.
Bank of America is up 7% after Keefe Bruyette raised the name to Outperform from Market Perform, noting that the completion of capital raising takes away a level of uncertainty surrounding the bank. Note that BoA CEO Lewis is getting grilled in front of Congress this morning on questions regarding his bank's acquisition of Merrill Lynch. Among the regional banks, Regions Financial rose as much as 9% before trading off while Fifth Third rose 6% after Goldman Sachs boosted the names to Buy from Neutral.
- Another crop of corporations sought to mold expectations by adjusting guidance ahead of earnings season.
Qualcomm raised its revenue forecast for Q3 by 10% or so (but refrained from offering earnings guidance), noting that robust demand for chipsets would aid its top line. Clorox reaffirmed its forecast for 2010 and raised its dividend by a bit. Medco Health affirmed its full-year forecast. Railroad Genesee Wyoming cut its earnings outlook for next quarter thanks to declining traffic, sending its shares down 4% on the news.
- Recent comments from Boeing and Yahoo have provided insight to the two companies respective industries.
Boeing dropped a bombshell mid morning, trimming its long-term 20-year demand forecast by a small amount as the airline industry continues to reduce capacity in the face of the economic crisis. Last night a Yahoo executive said that the company is seeing lots of advertising activity from mid-level customers, stating that advertising is "coming back."
- In currencies, the greenback continued to consolidate under a barrage of data, bond issues and commentary, providing good two-way price action.
Nonetheless, market participants are well aware that green shots could easily be replaced by a George Constanza-style "double-dip" recession. Aiding these fears was White House Advisor (and former Fed Chairman) Volcker, who commented that prospects for a strong recovery were unlikely, despite some growth in late 2009. Volcker also added to the ongoing conversation on global reserve currencies, noting that some sort of special reserve currency would ultimately be logical but there were no practical alternatives to the dollar today or "for many tomorrows." A Goldman Sachs economist chimed in as well, noting that central banks need to hold fewer dollars and forecasted a softer dollar in the medium and long term on the growing risk of reserve diversification.
- Some key levels looking ahead for EUR/USD are in the 1.3950 to 1.4090 area. Dealers are noting that a break below 1.3800 could alter the recently constructive Euro picture.
Above the 1.4150 would elect another round of Euro buy stops. The USD/JPY pair faces critical resistance line at the 99.00 area, which represents the August downtrend line.
- The Swedish Kroner (SEK) continues to get whipsawed thanks to the economic meltdown in the Baltic states.
EUR/SEK tested above the 10.82 on rumors of political turmoil in Latvia; Sweden has substantial banking exposure to the former Soviet satellite. SEK sentiment was also weighed down by dovish comments from the Riksbank's Svensson, who commented that another interest rate cut (rates are at 0.50%) was possible, while the Riksbank's Wickman-Parak said low interest ratse might be necessary for a relatively long period of time
- Two notable meetings are on the horizon. Firstly, G8 finance ministers are meeting in Rome this weekend.
French and German officials have commented that currencies are unlikely to be discussed at the confab. It should be noted that it is the finance ministries meeting in Rome who would provide central banks with any currency intervention orders. Then next week Brazil, Russia, India and China (the so-called BRIC countries) are set to meet in Moscow on June 16. Markets expect further talk about diversification of reserves away from the U.S. dollar. Brazil stated yesterday that it was not attempting to weaken the USD and did not benefit from a weaker USD. Russia has been the most vocal on creating a new reserve currency, while China has remained a large buyer of US treasuries this year despite inaccurate stories to the contrary. China's "diversification" steps have been to purchase many USD based commodities
More Headlines
8:30:02 AM
*INITIAL JOBLESS CLAIMS: 601K V 615KE; CONTINUING CLAIMS: 6.816M V 6.780ME
- Prior jobless claims revised from 621K to 625K
- Prior Continuing Claims revised from 6.735M to 6.757M
8:30:02 AM
*MAY ADVANCE RETAIL SALES: 0.5% V 0.5%E; EX AUTOS: 0.5% V 0.2%E
- Prior Advance Retail Sales revised from -0.4% to -0.2%
- Prior Less Autos revised from -0.5% to -0.2%
8:34:28 AM
(US) White House Advisor Volcker: Prospects for a strong recovery are unlikely, although there will be some growth in late 2009
- Does not expect any inflation pressure for "some time to come."
- A global reserve currency would ultimately be logical, but there are no practical alternatives to the USD reserve currency today or "for many tomorrows."
- Maintaining the value of USD is in the interest of both the US and China
- It is unwarranted to allow firms that have deposit insurance to conduct proprietary trading.
- There is no need to supervise hedge & private equity funds as closely as banks. Very big funds might need capital and leverage requirements.
- There is a strong case for reviewing fair value accounting standards for banks and insurers.
10:00 AM
*APRIL BUSINESS INVENTORIES:
-1.1% V -1.0%E
- Prior revised from -1.0% to -1.3%
10:30 AM
*EIA NATURAL GAS INVENTORIES:
+106 BCF VS. +105 TO +115 BCF ESTIMATE RANGE
8:30am May Advance retail sales (last -0.4%, ex autos last -0.5%), Initial Jobless Claims (last 621K), Continuing Claims (last 6.735M)
10:00am April Business Inventories (last -1.0%)
10:30am Natural Gas Inventories
1:00pm Treasury's 30-yr bond reopening
Todays Headlines
8:00:14 AM
(EU) ECB's Weber: Raising rates pre-emptively poses challenges but is not impossible; expects ECB bond purchases to lower spreads and impact other markets
- Insists that rate hike comment does not refer to current monetary policy.
- Future rate increases need to be as swift as recent rate cuts.
- Expects longer-term money market rates to fall further.
- May need to develop new instruments to measure risk appetitie, interest rates should not be use to adress asset prices
- Reiterates that medium term price stability remains mandate of central bank
8:30:03 AM
*(US) APR TRADE BALANCE: -$29.2B V -$29.0BE
- Prior revised from -$27.6B to -$28.5B
Components
- Imports: $150.3B v $151.2B prior
- Exports: $121.1B v $123.6B prior
- China: -$16.8B v -$15.6B prior
- Japan: -$3.22B v -$2.6B prior
- Canada: -$1.22B v -$830M prior
- OPEC: -$3.6B v -$2.4B prior
- Mexico: -$4.12B v -$3.9B prior
- Euro Area: -$4.16B v -$4.42B prior
9:52:23 AM
UK Gilts (UK) BoE buys £2.8B 2015- 2019 Gilts in competitive reverse auction, cover ratio: 2.72 v 2.86 prior and 3.71 ave
- Bought £2.05B 4.75% 2015s
- Bought £370M 8% 4.75% 2015s
- Bought £390M 4% 2016s
10:00:20 AM
Fed's Lacker: Labor market may weaken further; seeing evidence of consumer resilience; recession may end later this year
- Remarks that fiscal stimulus may only have a 'marginal impact'; must not wait too long to move towards preventing inflation
- Comments that seeing some signs housing market could bottom out in 2009
10:30 AM
*DOE CRUDE: -4.38M V -200KE
GASOLINE: -1.55M V +1.2ME
DISTILLATE: -318K V +1.1ME
CAPACITY UTILIZATION: 85.9% V 86.3%E
-Distillate demand +117K bpd to 3.57M bpd
-Gasoline demand +121K bpd to 9.14M bpd
11:03:10 AM
NY Fed: Purchased $3.5B in $300B outright coupons purchase; Dealers submitted $10.98B for consideration (bid to cover 3.14)
- Heaviest purchase was $ 1.2B for the maturity 08/15/19 (shortest dated security)
- Note: avg bid to cover for prior four auctions is 3.85
11:27:12 AM
Fed's Lacker: Sees no need to increase purchases of treasuries; concerned about proposals aimed at permitting Fed to issue bills in efforts to manage balance sheet - comments to reporters
- notes that if the yield curve is rising because of an improving ecomonic outlook, it argues against increasing the Fed's purchasing of treasuries.
- Reiterates need to raise rates when growth becomes positive; interest rate decisions should favor growth over employment levels
1:01 PM
*TREASURY'S $19B 10-YEAR NOTE REOPENING BID-TO-COVER RATIO: 2.62 V 2.49 PRIOR AND 2.41 OVER THE LAST 5 REOPENINGS
- Indirect bidders take 34.2% of competitive bids
-Notes draw 3.99% with 46.5% allotted at high.
2:00:13 PM
*FED'S BEIGE BOOK: SLUMP IS MODERATING IN 5 OF 12 DISTRICTS; Prices at all stages of production and wages were flat or falling, several districts reported expectations have improved
- Labor market continued to be weak; some districts saw signs taht job losses may be miderating
- Real estate market remains weak, agents in the New York, Philadelphia, Cleveland, Richmond, Chicago, Kansas
- Much of the sales increase was found in the lower-priced end of the market.
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 gained a bit in the premarket, but headed lower and slipped back into the red in another morning of lighter volume and little data.
Comments from various high-profile figures are competing to set the tone this morning. Goldman Sachs's CEO Blankfein, who seldom comments publicly on the economy, told reports this morning that he expects a long, protracted recession, and said that the current upturn is not the real recovery. Later in the morning, PIMCO's McCulley responded, saying that he sees green shoots and believes the recovery is for real. In comments to the North Carolina State Senate, Fed Governor Lacker said the labor market may weaken further although he is seeing evidence of consumer resilience, and predicted the recession could end later this year.
Note also that Chrysler and Fiat have finalized their alliance now that the US Supreme Court has signed off on Chrysler's bankruptcy process. The company is expected to emerge from Chapter 11 very shortly. Front-month NYMEX crude nearly broke $72 in early trading after the Kuwaiti Oil Minister said OPEC may consider raising output if oil reaches $100/bbl and Gazprom's CEO warned that the oil market has pinpointed $100/bbl as the 2010 benchmark price. Spot gold continues to its inability to retake the $1,000/oz mark and has descended back into negative territory for the session, hovering around the $950.
- Treasury yields have moved out to fresh 2009 highs in the benchmark bringing 4% into view.
The 10-year traded above 3.91% after a Russian central bank official was quoted as suggesting Russia is considering moving away from USTs and buying IMF bonds. This rehashed concerns sparked by Chinese comments last week that suggested they were looking at IMF bonds as well. It is worth noting that these comments were released conveniently ahead of today's 10-year note reopening from the US Treasury. At 1pm the results of the $19B sale will be announced followed by the beige book release and later on an announcement from the Fed regarding the schedule of upcoming coupon purchases.
- Shares of Citigroup are outperforming this morning after the bank launched its share exchange operation (which it first proposed back in February), aiming to convert $58B in preferred shares and other preferred securities into common shares in order to pad its capital base.
The Treasury will convert about $25B of its $45B preferred investment, giving it a 34% ownership stake. According to press reports, it looks like BlackRock has managed to snatch Barclay's iShares unit out from under the nose of CVC Capital Partners. The WSJ writes that a deal may be near for BlackRock to buy the unit for $12-14B, which is a bit more than the FT targeted on June 5th. Also note that there are reports the Obama Administration has dropped plans to cap compensation at financial firms who take bailout funding, leaving the job of regulating Wall Street pay to Congress.
- Various firms are fine-tuning guidance in an attempt to get out ahead of the unsettled economic situation.
Home Depot tinkered with its 2009 forecast, saying that earnings would be -7% to flat y/y (better than its prior -7% view), while revenue is still seen as -9% y/y. HD opened a few percent higher on the news. Aerospace and industrial manufacturer Barnes Group has withdrawn its 2009 guidance, citing increased uncertainty in the transport sector. Barnes shares are down 7%. Real estate giant CB Richard Ellis offered a "highly preliminary" view of its second quarter that was below expectations. Shares of CBG jumped up to 20% on the news, before trading off to +15%. Visa said it sees high single-digit growth in 2009 and believes it will return to 15-20% revenue growth in 2010, depending on the course of the crisis.
- Comments from various sources are buffeting the big chip manufacturers.
Industry analyst Isuppli said that Intel's Q1 microprocessor share -2.5% q/q to 79.3% while AMD's share rose 2.3% q/q to 12.8%. The group sees Q1 global microprocessor revenue -21% y/y and sales -16% y/y. AMD's CEO echoed recent comments from the likes of Michael Dell, saying its too early to say PC market has hit bottom. He also predicted that Q4 is the earliest time for on-year revenue and PC demand growth (note just the other day Intel's CEO said he is confident the bottom has been reached in the PC market). Taiwan Semi believes the worst is over for the chip industry and expects industry growth of 5-6% in 2009, with recovery arriving in the second half of the year.
- In currencies, the greenback managed to shake off its earlier vulnerability in the choppy European session price action.
Alleged comments from the French Finance Ministry, to the effect that currencies rates would not be discussed at this weekend's G8 summit, helped the pair test 1.4144 ahead of the New York session. The dollar seemed poised for a beating after Russian Central Bank First Deputy Ulyukayev commented that Russia was mulling plans to reduce its share of reserves held in US Treasuries in exchange for IMF bonds. The central banker noted that it would diversify reserves if the Chinese Yuan (CNY) became a new global reserve currency.
Note that Russia's $401B of reserves include roughly 30% US Treasuries. EUR/USD retested the 1.4140 level, but failed to make a fresh session high on the Russian comments. Dealer chatter then focused on the pending IMF bond issue and debated whether there really was going to be any central bank portfolio adjustment away from treasuries and into IMF bonds. Keep in mind that the IMF has not disclosed the makeup of its pending bond issue, and it remains an open question whether they will be denominated in USD, EUR or a basket comprised of Special Drawing Rights (SDRs, which are an accounting chit only and not a circulated currency). Risk aversion returned after comments from Goldman CEO Blankfein, sending the EUR/USD probing below the 1.4000 level as oil and energy markets took note of the cautionary outlook from Goldman's chief. AUD and CAD are off their best levels, while USD/CAD is retesting 1.11, 150 pips above its NY morning lows. AUD/USD at 0.8050 after testing 0.8130 overnight.
More Headlines
8:00:14 AM
(EU) ECB's Weber: Raising rates pre-emptively poses challenges but is not impossible; expects ECB bond purchases to lower spreads and impact other markets
- Insists that rate hike comment does not refer to current monetary policy.
- Future rate increases need to be as swift as recent rate cuts.
- Expects longer-term money market rates to fall further.
- May need to develop new instruments to measure risk appetitie, interest rates should not be use to adress asset prices
- Reiterates that medium term price stability remains mandate of central bank
8:30:03 AM
*(US) APR TRADE BALANCE: -$29.2B V -$29.0BE
- Prior revised from -$27.6B to -$28.5B
Components
- Imports: $150.3B v $151.2B prior
- Exports: $121.1B v $123.6B prior
- China: -$16.8B v -$15.6B prior
- Japan: -$3.22B v -$2.6B prior
- Canada: -$1.22B v -$830M prior
- OPEC: -$3.6B v -$2.4B prior
- Mexico: -$4.12B v -$3.9B prior
- Euro Area: -$4.16B v -$4.42B prior
9:52:23 AM
UK Gilts (UK) BoE buys £2.8B 2015- 2019 Gilts in competitive reverse auction, cover ratio: 2.72 v 2.86 prior and 3.71 ave
- Bought £2.05B 4.75% 2015s
- Bought £370M 8% 4.75% 2015s
- Bought £390M 4% 2016s
10:00:20 AM
Fed's Lacker: Labor market may weaken further; seeing evidence of consumer resilience; recession may end later this year
- Remarks that fiscal stimulus may only have a 'marginal impact'; must not wait too long to move towards preventing inflation
- Comments that seeing some signs housing market could bottom out in 2009
10:30 AM
*DOE CRUDE: -4.38M V -200KE
GASOLINE: -1.55M V +1.2ME
DISTILLATE: -318K V +1.1ME
CAPACITY UTILIZATION: 85.9% V 86.3%E
-Distillate demand +117K bpd to 3.57M bpd
-Gasoline demand +121K bpd to 9.14M bpd
11:03:10 AM
NY Fed: Purchased $3.5B in $300B outright coupons purchase; Dealers submitted $10.98B for consideration (bid to cover 3.14)
- Heaviest purchase was $ 1.2B for the maturity 08/15/19 (shortest dated security)
- Note: avg bid to cover for prior four auctions is 3.85
8:30am April Trade Balance (last -$27.6B)
10:30am DoE Crude Oil/Gasoline/Distillate Inventories
1:00pm Treasury's 10-yr note reopening
2:00pm Fed Beige Book, May Monthly Budget Statement (last -$165.9B)
Todays Headlines
7:38:12 AM
Euro vs US Dollar Euro strength attributed to Goldman Sachs trade recommendation - dealers
- Reserach note suggest long EUR/USD position with a stop on a close below 1.3720 for an initial target of 1.45.
- Goldman's reasons for a weaker USD included:
1) Broader pick-up in risk appetite
2) Expect rise in commodity prices to continue
3) US is likely to underperform in terms of domestic demand as the US consumer is adjusting its level of spending lower
4) FED will likely be more aggressive with monetary easing than the ECB
5) Continued talk about the SDR as a new synthetic reserve currency undermines confidence in the currently dominating reserve currency
9:45:19 AM
US Treasury's Geithner: 10 large banks approved to repay $68B in TARP (more than $50B speculated by WSJ), repayments a sign of repair; firms also have option to repay warrants
- No bank names yet provided
- Treasury: Combined with repayments received to date from other institutions, Treasury will have received approximately $70B in repayments from CPP participants.
- More than 600 banks across the country have participated in the CPP, representing $199B in investments.
10:00:19 AM
US Bancorp Receives Approval to Redeem $6.6B of Preferred Stock from the U.S. Treasury Department; sees Q2 EPS reduced by $0.15 due to TARP and FDIC
- USB will also give notice to the Treasury of its intent to repurchase the 10-year warrant issued in conjunction with the preferred stock, which entitles the Treasury to purchase shares of U.S. Bancorp common stock.
- USB will include in its computation of EPS the impact of a deemed dividend of $153M, representing the unaccreted preferred stock discount remaining on the transaction date.
-This one-time deemed dividend is in addition to the second quarter 2009 accretion of the preferred stock discount and accrued preferred dividends through the transaction date, together totaling approximately $90M
10:30:22 AM
(US) Treasury Sec Geithner: Regulatory overhaul to come within a few weeks, must be matched overseas; US still faces substantial challenges
- Economy will not see large revenue increases until 2011
- Once recovery in place, will work on cutting deficit
11:04:42 AM
(US) Treasury Sec Geithner: Pace of housing price decline has slowed, homeowners still face challenges
-Notes the concerns about PPIP, but says its still important to start the PPIP even if it has lower participation
- Comments that has observed 'very impressive' indications that credit market is improving, still have a long way to go.
11:47:06 AM
(US) Treasury Sec Geithner: Financial regulatory system needs a new body that would bring together the various parts of the system, will not propose concentrating all regulatory authority for systemic issues in one regulator
- It is critically important for the US to draw up plans to cut deficits in the medium term.
- Warns that there is "no path through the crisis" without more government debt.
- In ten years expects there to still be "thousands and thousands" of small banks.
- Interest rate caps are not a necessary part of strong consumer protection.
- Plans to defer recommendations on the future of the GSEs for a while longer.
1:01 PM
*TREASURY'S $35B 3-YEAR NOTE AUCTION BID-TO-COVER RATIO: 2.82 V 2.66 PRIOR AND 2.51 AVG OVER THE LAST 10 AUCTIONS
- Indirect bidders take 43.8% of competitive bids - notes draw 1.96% with 52.27% allotted at high
1:07:54 PM
(US) President Obama: TARP repayments are a positive sign, but they are not a signal the crisis is over
- notes the govt has made a profit on the return of the first round onf TARP funds, but does not mean that the govt can escape the financial crisis without suffering losses.
- reiterates plans to cut deficit in half in the next 4 years.
- Plans to ask Congress to codify "pay as you go" (paygo) rules.
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 stocks opened higher but have been drifting lower after the expected Treasury announcement on the banks cleared to repay TARP funds.
Investors are evidently selling the news, after a buying surge late yesterday afternoon. Other cautious voices on the financial system have been heard, with Fed Governor Fisher warning again that some banks are still too big to fail and a Congressional bailout oversight panel stating that the stress tests might have to be repeated. Yale economist Robert Schiller told Bloomberg TV that "We may have a recovery, but I suspect it will be a disappointing one." Front-month crude is strong again this morning, trading up above $69 while gold is back above $950. The Greenback came under a fresh bout of selling pressure after Goldman Sachs made a technical call by the Euro against the Dollar. Yields continue to give back some of the recent gains with some steepening across the curve. The 2-year has given back more than 10 basis points from the highs yesterday to dip back below 1.3%. Later today the US Treasury is auctioning off $35B in 3-year notes.
- After the close last night, the Fed approved the capital raising plans for the 10 banks that were deemed in need of extra capital in the government's stress tests.
The WSJ later reported that the Treasury would approve $50B worth of TARP paybacks this morning, while further press speculation about which institutions would be cleared to repay continued through the US open. In the end, Tresury Secretary Geithner stated just after the open of trading that 10 banks holding a total of $68B in TARP had been approved for repayment (without naming any individual firms); confirmation from the banks themselves has been hitting the wires since that time. For the record, Geithner noted that more than 600 banks have taken $199B in TARP funding.
- Since the announcement, Morgan Stanley, JP Morgan, American Express, Capital One, Bank of New York, US Bancorp, State Street BB&T Corp and Northern Trust have confirmed TARP repayments.
AXP and COF are about the only names to make significant gains on the news, with the two credit card companies up as much as 4% on the news, although AXP is off its best levels. Most of the rest of these names are trading around even or in negative territory.
- Apple is trading around even in the wake of its big iPhone news yesterday. Multiple analysts raised price targets and made positive comments on the name overnight.
BoA/Merrill Lynch believes the new iPhone are likely to put some near-term pressure on Research In Motion to move faster on user interface innovation, although indicated that RIMM isn't that threatened by the development. Shares of RIMM are up 2% today, while shares of PALM, which released its competing Pre smartphone last weekend, are back around even after rising as much as 5% after the open. Nuance and especially TomTom are riding Apples coattails on the iPhone news, as software from both firms are integral to the phone's speech recognition and GPS capabilities. Share of NUAN are up more than 3% today, while the Netherlands-listed shares of TomTom have shot up 15% today.
- In other equity news, Texas Instruments offered an upbeat mid-quarter update yesterday, guiding Q2 results well above expectations and saying that the semiconductor industry is making incremental improvements.
Shares of TXN are up 6%, while the SMH is up 3% on the good news. Truck maker Navistar missed earnings and revenue targets by quite a bit, and slashed its 2009 forecast nearly in half. Navistar's CEO was not sunny on the economy, noting that the recovery will likely take longer than expected, leading to the worst market conditions for the firm in nearly half a century. NAV opened down 5% but has risen back into positive territory in early trading. Apparel retailers Men's Warehouse and Talbots both did markedly better than expected in Q1. MW was solidly profitable (versus expectations for a small loss), while Talbot's quarterly loss was half the expected amount. Talbot's CEO said the company saw a substantial rebound in merchandise margin from the fourth quarter and is seeing strength in key categories. Shares of MW are up 15%, while TLB is off opening highs around even.
- The greenback and commodity prices were back in sync during the New York session, reinforced by a research note from Goldman Sachs that discussed five reasons for a weak dollar, including rising risk appetite, the continued climb in commodity prices and lingering doubts about the reserve currency issue.
EUR/USD moved above the 1.3900 handle as New York traders took the helm and proceeded to test above the 1.420 level before consolidating. The reserve currency question is likely to have continued momentum as the BRIC meeting later this month is expected to discuss the issue. There has been more talk about an SDR as a new synthetic reserve currency, which has in turn undermined confidence in the currently dominant reserve currency over the last six weeks. The current IMF SDR basket contains about 40% USD and 37% for the EUR, compared to the current share of about 60% USD and 30% for the EUR in central bank reserves globally.
More Headlines
7:38:12 AM
Euro vs US Dollar Euro strength attributed to Goldman Sachs trade recommendation - dealers
- Reserach note suggest long EUR/USD position with a stop on a close below 1.3720 for an initial target of 1.45.
- Goldman's reasons for a weaker USD included:
1) Broader pick-up in risk appetite
2) Expect rise in commodity prices to continue
3) US is likely to underperform in terms of domestic demand as the US consumer is adjusting its level of spending lower
4) FED will likely be more aggressive with monetary easing than the ECB
5) Continued talk about the SDR as a new synthetic reserve currency undermines confidence in the currently dominating reserve currency
9:45:19 AM
US Treasury's Geithner: 10 large banks approved to repay $68B in TARP (more than $50B speculated by WSJ), repayments a sign of repair; firms also have option to repay warrants
- No bank names yet provided
- Treasury: Combined with repayments received to date from other institutions, Treasury will have received approximately $70B in repayments from CPP participants.
- More than 600 banks across the country have participated in the CPP, representing $199B in investments.
10:00:19 AM
US Bancorp Receives Approval to Redeem $6.6B of Preferred Stock from the U.S. Treasury Department; sees Q2 EPS reduced by $0.15 due to TARP and FDIC
- USB will also give notice to the Treasury of its intent to repurchase the 10-year warrant issued in conjunction with the preferred stock, which entitles the Treasury to purchase shares of U.S. Bancorp common stock.
- USB will include in its computation of EPS the impact of a deemed dividend of $153M, representing the unaccreted preferred stock discount remaining on the transaction date.
-This one-time deemed dividend is in addition to the second quarter 2009 accretion of the preferred stock discount and accrued preferred dividends through the transaction date, together totaling approximately $90M
10:30:22 AM
(US) Treasury Sec Geithner: Regulatory overhaul to come within a few weeks, must be matched overseas; US still faces substantial challenges
- Economy will not see large revenue increases until 2011
- Once recovery in place, will work on cutting deficit
11:04:42 AM
(US) Treasury Sec Geithner: Pace of housing price decline has slowed, homeowners still face challenges
-Notes the concerns about PPIP, but says its still important to start the PPIP even if it has lower participation
- Comments that has observed 'very impressive' indications that credit market is improving, still have a long way to go.
11:47:06 AM
(US) Treasury Sec Geithner: Financial regulatory system needs a new body that would bring together the various parts of the system, will not propose concentrating all regulatory authority for systemic issues in one regulator
- It is critically important for the US to draw up plans to cut deficits in the medium term.
- Warns that there is "no path through the crisis" without more government debt.
- In ten years expects there to still be "thousands and thousands" of small banks.
- Interest rate caps are not a necessary part of strong consumer protection.
- Plans to defer recommendations on the future of the GSEs for a while longer.
10:00am April Wholesale Inventories (last -1.6%)
1:00pm Treasury's 3-yr note auction
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
5:36:54 AM
*S&P CUTS IRELAND SOVEREIGN RATING ONE NOTCH TO AA FROM AA+, OUTLOOK NEGATIVE
- We have lowered the long-term rating on Ireland because we believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009, and, consequently, that the net general government debt burden will also be significantly higher over the medium term.
- The rating could be lowered again if asset quality in the Irish banking system deteriorates at a faster pace than we expect and if, as a result of its support for the sector or due to an even more pronounced downturn in economic growth, the government''s fiscal performance weakens further than we currently assume
- The ratings could also be lowered if the average maturity of the government''s debt shortens materially for a sustained period
7:58:30 AM
WW Grainger Inc Reports May 2009 Sales -10% y/y v -15% m/m in April
- United States -9% y/y
- Canada -14% y/y
- Other Businesses -17% y/y
- Sales decline was primarily the result of weak demand across all customer end-markets and geographies.
- Foreign exchange negatively affected sales by approximately two percentage points. Sales from pandemic related product as a result of the H1N1 virus outbreak positively affected sales by one percentage point
11:02:32 AM
NY Fed: Purchased $7.5B in $300B outright coupons purchase; Dealers submitted $29.97B for consideration (bid to cover 3.99)
- Heaviest purchase was $4.04B for the 05/15/15 maturity
- Note: avg bid to cover for prior four auctions is 4.4
11:03 AM
(US) US Treasury could disclose banks cleared to repay TARP funds as soon as Tuesday
-As many as nine banks could be on the short list to return funds - CNBC- Treasury is targeting $25B in TARP monies being returned, could be as high as $50B
3:57 PM
US Supreme Court stays the Chrysler Asset deal, according lawyers for pension funds seeking to block the quick sale to Fiat- Note:
- Fiat can walk away if the deal with Chrysler is not completed by June 15
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 trading is sluggish and downbeat this morning, with the three major US indices opening in the red and heading lower in the early going.
With no major data releases to set the trend, investors are fretting ahead of the disclosure of which banks have been cleared to repay TARP funds. In addition, there is some tension from the Chrysler bankruptcy, as a decision is also expected soon from the US Supreme Court on whether the body will hear a challenge from a group of Indiana pension funds over the auto manufacturer's deal with Fiat or not. Front-month NYMEX crude is back above $68 after dropping as low as $67 overnight. The US Treasury curve continues to flatten with the benchmark spread moving below 250 basis points. Short term yields are ticking up with the 2-year approaching 1.38% while long term yields are lower.
- Investors are waiting for official news from federal officials on which banks will be allowed to repay TARP funds, with an announcement expected as soon as today.
Various reports have indicated Goldman, American Express and JP Morgan would be among the first banks granted approval to repay government funds, while Morgan Stanley is also reportedly pressing hard to cleared as well. Shares of JP Morgan are outperforming this morning, up 1% or so while nearly all the other big bank names are in the red. Over the weekend Bank of America Chairman Massey said the board is taking a "fresh look" at the company's succession plan for CEO Lewis. This comment comes after there were press reports on Friday that the FDIC was leaning on Citigroup to oust CEO Pandit. In other financials news, Barclays said it might take a 20% stake in BlackRock as part of the latter's purchase of Barclays Global Investors.
- Apple is holding its software developers' conference today, where many analysts expect the company to roll out new, less expensive iPhone models.
Any news is expected after the keynote begins around 1pmEST. Shares of AAPL are down 10% or so in early trading, while competitors RIMM and PALM are down about 2% or so. Note that Palm's Pre smartphone was launched this weekend, exclusively with Sprint.
- In other equity news, Cardinal Health fine tuned its 2009 forecast at an investor presentation this morning, guiding to the low end of its prior $3.50-3.60 range.
Talbots said it would sell its J.Jill unit to private capital group Golden Gate Capital for $75M (just three years after buying it for $517M). Rambus withdrew some patents from the ITC proceedings against NVIDIA.
- In currencies, the greenback remained steady against the European pairs and consolidated its earlier gains thanks to rising shorter-term interest rates and lingering concerns over the health of European government fiscal and commercial banking sectors.
The earlier S&P downgrade of Irish corporate debt is also a factor. Dealers are noting that German state-controlled bank WestLB AG reportedly came close to being shut down at crisis talks over the weekend. EUR/USD was probing the lower end of the 1.38 handle during New York trading. IMF Chief Strauss-Kahn noted that an recovery was not possible until banks are cleansed of their toxic assets and warned that a large portion of losses currently carried on banks balance sheet have not yet been disclosed. Both the AUD and CAD currency pairs were weaker and lower third portion of the session range.shoots turn brown. Currency dealers continue to see key hourly support around the 1.4050/70 area.
More Headlines
5:36:54 AM
*S&P CUTS IRELAND SOVEREIGN RATING ONE NOTCH TO AA FROM AA+, OUTLOOK NEGATIVE
- We have lowered the long-term rating on Ireland because we believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009, and, consequently, that the net general government debt burden will also be significantly higher over the medium term.
- The rating could be lowered again if asset quality in the Irish banking system deteriorates at a faster pace than we expect and if, as a result of its support for the sector or due to an even more pronounced downturn in economic growth, the government''s fiscal performance weakens further than we currently assume
- The ratings could also be lowered if the average maturity of the government''s debt shortens materially for a sustained period
7:58:30 AM
WW Grainger Inc Reports May 2009 Sales -10% y/y v -15% m/m in April
- United States -9% y/y
- Canada -14% y/y
- Other Businesses -17% y/y
- Sales decline was primarily the result of weak demand across all customer end-markets and geographies.
- Foreign exchange negatively affected sales by approximately two percentage points. Sales from pandemic related product as a result of the H1N1 virus outbreak positively affected sales by one percentage point
11:02:32 AM
NY Fed: Purchased $7.5B in $300B outright coupons purchase; Dealers submitted $29.97B for consideration (bid to cover 3.99)
- Heaviest purchase was $4.04B for the 05/15/15 maturity
- Note: avg bid to cover for prior four auctions is 4.4
11:03 AM
(US) US Treasury could disclose banks cleared to repay TARP funds as soon as Tuesday
-As many as nine banks could be on the short list to return funds - CNBC- Treasury is targeting $25B in TARP monies being returned, could be as high as $50B
"Instead of regretting or hiding them, why not presume that your differences can be the basis for your success?"
Market Week Wrap-up
- Trading has been remarkably robust this week, but not all that surprising given that things kicked off with GM filing for Chapter 11 in largest industrial bankruptcy in US history.
On Tuesday morning, the DJIA briefly returned to positive territory for the year. Although it immediately met some resistance at that key level and was lower mid week, the average finished the week within 20 points of unchanged on the year. Optimists hunting for an end to the recession needed look no further than the housing & employment data. On Tuesday the National Association of Realtor's April pending home sales data blew out expectations (6.7% v 0.5%e), making its biggest upwards move since late 2001. The May ADP employment change registered a slightly bigger decline than expected, although the numbers are better than the 600K+ declines seen in the first three months of the year. Friday's May nonfarm payrolls data came in much lower than expected (-345K V -520Ke) and saw the first upward revision of the back month data in nine months. There were rumors that the data had been significantly miscalculated, but Labor Secretary Solis immediately came out with a statement denying such speculation. The May annualized unemployment rate hit 9.4%, putting it above the psychologically-important 9% level. However, officials remain wary of the optimists, and on Friday the NBER said it was "way too early" to call the end of recession in the US, despite the signs of stabilization. US rates broke out to new multi-month highs yet again. Friday saw the 2-year note yield surge more than 30 basis points to finish a full percentage point above the current fed funds rate. For the week, the S&P 500 rose 2.3%, the DJIA gained 3.1% and the Nasdaq Composite climbed 4.2%.
- Dollar weakness and tentative signs of an economic recovery helped continue the push higher in energy futures.
Bigger than expected builds in US crude oil and natural gas inventories this week put some downward pressure on the energy complex mid-week, but crude could not break below the $65/bbl and found more buyers on Thursday and Friday. Speculation that the dollar weakness would continue helped crude futures finish the week up about 2% at $68 and natural gas finished flat. Copper also ended the week up about 2.5%, despite the Baltic Dry Bulk Index declining for the first time in 24 sessions on Thursday followed by another decline on Friday, dropping about 10% in two days. Precious metals fared worse this week, with silver down over 2% and gold down 2.5%, as traders took profits on Friday's rebound in the Greenback.
- On Monday the Fed outlined its requirements for banks wanting to repay TARP funds.
Chief among them is that banks have to raise funds for repayment by selling bonds without FDIC guarantees, although the Fed said it will also consider whether subsidiaries can meet funding needs and counterparty obligations. The new demands are said to partly reflect the rally in bank shares, since it has made it easier for financial companies to raise capital. There have been press reports this week claiming that the Fed told JP Morgan, American Express and Morgan Stanley - the companies are at the top of the short list of firms that are expected to be cleared for repayment - to undertake capital raises this week. All three raised substantial amounts of cash via share and debt offerings; note that the moves came less than a month after the government stress tests indicated the firms had enough funding to deal with a deeper economic slump. Official application approvals for TARP redemptions are expected as early as next week. Herb Allison, who has been nominated to oversee the TARP program, told Congress in his confirmation testimony that some repayments would likely be seen next week.
- Questions have been raised this week about the government's other big financial bailout instrument, the Public Private Investment Program (PPIP).
On Monday Fed Governor Plosser told the FT that the Fed should not be involved in financing toxic assets that date from the bubble era, calling the move a "bridge too far." Various commentators insisted that the PPIP program is unworkable and unlikely to get off the ground, and indeed the FDIC said on Wednesday that it would not proceed with test sales of toxic assets under the program. Some interpreted New York Fed President Dudley's comments that the TALF may or may not be opened to RMBS later this summer as a sign that other key government players were having second thoughts as well (TALF funding is supposed to play a role in funding purchases under the PPIP). The Treasury's Miller countered some of the skepticism by stating that the Treasury is committed to the PPIP toxic asset buying program and would announce the names of PPIP fund managers in one to two weeks.
- Deutsche Bank and Moody's both made bearish comments on the big banks.
In a note, DB insisted that banks aren't done raising capital, while Moody's sees many banks as continuing to be unprofitable in 2009 and likely needing to continue making capital raises. Regional banks have kept up the capital raising efforts, with Zions Bancorp and SunTrust launching fresh debt and equity offerings, while Fifth Third and KeyCorp sold $1B worth of common stock apiece. Morgan Stanley and Citigroup have closed early on the launch of their joint venture, which combines Morgan Stanley's wealth management unit with Citi's Smith Barney division in a new unit called Morgan Stanley Smith Barney. Morgan holds a 51% stake in the venture, which is expected to generate about $14B in net revenue a year.
- May same-store sales were not pretty, with many retailers reporting steeper declines than expected as consumers continue to hold back on spending.
The usual suspects did manage to sustain positive gains, with discount chains FRED and ROST offering low single-digit gains, while teen-oriented mall chain ARO notably outperformed estimates by a wide margin. Discount apparel retailer TJX also managed to outperform expectations. Warehouse retailer COST slipped back into negative comps after April's unchanged reading, while BJ continued its slide into negative single-digit SSS. TGT also slipped back into negative single digits, after April's strong positive comp. All the major apparel and luxury retailers reported yet another month of abysmal negative sales. Note that WMT has discontinued monthly same-store sales reports.
- In tech news, Intel said it would acquire Wind River Systems for $884M.
Commentators noted the transaction is a game changer with broad implications for the tech sector; the company makes software for mobile phones and in-car entertainment systems, a growth area Intel covets given the stagnation in PC and server markets. Chip giant Applied Materials CEO told the Commercial Times that there are no signs of a stable recovery in demand in the global chip market. Press reports later in the week discussed Apple's plans to launch a cheaper version of the iPhone at its developers conference on June 8th. In addition, the WSJ wrote that Steve Jobs is likely to return to work this month. Rival Palm got a strong WSJ review of its new Pre smartphone; the Journal's Walt Mossberg called the model the "strongest rival to the iPhone to date."
- Despite some give back early on, Treasury prices remained on the defensive throughout the week, keeping upward pressure on US rates.
The debate continued to rage as to whether this is driven by a healthy recalibration ahead of economic recovery or rather concerns over the profligacy of the US government and attempts to monetize its way out of liabilities. The latter notion picked up some steam on Tuesday when the 10-year TIPS breakeven rate rose above 200 basis points for the first time since last September, although people were quick to point out it still remains below its five-year average. Friday's May US non-farm payrolls report sent short term yields soaring: the two-year yield popped more than 30 basis points while selling at the long end of the curve was much less subdued. The benchmark spread narrowed a noticeable 20 basis points from all time highs of around 280 basis points preceding the data. Fed fund futures for the out months have taken a hit, with the December contract now fully pricing in a 25 basis point hike by the end of the year. Though the Fed's Lockhart indicated they could consider raising rates while maintaining expansionist quantitative easing measures, most believe any move on rates is a ways off. PIMCO's Bill Gross may have summed it up best saying unemployment likely will not peak until the end of the year and thus rates should remain on hold for some time.
- Looking ahead to next week much attention will be given to the $64B in 3-, 10- and 30-year auctions on Thursday.
Any signs investors, particularly foreign, are beginning to step back from US paper; could cause yields to spike to levels that will hamper an economic recovery. Early Friday a Chinese regulator noted they were actively considering purchasing up to $50B of IMF bonds, leaving investors wondering where the demand would come from. With very little in terms of tier-one US economic data expected next week, more focus will certainly surround Fed commentary. Recent comments have indicated the Fed is somewhat reluctant to increase the size of their Treasury purchases given that they view recent curve steepening a sign of improving economic outlook more than anything else. Regardless, tensions in the mortgage market are reverberating throughout the rest of the interest rate complex as investors look to unwind treasury-related hedges and adjust the convexity of their portfolios. Both Freddie Mac and the Mortgage Bankers Association reported that average rates on 30-year mortgages moved above 5% this week, while MBA mortgage applications and refi both declined.
- In currencies, the week began with a crop of mildly positive PMI data out of China, India and Europe, whetting the appetite for risk.
However, data that would sustain this optimism and confirm the reality of economic stabilization was scarce. Euro Zone unemployment hit 10-year highs at 9.2%, Q1 Euro Zone GDP hit another record low and China's Commerce Ministry said foreign trade was facing "unprecedented difficulties." There was a positive Australian GDP reading and the US payroll numbers were strong, but the confusion over the latter blunted its impact on FX. There was plenty of verbal intervention from G20 central bankers and other officials. On his trip to China, US Treasury Geithner dutifully reiterated his belief in a strong USD and sought to calm fears among his Chinese counterparts about their investments in US Treasuries. For its part the PBoC acknowledged that it saw its treasury holdings in terms of a partnership with the US. South African Reserve Bank Chief Mboweni said the current level in the rand could mitigate inflation but warned its strength was unwelcome for economic balance. The Russian Central Bank's Ignatiev said there has been excessive strengthening of the ruble.
- The greenback maintained a soft tone and continued to hit multi-month lows against the European pairs thanks to growing concerns about central banks diversifying reserves away from the greenback.
Russian President Medvedev again brought up the idea of replacing USD as reserve currency with a basket of currencies, an idea that first made the round ahead of the London G20 summit back late March. The comment was evidently preparing the way for the upcoming summit of BRIC nations (Brazil, Russia, India and China), which are gathering to discuss common issues. Dealers are keenly aware of comments from a Brazilian minister in late May, to the effect that BRIC nations would discuss the USD and might take actions to lessen dependence on the dollar (most likely by developing a currency basket). Chatter emerged from a China/Malaysia trade meeting that the countries are considering ending trade denominated in dollars. EUR/USD hit fresh 2009 highs at 1.4340, although dealer chatter that the Bank of International Settlements (BIS) was selling euros at 1.4330 area capped the week's gains.
- As the week drew to a close, a flurry of rumors, data and central bank decisions made for highly volatile price action, led by the GBP-related pairs.
Sterling was knocked around by rumors that Prime Minister Brown would resign due the growing expense account scandal, which was quickly squelched by the PM's office. Dealers also noted that a number of big banks executed lots of G10 currency trades at the same time, with sources attributing the volatility to rumors (later proved true) that Rio Tinto and Chinalco would walk away from a $19.5B investment deal, provoking the massive unwinding related hedges.
- Central banks around the world kept key rates, already at record low levels, on hold.
The Bank of England, the ECB, the Bank of Canada and the Reserve bank of Australia (RBA) all left rates unchanged; in each case, the pauses were entirely expected. Russia was the only major rate surprise, cutting its refi rate by 50bps to 11.50%. ECB Chief Jean-Claude Trichet delivered the usual comments about staff projections, reiterating that the current interest rate level of 1% was appropriate although not necessarily the lowest possible rate. Trichet also noted that prior rate cuts were still passing through to the economy. But with rates on the floor, markets were really waiting for details on the ECB's covered bond purchase program. Trichet said the ECB did not consider the cover bond program "quantitative easing" and reiterated that the maximum amount would remain at €60B, disappointing hopes for larger purchases.
- In Asia, Australia remained at the forefront of the recovery story, not only on the macroeconomic but also on the corporate front.
On Wednesday, first quarter GDP for the Aussie economy surprised the markets on the upside, registering a +0.4% against estimates of -0.1%, thus dodging the technical definition of a recession by avoiding a second consecutive quarter of contraction. Then on Friday, Rio Tinto dropped its unpopular $19.5B tie-up with Chinalco in favor of a joint venture with BHP, collecting $5.8B from the deal and also announcing a $15.1B rights issue. Rio shareholders had been vehemently opposed to the deal, voicing concerns that it represented a fire sale of valuable assets during a period of unprecedented market turmoil, not to mention the overall uneasiness over a loss-making arm of the company's biggest client (China) having access to the company's board and pricing agreements. The offering is the second largest of the year and signals a radical change in perception of demand in the commodities space as well as the overall risk investment appetite.
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.
*INITIAL JOBLESS CLAIMS: 621K V 620KE; CONTINUING CLAIMS: 6.735M V 6.855ME
- Prior jobless claims revised from 623K to 625K
- Prior Continuing Claims revised from 6.788M to 6.75M
8:35:24 AM
(EU) ECB's Trichet: Reiterates current interest rate of 1% is appropriate; prior rate cuts are still passing through to the economy
- Price developments to remain dampened, price stability to be maintained in medium term.
- Inflation expectations remains firmly anchored. Inflation may turn negative in the next few months, notes that short-term moves in inflation are not relivant.
- Inflation risks are broadly balanced.
- Labor markets to weaken further over coming months.
- Notes recent improvements in survey data.
- Economic activity weakened considerably in Q1; to have big impact on full year projections.
- Data indicates a slowdown in monetary expansion.
8:39:16 AM
(EU) ECB Staff Projections: 2009 GDP -4.1% to -5.1% v -2.2% to -3.2% prior ; 2010 GDP -1.0% to 0.4% v -0.7% to 0.7% prior
- Forecast 2009 inflation (HIPC) 0.1% to 0.5% (Prior was 0.1% to 0.7%)
- Maintains forecasts 2010 inflation (HIPC) 0.6% to 1.4% (prior view was 0.6% 1.4%)
- Expects annual inflation (HXIP) to return to positive by end 2009
- Risks to economic outlook are balanced
- Protectionism, labor markets are downside risks to economy
- stronger-than-anticipated effects stemming from the extensive macro-economic stimulus underway and from other policy measures taken.
8:53:12 AM
(EU) ECB's Trichet: Reiterates that ECB will purchase €60B in covered bonds, puchases to begin in July and to be distributed throughout the Euro Zone (technical details)
- Bonds should have an AA or equivalent rating, bonds must link to assets that have exposure to public, private entities. BBB rated bonds are the lowest eligible rating.
- ECB to buy covered bonds in primary and secondary markets.
- Bonds cannot be lower in value than €100M, must have volume of about €500M or more
- Expects bond puchases to be completed by July 2010.
- Does not believe bond puchases will undermine the ECB's mandate.
- Room to maneuver to optimize bond purchase program
- Perhaps to concentrate on the 3-year to 10-year range for purchases
9:00:01 AM
*(CA) BANK OF CANADA LEAVES INTEREST RATES UNCHANGED AT 0.25%, AS EXPECTED
- Risks to economy are roughly balanced
- Stronger CAD offsets positive factors; CAD rises on commodities and weak USD sentiment
- Canadian and global economic recoveries to be more muted
- Output gap to widen in Q3
- Consumer and business sentiments have recovered modestly
- Inflation risks leaning towards the down side
- Financial conditions have improved 'significantly'
10:30 AM
*EIA NATURAL GAS INVENTORIES:
+124 BCF VS. +115 TO +120 BCF ESTIMATE RANGE
11:00 AM
US Treasury to sell $35B 3-year notes, $19B 10-year notes and $11B 30-year bonds
11:07:49 AM
(EU) ECB's Gonzalez-Paramo: Central banks should not take on credit risks without good reason, must work to prevent moral hazard
- Interest rates should be focused toward price stability.
- Central banks can provide banks with liquidity if banks are illiquid, but not if the banks are insolvent.
11:45:39 AM
(EU) ECB's Trichet: ECB does not expect to incur losses on covered bond buying program, reports of dissention in ECB council are "plain wrong" - TV interview
- Believes announcement of bond buying program has had a positive effect.
- Pledges that the ECB can withdraw non-standard policies quickly when needed.
- Notes that today's decision was unanimous.
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 seem indecisive this morning as US equity indices initially traded lower before lifting into positive territory.
Gains are marginal at this point as stocks seem unable to build momentum in either direction ahead of tomorrow's important jobs figures. Constructive news like notable consolidation in tech is being offset by weakness in retailers post May SSS results. Initial and continuing jobless claims held little in the way of surprises, while decisions out of the BoE and ECB to hold rates steady were as expected. Front-month crude has bounced back toward the six-month highs well above $68 on plenty of comments from OPEC Secretary General El-Badri. Other commodity markets are recovering as well as sellers return in the Greenback. Grains are up 2-3%, copper +2.75%, and gold up more than 1% nearing $980. Treasury prices are slipping once again after the US Treasury announced another $65B in coupon supply for next week. The US benchmark spread at 273 basis points remains close to all time highs.
- The leading national banks are outperforming markets this morning on incremental news from the Treasury on various bailout programs.
Herb Allison, who has been nominated to oversee the TARP program and replace Neil Kashkari, told Congress in his confirmation testimony that more TARP repayments were likely next week, raising hopes a big move could come out of the likes of JP Morgan, Morgan Stanley or Goldman Sachs. In addition, there's been news from PPIP. Last night the FDIC confirmed that it would not proceed with test sales of toxic assets, although the Treasury stated this morning that it would be pre-qualifying managers shortly for the Legacy Loans component of the PPIP, indicating that the program will indeed be getting underway soon. Also note that regional bank Fifth Third has been up as much as 7% in the early going after successfully wrapping up its $1B capital raise.
- In other equity news, Intel said it would acquire Wind River Systems for $11.50/shr in cash, in a deal valued around $884M.
The deal is expected to close this summer, with Wind River being integrated into Intel's Software and Services Group. Commentators not that this transaction is a game changer with broad implications for the tech sector. Wind River makes software for mobile phones and in-car entertainment systems, a growth area Intel covets given the stagnation in PC and server markets. Shares of WIND are up 50% in early trading. Axsys entered a definitive agreement to be acquired by General Dynamics at $54/share, in a deal valued at $643M. Shares of AXYS are up 6%. Boeing and EADS are both up a bit after United Airlines asked from bids from the two manufacturers for up to 150 new airliners. Also note that the IATA said overnight that orders for the two firms could fall by as much as 30% in 2010.
- May same-store sales were not pretty, with many retailers reporting steeper declines than expected as consumers continue to hold back on spending.
The usual suspects did manage to sustain positive gains, with discount chains FRED and ROST offering low single-digit gains, while teen-oriented mall chain ARO notably outperformed estimates by a wide margin. Discount apparel retailer TJX also managed to outperform expectations. Warehouse retailer COST slipped back into negative comps after April's unchanged reading, while BJ continued its slide into negative single-digit SSS. TGT also slipped back into negative single digits, after April's strong positive comp. All the major apparel and luxury retailers reported yet another month of abysmal negative sales. Note that WMT has discontinued monthly same-store sales reports.
- In currencies, a flurry of rumors, data and central bank decisions made for a highly volatile New York session so far.
Sterling was knocked around by was the forefront of the rumors that Prime Minsiter Brown had resigned his post due the growing expense account scandals. GBP/USD fell 300 pips to 1.6100 within 10 minutes of the emergence of the rumor around 8amEST; a government spokesperson quickly squelched the rumor, prompting a mild GBP retracement to 1.6275. At about the same time as the UK PM rumors, dealers also noted that several large banks executed lots of G10 currency trades at the same time, with sources attributing the volatility to rumors that China's Chinalco would walk away from a $19.5B investment deal with Rio Tinto, unwinding related hedges. The BoE rate decision was not a big factor, with the bank leaving rates unchanged, as expected. Note as well that the Bank of Canada left its rate unchanged at 0.25%.
- The ECB also left their key interest rates unchanged, as expected.
ECB Chief Jean-Claude Trichet delivered the usual comments about staff projections, reiterated that current interest rate level of 1% was appropriate although not necessarily the lowest possible rate, and also noted that prior rate cuts were still passing through to the economy. But what markets were really waiting for were details about the ECB's covered bond purchase program. Trichet said the ECB did not consider the cover bond program "quantitative easing" and reiterated that the maximum amount would remain at €60B, disappointing hopes for larger purchases. Interestingly, the ECB commented that it appreciated comments from US officials on their desire to maintain a strong dollar policy. The EUR/USD price action did encounter some swift changes within a 100 corridor of 1.41 to 1.42 handle as Trichet explained the economic, inflationary outlook and the cover-bond program. EUR/USD ended the NY morning little changed from its opening levels from Asia. It seems that dealers' overall assessment remains that the ECB is unwilling to extend themselves as a source of economic aid should the green shoots turn brown. Currency dealers continue to see key hourly support around the 1.4050/70 area.
More Headlines
8:30:03 AM
*INITIAL JOBLESS CLAIMS: 621K V 620KE; CONTINUING CLAIMS: 6.735M V 6.855ME
- Prior jobless claims revised from 623K to 625K
- Prior Continuing Claims revised from 6.788M to 6.75M
8:35:24 AM
(EU) ECB's Trichet: Reiterates current interest rate of 1% is appropriate; prior rate cuts are still passing through to the economy
- Price developments to remain dampened, price stability to be maintained in medium term.
- Inflation expectations remains firmly anchored. Inflation may turn negative in the next few months, notes that short-term moves in inflation are not relivant.
- Inflation risks are broadly balanced.
- Labor markets to weaken further over coming months.
- Notes recent improvements in survey data.
- Economic activity weakened considerably in Q1; to have big impact on full year projections.
- Data indicates a slowdown in monetary expansion.
8:39:16 AM
(EU) ECB Staff Projections: 2009 GDP -4.1% to -5.1% v -2.2% to -3.2% prior ; 2010 GDP -1.0% to 0.4% v -0.7% to 0.7% prior
- Forecast 2009 inflation (HIPC) 0.1% to 0.5% (Prior was 0.1% to 0.7%)
- Maintains forecasts 2010 inflation (HIPC) 0.6% to 1.4% (prior view was 0.6% 1.4%)
- Expects annual inflation (HXIP) to return to positive by end 2009
- Risks to economic outlook are balanced
- Protectionism, labor markets are downside risks to economy
- stronger-than-anticipated effects stemming from the extensive macro-economic stimulus underway and from other policy measures taken.
8:53:12 AM
(EU) ECB's Trichet: Reiterates that ECB will purchase €60B in covered bonds, puchases to begin in July and to be distributed throughout the Euro Zone (technical details)
- Bonds should have an AA or equivalent rating, bonds must link to assets that have exposure to public, private entities. BBB rated bonds are the lowest eligible rating.
- ECB to buy covered bonds in primary and secondary markets.
- Bonds cannot be lower in value than €100M, must have volume of about €500M or more
- Expects bond puchases to be completed by July 2010.
- Does not believe bond puchases will undermine the ECB's mandate.
- Room to maneuver to optimize bond purchase program
- Perhaps to concentrate on the 3-year to 10-year range for purchases
9:00:01 AM
*(CA) BANK OF CANADA LEAVES INTEREST RATES UNCHANGED AT 0.25%, AS EXPECTED
- Risks to economy are roughly balanced
- Stronger CAD offsets positive factors; CAD rises on commodities and weak USD sentiment
- Canadian and global economic recoveries to be more muted
- Output gap to widen in Q3
- Consumer and business sentiments have recovered modestly
- Inflation risks leaning towards the down side
- Financial conditions have improved 'significantly'
10:30 AM
*EIA NATURAL GAS INVENTORIES:
+124 BCF VS. +115 TO +120 BCF ESTIMATE RANGE
11:00 AM
US Treasury to sell $35B 3-year notes, $19B 10-year notes and $11B 30-year bonds
7:50am Fed's Pianalto speaks at conference in Kentucky.
8:00am Fed's Dudley speaks on PPIP at SIFMA Conference.
8:45am Fed Chairman Bernanke speaks at conference.
Todays Headlines
8:15:09 AM
*ADP MAY EMPLOYMENT CHANGE: -532K V -525KE
- Small businesses -209K v -183K m/m
- Medium businesses - 223K v -231K m/m
- Large businesses - 100K v -77K m/m
- Goods-producing sector - 267K v -262K m/m
- Service-providing sector: - 265K v -229K m/m
- Manufacturing industry -149K
10:00:03 AM
*MAY ISM NON-MANUFACTURING: 44.0 V 45.0E
- Non-Mfg Prices Paid Index: 46.9 v 40 prior
- Employment: 39 v37 prior (39 is highest since Oct 2008)
- New Orders Index: 44.4 v 47 prior
- ISM Nieves: Employment index still shows contraction but at a slower rate
- Respondents seeing signs of improvement, but not reflected in indices
- Consumers holding onto discretionary funds; firms trying to entice spending
10:00:05 AM
(US) Fed's Bernanke: US cannot keep borrowing indefinitely to meet spending needs, expects economy to pick up in late 2009
- Growth rates will remain below potential even after the recovery gets underway.
- Believes Treasury yields are rising on deficit concerns as well as an improving economy.
- Expects to see sizable job losses over the next few months.
- Inflation may fall a bit, but the improving economy and stable expectations should limit any declines in inflation.
- Expects inflation to remain relatively low in spite of recent spikes in oil and commodities.
- Planning to restore fiscal balance and build market confidence must begin now, urges strong action on deficits.
- Tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues.
- Pledges that the Fed will shortly begin publishing a monthly report on the Fed's balance sheet and quarterly updates of "key elements" of the Fed's annual financial statements.
10:39:00 AM
(US) Fed's Bernanke: Choosing the right time to withdraw special measures is tricky, believes decision can be made without policitical interference - Q&A
- Reiterates the Fed will not monetize US govt debt.
- Only about one quarter of the stimulus impact will be felt in 2009, sees stimulus having an impact over the course of two to three years.
- Has been a fairly wide improvement in financial markets.
- The rest of the world economy is strengthening.
- Excessive leverage may be a headwind for any US economic recovery
11:29:49 AM
(US) Fed Chairman Bernanke: Fed will be able to raise interest rates even with a large balance sheet; Fed does not plan to sell MBS holdings in the near term: hopes markets normalize in 4-5 years
- On removing accomodation, says must be done at the right time and right pace, can raise rates even with a large balance sheet; If worst came to worst, the Fed could sell some assets from the balance sheet.
- Expects a substantial flow of revenue from MBS purchases will offset any losses down the road.
- Continuing improvements in financial markets are a key consideration in whether to expand purchases.
- The government's role in housing markets needs a complete reconsideration.
- Fear of deflation has receeded somewhat.
11:54 AM
Fed's Bernanke: Sees no risk to the reserve status of the USD for the foreseeable future
- Q&A- Must work toward restoring a strong US economy, that in turn will promote a strong dollar.
2:30:31 PM
(US) Fed's Hoenig: Economic imbalances are putting the recovery at risk, recovery will be more fragile and slower than expected
- Unemployment may decline slower "than anyone wants."
- Seeing initial signs of inflation worries in long-term treasuries; need to avoid an outbreak of inflation.
- It is clear that interest rates have to rise, and accomodation will need to be removed eventually; Fed has to stand firm if markets resist the process of removing accomdation.
- Deficit will remain large for years to come; costs of US budget deficit are worrisome.
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 lower this morning as the morning's ADP job data spooked investors into taking profits after two days of strength.
The May ADP employment change registered a slightly bigger decline than expected, while an extra 50K in job losses was added to the prior month's data. Nevertheless, the data is still showing big improvements over the 600K+ declines seen in the first three months of the year. Fed Chairman Bernanke is testifying before Congress this morning, telling legislators that the US cannot keep borrowing indefinitely to meet spending needs and warning that tax rates must ultimately be "set at a level sufficient to achieve an appropriate balance of spending and revenues." Front-month crude is well off recent highs, down nearly $2 around $66.75.
- Last night more details emerged concerning the Fed's tweaking rules under which banks may repay TARP funds.
Among other things, JP Morgan, American Express and Morgan Stanley were all specifically told to raise more capital in order to pay back TARP, less than four weeks after they were told they had enough to deal with a deeper economic slump. Goldman Sachs was not asked to raise more capital since it had raised funds in April. There have been reports that Citigroup is looking to amend common share authorization up to 60B. Back in March there were various press comments speculating that Citi would look to boost its share authorization up to 40B to fulfill an exchange of preferred stock into common stock.
- Negative guidance calls from Aetna and Valero have dragged down both names and their respective sectors in early trading.
Aetna cut its 2009 forecast to $3.55-3.70 from $3.85-3.95 thanks to rising medical costs and falling Medicare revenue. Wachovia and Credit Suisse cut their ratings on the name overnight. AET is off its worst levels in early trading, but still down 8%. Other managed care names were down on the news, with CVH, CI and HUM down 3% or so today. Valero offered Q2 earnings guidance of -$0.50, which compared very unfavorably with analysts' expectations for $0.74. Valero's Q2 has been adversely affected by extended downtime at its Delaware City and McKee refineries and by the continuation of weak sour crude oil discounts and lower diesel margins. Shares VLO are down 16%.
- Homebuilders Toll Brothers and Hovnanian are both heading in the same direction in early trading despite their divergent second-quarter results.
TOL cut its quarterly loss to a bare minimum (ex write downs), beating analysts' estimates by a wide margins. The firms new contracts have nearly doubled, offering homes that some of the upswing seen in certain housing data is aiding the company. Toll's CEO said it appears some buyers are beginning to re-enter the new home market. Hovnanian's loss was bigger than expected, and its metrics did not quite show the improvements seen at Toll brothers. TOL is down 6% in the early going, while HOV is -10%.
- Tech journal Digitimes reported this morning that solar cell spot prices have fallen to $1.4/watt.
According to the article, Chinese and Taiwan polycrystalline manufacturers were offering spot quotes of $1.4/W at last week's Intersolar 2009 trade fair. Recent research suggests the average industry manufacturing cost is around $1.8/watt. Solar names are giving up the gains of recent days on the news, with leading solar ETF TAN -5% on the news.
- In currencies, the greenback hit choppy trading in the New York session but held its firmer position as the ADP employment report prompted risk aversion and profit-taking ahead of the ECB decision tomorrow and Friday's US non-farms payroll report.
The USD was wobbly as dealers debated the authenticity of a "joint statement" issued by several Asian monetary authorities; some have noted that reporters may have compiled the statement comments that were in fact made separately. Later in the New York session the back-month revision of the ADP numbers and the failed Latvia bond auctions prompted renewed USD buying against the major European pairs, with the Swedish Kroner especially weak given Swedish lending exposure to Latvia. This was tempered by comments from Bernanke that Treasury yields are rising on both deficit concerns as well as an improving economic prospects. The inability of the USD/RUB pair to sustain any downward momentum below the 30.50 level also aided the dollar, as the move cut the aggressive appetite for euros at the Russian Central Bank in its quest to smooth out its currency basket. The commodity currencies also retraced from their recent trend helped by weaker energy and metal weakness.
More Headlines
8:15:09 AM
*ADP MAY EMPLOYMENT CHANGE: -532K V -525KE
- Small businesses -209K v -183K m/m
- Medium businesses - 223K v -231K m/m
- Large businesses - 100K v -77K m/m
- Goods-producing sector - 267K v -262K m/m
- Service-providing sector: - 265K v -229K m/m
- Manufacturing industry -149K
10:00:03 AM
*MAY ISM NON-MANUFACTURING: 44.0 V 45.0E
- Non-Mfg Prices Paid Index: 46.9 v 40 prior
- Employment: 39 v37 prior (39 is highest since Oct 2008)
- New Orders Index: 44.4 v 47 prior
- ISM Nieves: Employment index still shows contraction but at a slower rate
- Respondents seeing signs of improvement, but not reflected in indices
- Consumers holding onto discretionary funds; firms trying to entice spending
10:00:05 AM
(US) Fed's Bernanke: US cannot keep borrowing indefinitely to meet spending needs, expects economy to pick up in late 2009
- Growth rates will remain below potential even after the recovery gets underway.
- Believes Treasury yields are rising on deficit concerns as well as an improving economy.
- Expects to see sizable job losses over the next few months.
- Inflation may fall a bit, but the improving economy and stable expectations should limit any declines in inflation.
- Expects inflation to remain relatively low in spite of recent spikes in oil and commodities.
- Planning to restore fiscal balance and build market confidence must begin now, urges strong action on deficits.
- Tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues.
- Pledges that the Fed will shortly begin publishing a monthly report on the Fed's balance sheet and quarterly updates of "key elements" of the Fed's annual financial statements.
10:39:00 AM
(US) Fed's Bernanke: Choosing the right time to withdraw special measures is tricky, believes decision can be made without policitical interference - Q&A
- Reiterates the Fed will not monetize US govt debt.
- Only about one quarter of the stimulus impact will be felt in 2009, sees stimulus having an impact over the course of two to three years.
- Has been a fairly wide improvement in financial markets.
- The rest of the world economy is strengthening.
- Excessive leverage may be a headwind for any US economic recovery
11:29:49 AM
(US) Fed Chairman Bernanke: Fed will be able to raise interest rates even with a large balance sheet; Fed does not plan to sell MBS holdings in the near term: hopes markets normalize in 4-5 years
- On removing accomodation, says must be done at the right time and right pace, can raise rates even with a large balance sheet; If worst came to worst, the Fed could sell some assets from the balance sheet.
- Expects a substantial flow of revenue from MBS purchases will offset any losses down the road.
- Continuing improvements in financial markets are a key consideration in whether to expand purchases.
- The government's role in housing markets needs a complete reconsideration.
- Fear of deflation has receeded somewhat.
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
Todays Headlines
7:18:49 AM
Euro vs US Dollar (RU) Russian President Medvedev: Resurrects the idea of replacing USD as reserve currency with a basket of currencies - CNBC interview
- Note that Medvedev suggested prior to the G20 summit on April 2 G20 that there should be a new basket of strong regional currencies to replace the dollar as the world's reserve currency.
- believes current oil prices are fair.
- Reminder: The BRIC nations (Brazil, Russia, India and China) are holding a summit in Russia on to discuss common isssues. On 5/28, a Brazilian govt minister said the BRIC nations would discuss the USD and could take actions to lessen such dependence.
8:07:02 AM
OPEC Sec Gen El-Badri: Oil could reach $90 by the end of 2010, believes the current rally is partially driven by fundamentals, $75-85 oil would not affect the world economy
- Blames rising oil prices in part on the weak USD.
- OPEC holds enough spare capacity to calm prices if they were to get "out of control."
- OPEC would not raise output until inventories fall to around 52 days of forward demand.
- Does not see an "alarming" level of speculation driving the rally in oil.
9:29:43 AM
(US) Moody's has a Negative outlook on US Banking ratings
- Reports that both the US banking industry rating outlook and the industry''s broader fundamental credit outlook continue to be negative because of the sharp economic recession that is cutting deeply into US bank balance sheets.
- Banks rated by Moody's hold approx 85% of nations banking assets
- See many banks as continuing to be unprofitiable in 2009, will need to continue capital rasies
- Expects US rated banks will incur a total of approximately $470 billion (pre-tax) of loan and security losses and write-downs in 2009 and 2010.
10:00:02 AM
*APRIL PENDING HOME SALES (M/M): 6.7% V 0.5%E
- 6.7% is best m/m reading since Oct 2001
- Lawrence Yun, NAR chief economist, said buyers are responding to very favorable market conditions.
- "Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market," he said.
- "Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers
12:59:19 PM
(JP) Japan Govt considering removal of 'worsening' word from its overall assessment report - Nikkei news
- Reminder: on 5/25 Japan Cabinet disclosed May economic report; noted the "worsening" pace is milder and that it was to raise overall economic view.
- The report is expected to be sumbitted by mid-June
1:40:39 PM
Fed's Fisher: Consumer confidence beginning to pick up; retail sales not 'plunging'; beginning to see results of Fed's actions in credit markets
- sees very slow national recovery
- says the steep yield curve is representative of an improving economy and the US' large debt issuance; Fed needs to make it clear the US will not monetize the budget deficit.; does not believe that the recent increase in long term yields indicate inflation fears
- Comments that there is no exact formula for withdrawal of stimulus
- Notes that banks are depending less upon the Fed for term lending
- thinks the GM bankruptcy will have some dampening effect on the US economy
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.
"Everyone thinks of changing the world, but no one thinks of changing himself."
Monthly Forecast
With the doomsday scenario apparently off the table, prospects for recovery have helped fuel the resurgence in stocks and in some commodity prices. The first wave of the Treasury's unprecedented debt sales have been absorbed relatively smoothly, though the US dollar has weakened substantially on concerns about the mounting government debt burden. Still, there are growing hopes that the economic rescue measures implemented by global central banks and governments are beginning to take hold and provide a lush foundation of ‘green shoots’ underfoot that can be nurtured into a blossoming global economic recovery by late 2009 or into 2010. The data in May seemed to have confirmed that things have stopped getting worse but do not suggest a timeframe for when the economic environment will actually improve. Debate is now centering on what the “shape” of the economic recovery will be, with sentiments represented by letters from "V" to "U" to "W," and of course, the dreaded "L". A number of economic and political events in June could help influence the outcome of this economic alphabet soup.
Triple-A, For Now
Peering into June, trading in US Treasuries will likely remain a focal point for financial markets around the world. The action in these markets will hint at the possible shape and timing of any economic recovery. A sustained uptick in rates could severely hinder any rebound in US housing, but also stoke fears the United State’s AAA sovereign debt rating could be jeopardized by driving up the cost of issuing and servicing future debt. US credit markets participants will also continue assess Fed policy with specific attention on the effectiveness of its quantitative easing program.
The benchmark US 10-year yield gained roughly 40 basis points in May to test the psychological level of 3.5%, including a spike towards 3.75% late in the month. The relative ease with which rates were testing their highest levels in months caused some justifiable fears that a subsequent move up in mortgage rates could extinguish any recovery in the housing market. The widening spread between mortgage backed securities and comparable Treasuries over the final two weeks of May only fanned those concerns. The month’s final two trading sessions saw rates retreat as experts and government officials, including some at the Fed, signaled the current environment of rising rates is likely a harbinger of economic improvement down the road. As long as rates stay within a context that is historically viewed as low, and the incoming data continues to decline at a slower rate, a bottoming process for the economy can find traction. Under that scenario the allocation from the relative safety of government backed bonds to riskier assets can continue.
Ultimately rates likely moved higher in May on concerns surrounding rapidly expanding deficits and the ever increasing future Treasury supply needed to fund it. Though the month’s auctions of new supply went off pretty much as well as can be expected, anxiety remains high ahead of the 10 and 30-year paper sales set for the second week of June. Demand has definitely been more fickle at the long end of the curve as evidenced by the US benchmark spread widening out to its highest level on record in the final week of May. A certain level of trepidation has seeped into markets surrounding the US Treasury’s ability to successfully find demand for the oncoming supply.
Treasury demand concerns were initially highlighted through a mid-May coupon purchase by the NY Fed. It garnered special attention after the amount submitted for sale was the largest since the inception of the quantitative easing program, but in response the Fed was unwilling to increase its purchases. This gave the markets a noticeable jolt of disappointment in light of the fact just the day before, the FOMC minutes hinted that the Fed was mulling an increase of its asset purchases going forward. US yields continued to trek higher into month’s end as traders and prognosticators alike suggested the markets were testing the Fed’s resolve. Criticisms abound regarding the size of the Fed’s asset purchasing operation and the ultimate effectiveness of the quantitative easing methodology, with many critics urging the Fed to immediately announce that it will boost its current operations to buy back Treasury and mortgage backed securities, which currently have about $170B and $750B remaining, respectively. Reports suggest that Fed members are studying the recent rise in yields but are still hesitant to make any dramatic changes at this time. With the FOMC not scheduled to meet until June 23rd, it will be interesting to see if rates can continue rise without the Fed stepping up in a more aggressive manner.
The mid-month the move higher in US yields was exacerbated by S&P’s decision to downgrade its outlook for the UK’s AAA sovereign debt rating. Concerns quickly found their way to the US as many speculated a similar action on Uncle Sam’s debt was in the offing. Though both Moody’s and S&P would ultimately come out and affirm their AAA ratings and outlooks, comments from widely followed experts like PIMCO’s Bill Gross and Mohamed El Erian kept the notion in the forefronts of traders' minds. Both pointed to the conflict of interests between the government’s aggressive short term actions to stimulate growth and the long term imperative to significantly cut the deficit and future borrowing needs.
All the "T" in China
These sovereign debt rating whispers were intensified by an environment of a declining US dollar and rising prices for hard assets. Speculation is growing that foreign nations are looking to diversify away from dollar denominated assets, and the mid-June meeting of BRIC nations in Moscow promises to see ministers discussing the dollar. Also of note, on June 1st and 2nd Treasury Secretary Geithner will travel to China to meet with his counterparts there. Geithner, whose first political gaffe came during his confirmation hearings when he seemed to suggest China was a currency manipulator, will likely tread very carefully as he meets the USA's biggest creditor. Any policy missteps at this critical juncture could cause the dollar to slide and Treasury yields to rise further.
China's PM Wen recently cautioned about "blind optimism" for economic recovery, warning governments should not underestimate the possible duration of the crisis. Abundant caution is warranted as unemployment and bankruptcies continue to mount, and the housing market continues to seek a bottom. In light of this, EUR/USD enters June just above the 1.40 level with the USD clearly on the defensive, despite US officials assuring that a strong dollar policy remains intact. The direction the US dollar will take in coming months will be largely determined by the “shape” of things to come, both in terms of the shape of the economic recovery and the shape of the global yield curve.
Major central banks may be caught in a US dollar trap as large holders of US Treasuries (particularly China) have little choice but to keep pouring the bulk of their growing reserves into the U.S. debt instruments. China has expressed its discontent with the Fed freely printing money under for its quantitative easing activities, but the Treasury remains the only market big enough and liquid enough to absorb China’s huge purchases.
Should the USD continue to exhibit weakness, the question of currency intervention could become one of the key buzzwords in June. Last year, prior to the global economic slowdown taking hold, the German Export association called the 1.50 level in the EUR/USD a ‘line in the sand.' Should the greenback reach this boundary, economic headwinds and the need for US to keep confidence in the dollar might provoke a rare central bank coordinated effort to hold that line.
Preparing for an “L”-Shaped Future?
June 4th will see the ECB policy meeting, which is expected to hold interest rates at 1.00%. The meeting will generate intense interest as the ECB is expected to provide the technical details of its €60B covered bond purchase plan. At the ECB's press conference, the media may raise the question of whether the program can be expanded beyond €60B, which is less than half the size of the equivalent Fed asset purchasing operation. Market participants will also look for more hints on whether the ECB has definitively decided if interest rates are at their lowest possible level. The BOE meet the same day and is expected to remain hold its base rate at the historically low 0.50%.
The FOMC's rate announcement comes on June 24 as speculating grows that the Fed will up the ante on quantitative easing. To their credit, the Fed and other central banks have started jawboning about the eventual withdrawal of the extraordinary stimulus they have been providing. But this summer central bank speakers may start feeling pressure to be more forthcoming about the details of what will clearly be a very tricky disengagement process to forestall murmurs that and exit strategy might not exist. This even as the Fed may judge it needs to go even bigger on its asset buying plans.
In its latest economic forecast, the Fed revised its outlook to reflect a deeper recession in 2009 and slower recovery in 2010. Several data points this month will help inform the central bank's evolving economic assessment. Unemployment, though deemed a lagging indicator, is particularly sensitive in this time of the government essentially nationalizing auto makers and financial firms and forcing massive layoffs as part of restructuring efforts. The US May Nonfarm Payrolls and Unemployment data will be released on June 5, and are expectations are the jobless rate will continuing to stampede toward 10%, while over half a million jobs will be lost for the 7th month in a row. Inflation data represented by the PPI (6/16) and CPI (6/17) will also be increasingly eyed as commodity prices continue to press higher.
“A” is for Ana
Commodities had a remarkable rally in May, with the CRB commodities index posting its biggest monthly percentage gain since 1974, on bets that the world economy is starting to stabilize. Crude oil led the way, rebounding significantly off of recent lows thanks in part to strong compliance by OPEC members and a weakening US dollar. In fact, crude had its biggest one month move in about 10 years, rising over 30% in May. Notably, $66/barrel oil has not been followed by natural gas, which continues to linger near multi-year lows, a sign that the crude rebound could be based more on speculation of economic recovery than on any fundamentals. Ironically, the bets on an economic rebound that have helped drive commodities higher could put a damper on recovery as higher material and energy prices could restrain the still fragile economy.
Hurricane season officially starts June 1, and weather experts at NOAA are forecasting a moderately active season with 9 to 14 named storms expected of which 1 to 3 are expected to be major storms. The first named storm will be called Ana, and she and her brethren could throw some new volatility into the energy market after three relatively quiet storm seasons following the upheaval Katrina caused in 2005. A rough hurricane season in the Gulf of Mexico and persistent dollar weakness could boost the entire energy complex and send crude toward OPEC’s nominal $75 target. On the other side of the ledger, as the price of oil rises OPEC members have an increasing incentive to cheat on quotas, though they have shown unprecedented discipline to date.
U-Turn Ahead?
As the pace of decline has slowed, investor appetite has turned back in the direction of China, where expectations of hard commodity demand has helped copper reach 7-month highs. Recently Vale, the biggest miner of iron ore and nickel, announced it was not planning any more output cuts due to recovery of demand from China. That sentiment was then echoed by other large miners Rio Tinto and Fortescue Metals, who saw China demand improving amid the bottoming process in spot metal prices. The timing of the bullish outlook is particularly significant for another reason—Chinese steelmakers are still embroiled with miners on securing this year's pricing commitment and face the prospects of buying iron ore at the steadily rising spot levels, while their Korean and Japanese competitors have already secured a 33% price cut.
Other voices are less optimistic. The CEO of mining giant BHP recently expressed concerns that Chinese buying is not an evidence of real demand but rather an inventory buildup at bargain prices in preparation for the stimulus. Also, according to the Financial Times, implementation of that stimulus is in question because state officials and private sector— responsible for CNY2.8T of the CNY4T package—are having trouble financing their share of the burden. Likewise, a World Bank official suggested that expectations of recovery in China is premature and needs to be validated by improving domestic consumption. The coming weeks should clarify some of this uncertainty over the true economic state of the region, however if the balance does shift back in favor of the skeptics, given the extent of the recent run-up, the perception of the V-shaped bounce is likely to take an abrupt U-Turn.
Spelling it Out
The global economy is still in a fragile state, and despite signs of stabilization and glimmers of recovery the timing of these improvements remains uncertain. Keep in mind that there are plenty of factors that could complicate things, not the least of which is the US Treasury’s plans to borrow $1.8T this year. The Treasury’s ambitious plans can only deepen the coming glut of sovereign debt and might threaten the US and other nation’s sovereign ratings, while ensuing interest rate problems could further weaken the world's reserve currency. And nobody should count on a return to spending by newly cautious consumers, who have been tempered by withering home prices and shrinking 401Ks. Spending will not be roaring back to pre-crisis levels, making it clear that while the worst may be over the road to recovery will be B-U-M-P-Y.
Calendar of Significant Events
June 1-2: Geithner in China
June 4: ECB and BOE rate decisions
June 5: May US Nonfarm Payrolls and Unemployment
June 10: Treasury’s 10-year auction
June 11: Treasury’s 30-year auction
June 24: FOMC rate decision
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.
10:00am April Pending Home Sales m/m (last 3.2%), TAF results
4:30pm API Crude Oil/Gasoline/Distillate Inventories
Todays Headlines
8:30 AM
*(CA) CANADA MAR GROSS DOMESTIC PRODUCT M/M: -0.3% V -0.3%E
- Q1 GDP ANNUALIZED: -5.4% V -6.5%E
8:30 AM
*APR PCE CORE M/M: 0.3% V 0.2%E
- PCE CORE Y/Y: 1.9% V 1.9%E
-PCE DEFLATOR Y/Y: 0.4% V 0.4%E
8:30:04 AM
*APR PERSONAL INCOME: 0.5% V -0.2%E; PERSONAL SPENDING: -0.1% V -0.2%E
- Prior Personal Income revised from -0.3% to -0.2%
- Prior Personal Spending revised from -0.2% to -0.3%
10:00 AM
*APR CONSTRUCTION SPENDING M/M: 0.8% V -1.5%E
- Prior MoM evised from 0.3% to 0.4%
10:00:03 AM
*MAY ISM MANUFACTURING: 42.8 V 42.3E; PRICES PAID: 43.5 V 35.0E
Sub Indices:
- Employment Index: 34.3 v 34.4 prior
- New Orders Index: 51.1 v 47.2 prior (highest since Nov of 2007)
- Inventories index:32.9 v 33.6 prior
11:03 AM
(US) US Treasury: Loans from banks receiving TARP funding averaged:
- $5.28T in February
-$5.24T in March
4:00:24 PM
Fed releases details for TARP repayment: Banks must sell bonds without FDIC guarantees; show abilities to borrow long term
- Will consider whether bank can be strong for subsidiaries.
- Fed will consider whether banks and subsidiaries can meet funding needs and counterparty obligations.
- Initial application approvals for redemptions to be announced week of June 8.
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.
- GM's bankruptcy filing, which arrived just before 8amET, is captivating the media this morning, with front pages, home pages and talking heads discussing little else.
So far equities are responding well to the long-expected news, with all three leading indices opening higher and pushing out to around 2.5% gains by mid morning, extending Friday's solid gains. The DJIA was adjusted this morning, with CSCO replacing GM, and Travelers replacing Govt capital infused Citigroup; shares of CSCO and TRV are up 4% or so on the move.
The changes are effective June 8. On the data front, April Construction Spending was much better than expected, posting its biggest monthly gain since last August, coming a hair to the positive side at 0.8% versus expectations of -1.5%. The May ISM Manufacturing reading was in line, although traders are focusing on the much better than expected prices paid and new orders component, with the latter hitting its highest level since November 2007. Commodities continue to rally, with front-month crude pushing out yet again to six-month highs around $67.50, although gold is off earlier highs, at $977.
- Little new has emerged in the flurry of GM news this morning, with most of the details disclosed previously through waves of sources, press releases, and official comments over the course of the last few weeks.
To recap, GM is still expected to emerge from Chapter 11 protection (the largest industrial bankruptcy in US history) in 60 to 90 days stripped of most debt, with ownership of 60.8% by the U.S. Treasury, 11.7% by the Canadian and Ontario governments, 17.5% by the New VEBA, and 10% by unsecured bondholders. Over in Europe, Germany brokered a deal to sell GM's Opel unit to a consortium of buyers that includes Russia's state-owned Sberbank (35% stake), Magna International (20% stake) and Opel employees (10% stake). GM will retain a 35% stake in the unit.
Germany is extending €1.5B in funding for the deal, although German Chancellor Merkel was keen to mention that the Opel situation is putting US-German relationship under strain. Note that there have also been multiple reports over the weekend that fellow bankrupt automaker Chrysler is expected to emerge from bankruptcy as soon as today. And also note that the CEO of auto retailers AutoNation told CNBC this morning that he believes annual auto sales will be back over 14M units in five years, up from the dismal forecasts for 9M in overall sales in 2009.
- Morgan Stanley and Citigroup have closed early on the launch of their joint venture, which combines Morgan Stanley's wealth management unit with Citi's Smith Barney division in a new unit called Morgan Stanley Smith Barney.
The JV was originally scheduled to launch in Q3. Morgan holds a 51% stake in the venture, which generates about $14B in net revenue a year. Goldman Sachs has sold $1.9B worth of shares in Industrial and Commercial Bank of China, representing nearly 20% of Goldman's 4.93% stake in the Chinese bank, which is the world's biggest lender by market value. Regional bank Zions Bancorp popped 7% before the open after announcing debt and stock sales to shore up its balance sheet, although shares were down to +3% by mid morning. SunTrust also launched a $1.4B common stock sale, although shares of the regional bank are down 2% on the dilutive news.
- In currencies, the strong risk appetite sparked by China and India's PMI data continued to build in the New York session, finally weakening JPY against its major pairs.
EUR/JPY and GBP/JPY exhibited several hundred pip moves in the session on the returning risk appetite. Commodity currencies held onto most of their earlier gains despite some retrenchment in the energy and metals. Canadian GDP data was a bit better than expectations, but a slight back-month downward revision prompted a modest bout of profit-taking in CAD. There has been a degree of verbal intervention from some G20 central bankers.
The South African Reserve Bank's Mboweni noted that the current level in the rand could mitigate inflation, but its strength was unwelcome for balance in the economy. The Russian Central Bank's Ignatiev said there has been excessive strengthening of the ruble from the real economy's point of view. However, he vowed to maintain volatility as the ruble moved toward a free-float regime. EUR/USD ended the NY morning around the 1.42 area. Dealers are pondering whether the "threshold of pain" around the 1.50 area discussed by the German Exporter Association back in the days prior to the global recession remains intact.
More Headlines
8:30:01 AM
*(CA) CANADA MAR GROSS DOMESTIC PRODUCT M/M: -0.3% V -0.3%E
- Q1 GDP ANNUALIZED: -5.4% V -6.5%E
8:30:03 AM
*APR PCE CORE M/M: 0.3% V 0.2%E
- PCE CORE Y/Y: 1.9% V 1.9%E
-PCE DEFLATOR Y/Y: 0.4% V 0.4%E
8:30:04 AM
*APR PERSONAL INCOME: 0.5% V -0.2%E; PERSONAL SPENDING: -0.1% V -0.2%E
- Prior Personal Income revised from -0.3% to -0.2%
- Prior Personal Spending revised from -0.2% to -0.3%
10:00:01 AM
*APR CONSTRUCTION SPENDING M/M: 0.8% V -1.5%E
- Prior MoM evised from 0.3% to 0.4%
10:00:03 AM
*MAY ISM MANUFACTURING: 42.8 V 42.3E; PRICES PAID: 43.5 V 35.0E
Sub Indices:
- Employment Index: 34.3 v 34.4 prior
- New Orders Index: 51.1 v 47.2 prior (highest since Nov of 2007)
- Inventories index:32.9 v 33.6 prior
11:03:45 AM
(US) US Treasury: Loans from banks receiving TARP funding averaged:
- $5.28T in February
-$5.24T in March
"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.
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