Archive for the ‘Morning Call: Daily Analysis of the Global Markets and Economy’ Category
Morning Call
“We are what we repeatedly do; excellence, then, is not an act but a habit.”
Aristotle
Morning Call
July 31, 2009
Today’s GDP report will be among the most important factors determining market movement. Economists are predicting that the US economy shrank at a slower pace in the second quarter and that stimulus measures may be starting to take hold. Nonetheless, most analysts see a long road ahead as economic recovery will be slow and tenuous for some time. The report may show that consumer spending will have fallen slightly again and economists are predicting a 10% unemployment rate by early 2010. Across the Atlantic, European consumer prices fell by the most in 13 years and unemployment rose to 9.4%; a decade long high. The International Monetary Fund still sees a threat of a deflationary setting despite broad spending measures.
In other news, the so called Cash for Clunkers program has reportedly burned through its $1 Billion budget in six days. This is being seen as a success for the program which provides incentives to trade in older vehicles to be scrapped and theoretically buy a more fuel efficient replacement. Reportedly, the program has helped get about 200,000 new cars on the road. Lawmakers will now decide whether to ramp up the budget for the program.
The US markets held up yesterday for close to a 1% upside and look to add half that amount at the opening bell today. Equities in Asia added an average of 1.5% with the financial sector among the best performers. Banks in Europe are also on the rise, although the broader market is relatively flat. Although US futures are higher this morning, much of the high volume trading has been to the downside, which suggests sentiment could change quickly. For now, we will stick with our choices in Dry Bulk Shipping and the Oil Drilling Companies. Many of the bulk shippers such as DryShips (DRYS) and Ocean Freight (OCNF) gained an average of 3% yesterday and look to have an even better start today. We will watch a little more closely with the drillers such as Diamond Offshore (DO) and TransOcean (RIG). Both added around 1% yesterday, and are up slightly in premarket trading, but may be losing some momentum.
As a whole, commodities are mixed this morning. Gold has added close to $3 to reach $936, while oil has moved marginally higher at $67. Indications are that commodities should gain more momentum as the day wears on. The Dollar has fallen off against the Euro and Pound, but it is the Yen has shown the greatest weakness this morning.
In addition to the GDP numbers, we will also have the Employment Cost Index, and the Chicago Purchasing Managers Index. For earnings news, we look to AutoNation, Chevron, Constellation Energy, Dominion Resources, Nicor, Sempra Energy, Snap-On, and the Washington Post. We are expecting some positive numbers from both Constellation Energy and Dominion Resources.
A lot of hope is pinned on this morning’s GDP numbers and we will remain cautious that optimism may not hold up. Overall, today’s trading could lead to a relatively flat performance for equities. Look for a modest upside for oil and gold as the day progresses. A lot of high volume trading has also brought attention to some of the Basic Materials stocks. Yesterday, high volume moves for Freeport McMoRan (FCX) and US Steel (X) led these stocks higher by 5% and 3% respectively. Today’s general strategy, by necessity, will be an evolving one.
Morning Call
“Even if you’re on the right track, you’ll get run over if you just sit there.”
Will Rogers
Morning Call
July 30, 2009
Encouraging words from China’s Central Bank had a positive effect on Asian markets and may be trickling through to the global markets as well. The statement said that the Bank will continue to support a loose monetary policy and to “consolidate the recovery momentum of the economy.” The Hang Seng Index added on a modest half point, but the Shanghai Composite, after a steep loss yesterday, gained back over 1.5%. European equities are also up by well over 1% in the middle of the day. Banking stocks in both Asia and Europe have been mixed, while the tech sector continues to trend higher. Futures in the US are up about a half point on the Dow, despite some weakness in the financial sector. Today’s trading promises to be rather selective, but we do expect some positive momentum to build for the dry bulk shippers. Companies such as DryShips (DRYS), Ocean Freight (OCNF), and Diana Shipping (DSX) are likely to make solid gains.
Commodities have also come back strong this morning. Both oil and gold fell off considerably yesterday and both have recovered well this morning. Oil has added close to $1 to reach above the $64 mark. Gold, on the other hand, has moved higher by $5 to just under $933. As we expected, the Dollar has lost its one day momentum and is lower against the Pound and Euro this morning. This should support a nice rally for commodities today.
Also driving the markets today will be the release of the latest Initial Jobless Claims figures. This number always has the potential for causing a flight to the exits, so we will anxiously await the latest news. On the earnings calendar we will hear from Akeena Solar, Apache Corporation, Avery Dennison, Cigna, Colgate Palmolive, Exxon Mobil, Goodyear, MasterCard, Motorola, Walt Disney, Waste Management, Dow Chemical, and several others.
Each day has brought a mixed bag of good and bad news. As a result, we expect that the indexes will trade in a tight range for some time. There is still a lot at stake in terms of unemployment, commercial credit and real estate, and the weekly seizures of small to mid-size banks by the FDIC. We are, however, hearing a lot more discussion about the likelihood of a W shaped recovery, which we have supported for some time now. In that case one can only seek positive short term returns and be prepared for a potentially dramatic pullback.
The assembled information disseminated by A.L. Waters Capital in the Morning Call is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. All assembled information within the Morning Call is subject to change without notice. The assembled information within the Morning Call is based on information believed to be reliable as of the date of the report but no representation, expressed or implied, is made as to its accuracy, completeness or correctness.
Forward Looking Statements:
Information in the Morning Call will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. All readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance or portfolio performance is no guarantee of future price appreciation or performance.
Morning Call
Morning Call
July 29, 2009
To the man who only has a hammer, everything he encounters begins to look like a nail.
—Abraham Maslow
It’s all about regulatory change these days. As if it isn’t hard enough to valuate stocks based on earnings and guidance, analysts now would be remiss not to look at the regulatory environment and how it may have an effect on business and the markets. To add a few more phrases to our list of household expressions, we now have Say on Pay and Flash Trading on our lips. The so-called say on pay bill, now past the House Financial Services Committee, is meant to give shareholders a vote on executive compensation. This latest version, a little different than the White House proposal, would prohibit “certain compensation” structures in the large institutions that may have an “adverse effect on financial stability”.
In other news, NASDAQ has backed a ban on flash trading as promoted by New York Senator Charles Schumer. Flash trading is a type of order that the NASDAQ and other venues send to a select group of traders fractions of a second before revealing them publicly. The obvious accusation is that such trading runs contrary to a goal of market transparency. Of course both of these policy initiatives have good intentions, but change is change and there are occasionally unintended consequences.
The Dow had to struggle its way back in the afternoon yesterday and finished down by a small margin. Futures this morning are pointing to yet another lower opening, although the market has shown amazing resilience as of late. In Asia overnight, equities fell mostly flat with an exception in China. There, the Hang Seng fell by over 2% and the Shanghai Composite tumbled by 5%. The speculation there is that the government may curb investment in order to prevent a bubble scenario. In Europe, stocks are higher by an average of well over 1% in the middle of the trading day. In contrast, banking stocks have been among the best performers in Europe, while falling considerably in Asia. Based on afterhours trading here in the US, it appears that the financial sector will be relatively mixed today.
Commodities are weak this morning as well, with most moving lower significantly. Oil has fallen off by nearly 2% to just under $66. Gold also began to lose momentum yesterday and has given up another $3 this morning to $934. A good part of this trend has to do with a sudden reversal for the Dollar which has risen against the major currencies today.
Economic news today includes Durable Goods Orders and Mortgage Applications. Another busy earnings day includes reports from Aflac, Akamai Technologies, Coca Cola, Conoco Philips, General Dynamics, Hess, Medco, Praxair, Qwest Communications, Sprint Nextel, Time Warner, and several others.
It is important to keep an eye on China for many reasons. The markets there have often outperformed most others and if they are falling it is reason for concern. The Chinese economy is not growing at the same pace as before, but it has continued to grow nonetheless. China’s stimulus spending has taken hold rather quickly and investor optimism has been relatively strong. One day does not make a trend, but we will be watching closely. For several months now we have believed that the global marketplace would follow China’s lead; whether it be up or down.
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