Morning Call

0 CommentsWednesday • July 29, 2009 • by alwaters

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.

Posted in: Morning Call: Daily Analysis of the Global Markets and Economy

Tagged with: bonds, economy, gold, money management, oil, stocks, wall street