Morning Call

0 CommentsFriday • July 31, 2009 • by alwaters

“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.

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

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