Morning Call

0 CommentsThursday • January 28, 2010 • by alwaters

Morning Call
January 28, 2010

Gold Update

Gold has firmed up somewhat and the Dollar has eased after President Obama softened his tone on bank restrictions in his State of the Union speech, lifting appetite for risk. The Dollar’s recent run up, particularly against the Euro, has been more of a relative matter versus concerns in the Eurozone regarding Greek and other sovereign debt.

What to Buy

The short side of Toyota (TM) remains a good bet as the automaker continues to struggle with plant shut downs and recalls surrounding a problem with gas pedals in several models. Shares fell by 8% yesterday and are lower by another 2% in pre-market this morning. Motorola (MOT) reports earnings today and will likely show some growth. Analyst estimates may be a little high for now and shares may suffer temporarily. A pullback today, however, will be a buying opportunity for the second quarter.

Public Finance Update

President Obama has proposed a freeze on non-military discretionary spending for three years to save $250 billion over the next decade. The initial reaction might be one of concern for a trickledown effect on public programs, but some state level authorities are seeing a possible benefit. Despite concerns for housing, transportation, and healthcare, other areas will remain a high priority. High-speed rail and other infrastructure projects will continue to receive support and could be very positive for state projects.

Here in Massachusetts, Governor Deval Patrick yesterday released a $28.2 Billion fiscal 2011 budget proposal that includes a plan to restructure up to $300 million of general obligation debt that otherwise would come due in fiscal 2011.

Market Outlook

The momentum has shifted slightly upward as the Dow managed a 41 gain yesterday and futures indicate a modestly higher opening. Sentiment is a little more positive after the Federal Reserve said for the first time the U.S. economy is in a recovery. Fed policy makers yesterday upgraded their economic outlook and pledged to keep interest rates at a record low for an “extended period,” helping offset investor concern this week that China is withdrawing stimulus. Almost 80% of the S&P 500 companies that have reported earnings so far this quarter have beaten analysts’ estimates. Bank shares are moving higher in the pre-market, as well, after President Barack Obama said in his first State of the Union address he isn’t “punishing” financial companies.

Asian equities snapped their losing streak during the night. The major indexes in Asia finished higher by an average of 1.5% although specific trading was somewhat mixed, including the bank stocks. Trading in Europe this morning has brought the indexes to a half percent gain so far. High volume trading in Europe has been mostly to the upside and bank shares have outperformed the market slightly. European confidence in the economic outlook improved for a 10th month in January as reviving global demand helped support exports and bolstered earnings across the 16-nation euro region.

Commodities are mostly higher this morning, despite a mixed performance for the Dollar. Oil has made a modest gain in early trading and is, once again, above the $74 mark. Gold had fallen off during the night, but is recovering this morning with a gain of more than a Dollar at $1088. Natural gas continues to lag behind the other energy commodities; moving a few cents lower again to $5.10. The Dollar has gained ground on the Euro and Yen, but is considerably lower on the Pound.

Another important round of economic data today includes Durable Goods Orders, Initial Jobless Claims, and Money Supply numbers. For earnings news, we turn to 3M, Altria, Amazon.com, American Electric Power, AT&T, Ball Corporation, Bristol- Myers Squib, Celgene, Colgate Palmolive, Consol Energy, Dominion Resources, Eli Lilly, Ford, Lockheed Martin, Microsoft, Motorola, Proctor and Gamble, Raytheon, Time Warner Cable, and a slew of others.

The general tone of the President’s State of the Union speech last night was soft enough to ease some fears among investors that Washington would wage war against the financial sector. Comments from the FOMC after its two day meeting are also being greeted as mostly positive. From the text: “Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating.” The FOMC also maintained its plan to wrap up purchases of agency Mortgage Backed Securities and agency debt by end of the first quarter, ending expectations that it might extend the program.

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

Tagged with: bonds, economy, gold, oil, stocks