Archive for the ‘Morning Call: Daily Analysis of the Global Markets and Economy’ Category
Morning Call
“Gold is tried by fire, brave men by adversity”
Seneca
to say something”
Plato
Morning Call
February 25, 2010
Gold Update
We mentioned a while back, that we would expect to see some strong earnings from gold miners and this morning’s big surprise from Newmont is just a case in point. As for gold, itself, prices are still trending slightly lower as the Dollar retakes the spotlight as a currency of choice; particularly when compared to the Euro. The rebalancing in the currency market could take several more days and gold will, at best, hold steady.
Hot Stocks
Despite some weakness in gold this morning, an old favorite among the miners, Newmont (NEM), is likely to make respectable gains today. The Denver gold and copper miner, just reported that fourth-quarter net income soared as revenue nearly doubled. Earnings reached $865 million from $42 million in the year-earlier quarter. Revenue rose to $2.52 Billion from $1.33 Billion. The company’s costs of selling gold fell 7% from a year-earlier to $413 an ounce.
Public Finance Update
Municipal market participants are still buzzing about a bill that would eliminate tax-exempt bonds and shift the municipal market to a tax-credit subsidy, with most saying it will hurt state and local governments still recovering from the recession. The bill, in its current form, would make municipal debt taxable, and subsidize it by providing individual investors with a tax credit equal to 25% of interest costs. It also would prohibit any advance refundings of municipal bonds.
Oppenheimer has agreed to buy back tens of millions of dollars of auction-rate securities from clients as part of settlements with two states. Oppenheimer was accused by New York and Massachusetts of marketing ARS as safe, liquid alternatives to cash, without explaining the risks.
The SEC has finally decided to move against short selling after what has been a deeply divided debate. The new rule on short sales would apply to any stock which has fallen at least 10% during a trading session. After that, short-selling would still be legal but only if the sale was at a price higher than the best bid price available at the time.
Market Outlook
After a slow start yesterday, the Dow climbed its way to a gain of nearly 100 points. This morning, according to futures activity, stocks will start slightly lower once again, but may recover during the day. Many consumer stocks and energy shares outperformed the market yesterday, but most are lower ahead of today’s opening bell.
A steady stream of news has been coming in from Europe and many investors are also awaiting this morning’s Initial Jobless Claims from the US. Greece’s debt rating faces further cuts within a month as it struggles to control the European Union’s largest budget deficit, driving up borrowing costs and renewing pressure on the Euro.
Standard & Poor’s said late yesterday it may lower Greece’s BBB+ rating by the end of March and Moody’s Investors Service said today it may reduce its A2 grade in a few months. This further complicates efforts to persuade investors that Greece can drastically reduce its fiscal shortfall from last year’s 12.7% of gross domestic product. This is also adding downward pressure on the Euro which has fallen to a one year low against the Yen. European Economic Confidence also slumped unexpectedly in the latest report. Elsewhere, the IMF suggested that the European Central Bank revise its inflation target upward to 4%, which was quickly dismissed by the ECB; known for a hawkish stance on inflation. Despite substantial reason for concern, the European markets are only slightly lower this morning. Bank shares in Europe, in fact, are considerably higher on the session.
In Asia last night, stocks took another slide, with the major indexes all lower by an average of about one-half percent. Most high volume trading in Asia was relatively flat and non-directional. US banks look like they will start the day rather mixed.
Commodities, yesterday, ran against the rising Dollar, but are considerably lower this morning as the Dollar continues to build momentum against the Pound and Euro. The greenback, however, continues a sharp decline against the Yen. Oil has given back about a half Dollar to fall below $80 by a small margin. Yesterday’s scheduled Petroleum Status Report from the EIA was delayed until Friday. Gold held up during the night, but has fallen almost $4 to $1093 this morning.
Besides the Jobless Claims numbers, we will also have Durable Goods Orders on the calendar and Ben Bernanke speaks for a second day before the Senate. Earnings news will be coming from Assured Guaranty, Atlas Energy, CenturyTel, Dr, Pepper-Snapple, Dynegy, Gap, HJ Heinz, King Pharmaceuticals, Kohls, Newmont Mining, Novell, Parker Drilling, Southwestern Energy, Wynn Resorts, and several others.
Jobs are still foremost on most minds. A job-creation bill that would allow companies to write off certain expenses and give businesses tax breaks for hiring workers cleared the Senate on yesterday. The bill also extends the “Build America” bond program and extends spending on highways. Last week’s Jobless Claims number was a bit of a wakeup call and this week’s could go either way. Unemployment is likely to fluctuate somewhat throughout this year and at least part of next. The numbers could disappoint once again.
Morning Call
Ta panta rhei kai ouden menei. to say something”
“Everything flows, nothing stands still.”
Heraclitus Plato
Morning Call
February 22, 2010
Gold Update
Gold made a run above $1130 in the early hours this morning as fears eased somewhat about an imminent rate hike from the Federal Reserve. Since then, however, prices have pulled back and stabilized above $1120. We have seen a slow and steady wave of ups and downs for gold and prices may remain in this tight range for a while. There remains, however, some strong downside potential. Should gold lose the $1075 mark during its fluctuations, we would be extremely careful to protect profits.
Hot Stocks
We found a little known technology stock that has been quietly on the move. Telestone Technologies Corporation (TSTC) is a wireless communications coverage solutions provider. The Company’s wireless coverage solutions include research and development and application of wireless communications technology. This is a China based company, traded on the NASDAQ, which has taken an aggressive growth posture.
Public Finance Update
The primary market is expected to see nearly $7 Billion in new issues and market participants say investor appetite will depend on the pricing and structure of the deals. The municipal market is expected to be unfazed by the Federal Reserve’s discount rate increase last week. New York State alone will appear this week with $448 Million of tax-exempt GOs, traditional taxable debt, and BABs for transportation, environmental, and aviation projects.
In the budget proposal President Obama released last month, measures were reportedly included to significantly increase taxes paid by managers of private-equity firms and other investment partnerships. The proposal would more than double the tax rate on income known as “carried interest” or “carry.” The measure, however, has lost momentum in the Senate. A similar measure was passed by the House in December.
The Internal Revenue Service says it plans to audit some Build America Bond issues to make sure they meet the tax requirement on issue price. All issuers of BABs will reportedly receive a questionnaire regarding secondary market trading and seeking information regarding “flipping,” which occurs when dealers or institutional investors purchase bonds and then immediately resell them to retail investors at a higher price.
Market Outlook
Stocks ended the week flat on Friday. Futures this morning have stayed just slightly in the green each bit of economic news has been mixed at best. Interestingly enough, emerging market stocks and high yielding currencies have benefitted from speculation the Federal Reserve Chairman Ben Bernanke will tell Congress on Wednesday that interest rates will remain at record lows for a sustained period. Apparently, last week’s slight hike in the discount rate for banks had some thinking otherwise. In pre-market trading this morning, US banks are moving slightly higher.
Stocks in Europe are very mixed this morning. Even among the banks, several of the big names have risen by 2-3%, while others have moved lower. Traders are betting that the Euro’s decline will continue regardless of EU support for Greece. The Euro is already at a nine month low. Most believe that fiscal tightening in Greece, Spain, and Portugal will push those economies further into recession and handcuff European central bankers with respect to interest rates.
The indexes in Asia finished the day with average gains of well over 2%. Financial, industrial, and technology stocks all enjoyed strong positive movement. The Fed’s increase Thursday in the discount rate was initially viewed by overseas investors as a potential catalyst to a slowing of the recovery in the U.S. But a favorable report Friday on the Consumer Price Index — the core rate, which strips out food and energy costs, showed a decline of 0.1% — took the edge off concerns of imminent tightening.
Commodities are mostly higher this morning, although many have fallen off of earlier highs. Oil made a run to $80 in early trading, but has pulled back close to even at just below that mark. Gold is showing a $6 upside at $1123 after making a run above $1130 in the early hours. Natural gas has fallen back below the $5 mark once again. Ongoing concern in the European economy has the Dollar higher against the Pound and Euro this morning, although it has lost considerably against the Yen.
Investor sentiment today will be largely self-induced and speculative as there is little in terms of economic data scheduled today. The earnings calendar is also relatively light, but does include reports from Cabot Oil & Gas, Campbell Soup, Constellation Energy, Lowe’s, Nordstrom, Radio Shack, and a few others.
The Federal Reserve and, more specifically, interest rates will likely dominate the headlines this week. The equity markets took the slight hike in the discount rate for banks rather well last week. Most expect some reassurance from Chairman Ben Bernanke this week when he addresses Congress on Wednesday and Thursday. The key concern is for a proper exit strategy from an unprecedented level of monetary stimulus to stay ahead of inflation even though the economy is likely to stagnate for a while and keep inflation in check, for now. In the most recent report, headline CPI rose 0.2%, but the miss was entirely due to the miss in core inflation. Core CPI at -0.1% missed the consensus guess by a full two-tenths. The level is not exactly of concern, but clearly is still indicating inflation higher than the Fed would like to see.
Morning Call
“One must not tie a ship to a single anchor” to say something”
Epictetus Plato
Morning Call
February 19, 2010
Gold Update
The Federal Reserve’s formal announcement of a quarter point hike in the discount rate has the Dollar rising and gold losing its luster. With the IMF also selling bullion in the open market, gold prices could be a bit unstable in the coming weeks. About $9 lower this morning at $1109, we are cautious that further downside risk remains.
Hot Stocks
Traders are taking downside positions on J.C. Penney (JCP) ahead of its fourth-quarter earnings release today. Retail figures continue to be somewhat disappointing and shares in JC Penney could take a hit today if, as expected, earnings are disappointing.
Public Finance Update
Word is that Senate Republicans are drafting an alternative financial regulatory plan. Senator Richard Shelby of Alabama is leading a group of Republican senators in drafting financial-regulation legislation as an alternative to that proposed by Connecticut Senator Chris Dodd after bipartisan talks broke down earlier this month. Shelby’s proposal is expected to forgo the stand-alone Consumer Financial Protection Agency proposed by the White House in favor of establishing a consumer-protection division within a new regulator.
Despite a slight decrease in outflows, tax-exempt money market funds saw losses grow to $3.88 Billion for the week ending February 15th as they finished at $381.56 Billion.
In the BABs market, word is that at least one Build America Bond issuer had its subsidy payment reduced because it owed money to the federal government, and this “offset” system is entirely automated. The issuer, not identified in the report, received a 5% reduction on the expected payment.
Market Outlook
The Dow managed a respectable gain yesterday of 83 points, led again by consumer and energy shares. Futures this morning are a drop at the opening bell, but are up off of earlier lows. The market reaction was partly due to word that the Federal Reserve has raised its rate charged to banks for direct loans by a quarter-point to 0.75%, effective today. The Fed had signaled that this move was imminent and investors will likely react moderately to the official announcement. The targeted rate hike is the first move toward an exit strategy from the aggressive monetary policy undertaken at the height of the financial crisis. U.S. central bankers have closed four emergency lending facilities this month and are preparing to reverse or neutralize the more than $1 Trillion in excess bank reserves they have pumped into the banking system. The discount-rate increase will encourage banks to borrow in private markets rather than from the Federal Reserve.
Last night, the Asian equity markets reversed their upward trend and fell by an average of about 2%. Most of the high volume trading was to the downside; including most bank shares. In Europe this morning, investors have reacted negatively to news from the Fed; with an average downside of nearly 1%. Here, too, banks are lower across the board. Adding to the negative sentiment in Europe was news that U.K. retail sales dropped more than twice as much as economists forecast in January as the nation’s winter freeze affected sales.
Commodities have plummeted as the Dollar has risen sharply following the Fed announcement. The Dollar is higher against all of the major currencies this morning; particularly on the Pound as the UK budget deficit has led the Pound to a 9 month low against the Dollar. Oil has lost about a Dollar to $78 and is likely to give up more ground before stabilizing. Gold has fallen by almost $9 to $1109 and may have further downside as well.
Today’s economic data will include the Consumer Price Index and some Real Earnings figures. For earnings news, we will hear from JC Penney, PG&E, Pinnacle West Capital, and a few others.
In yesterday’s report, Initial Jobless Claims l rose to a seasonally adjusted 473,000 for the week ending February 13th, according to the Labor Department, marking an increase of 31,000 since the week prior. The Wall Street consensus projected that initial claims would fall to 438,000 from the previous week’s pre-revised 440,000. The numbers illustrate the fact that the employment problem so key to sustainable recovery is not, yet, out of the woods.
Market Data
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