Morning Call

0 CommentsThursday • February 4, 2010 • by alwaters

“It is the mark of an educated mind to be able to entertain a thought without accepting it.”

Aristotle

Morning Call
February 4, 2010

Gold Update

With so much distress in Europe, the Dollar has moved higher relative to the Euro and Pound, thus leading gold a little lower this morning. Pulling back by about $7 at $1101, we could see a dip below the $1100 mark today. As the currency market levels out, gold will return to positive movement in the coming days.

What to Buy

Diamond Offshore Drilling (DO) reported today a fourth-quarter net income of $276.1 Million, or $1.98 per share, as compared to $293.3 Million, or $2.11 per share, a year ago. Revenue declined to $890.8 Million as compared to $903.2 Million for the same quarter last year. Analysts expected DO to earn $2.32 per share on revenue of $890 Million. Results will be seen as disappointing, and shares will pull back temporarily, but this creates a buying opportunity as the long term prospects for Diamond remain strong.

Interest Rate Outlook

The American Bankers Association’s Economic Advisory Committee has issued a report predicting that rates will average 5.25% in the last month of the next two quarters before inching up to 5.28 in the first quarter of 2010 and hitting 5.50% in the following quarter.

Public Finance Update

Moody’s Investors Service issued its strongest warning yet on Wednesday that the Triple A sovereign credit rating of the US could come under pressure unless economic growth was more robust than expected or stronger measures were taken to reduce the country’s budget deficit. Moody’s said the country faced a trajectory of debt growth that was “clearly continuously upward”. Currently, projections of the overall debt-to-GDP ratio for the US are seen rising from 53% in 2009 to 73% in 2015 and 77% by 2020.
At a more local level, Moody’s also downgraded the New York Metropolitan Transportation Authority’s revenue bonds to A3 with stable outlook from A2 with negative outlook.

Market Outlook

The Dow couldn’t quite hold on yesterday; finishing down by 26 points. Futures this morning suggest a drop of about 50 points at the opening bell ahead of the all important Initial Jobless Claims report today. One thing weighing on investor sentiment is analyst predictions that US retailers will be accelerating store closings soon as retail sales figures continue to struggle. Optimistic retailers had actually increased their number of stores despite the economic downturn and many fear this will only make the number of necessary closings to be more severe.

Stocks in Asia fell, once again, by an average of 0.5%, with a more severe downside on the Hang Seng which loss almost 2%. Banks shares, along with several technology and industrial stocks, were among the worst performers. Much of the concern for investors is actually focused on Europe, however, where stocks this morning are lower by an average of nearly 1%. Here, too, bank stocks are underperforming the market considerably. As if Greece didn’t have enough problems, the nation’s biggest union is set to approve the second mass strike this month. Greece’s tax collectors began their national 48-hour strike today, protesting the government’s cutbacks in bonuses to the public sector. From there, the attention is shifting toward Spain and Portugal, where EU officials are concerned that deficit reduction plans have not been aggressive enough.

All of this has led the Dollar higher against the Euro and Pound, but has not benefitted commodities. Concern for the global economy is outweighing the Dollar move and has most commodities lower this morning. Oil has given up most of a Dollar at just over $76. Gold, perhaps effecting by some profit taking, has pulled back by more than $7 at $1101.

Besides Initial Jobless Claims, the economic calendar will also include Productivity and Costs, Factory Orders, and Money Supply Data. Earnings news today will be coming from Allergan, Cigna, Clorox, Diamond Offshore, FMC Corporation, GMAC, Kellogg, MasterCard, Northrop Grumman, Pitney Bowes, Sara Lee, Spectra Energy, Sunoco, Toyota, and several others.

According to reports, the Treasury Department expects to hit the government’s debt ceiling by the end of February, adding pressure on Congress to raise the limit from its current level of $12.4 Trillion. The Treasury said it is working closely with Congress to raise the ceiling. The Senate has approved legislation to increase it by $1.9 Trillion to $14.3 Trillion. This figure represents about $45,000 for every American. The House is expected to vote on the increase Thursday. Congress approved a smaller increase of $290 Billion in late December, allowing the government to borrow for about two more months. The proposed increase would enable the government to continue borrowing into 2011.
The Treasury’s announcement comes on the heels of the President’s budget proposal which projects this year’s deficit will reach $1.56 Trillion, an all-time high. That’s figure represents 10.6% of the economy, the highest proportion since World War II.

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

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