Morning Call

0 CommentsWednesday • February 10, 2010 • by alwaters

“Much wisdom often goes with fewest words.”

Sophocles

Morning Call
February 10, 2010

Gold Update

Gold gained this morning as market fears eased about Eurozone finances amid talk of a bailout for fiscally troubled Greece, supporting the gold trade against a backdrop of firming consumer buying in Asia and the Middle East.
The optimism has shored up risk taking, sending investors out of the perceived safety of the US Dollar and into what are thought of as riskier assets like gold, equities and higher-yielding currencies. Adding on $3 at $1080 gold should see some consolidation during the day, but could gain momentum later in the day or early tomorrow.

Hot Stocks

China Investment Corp., China’s $200 Billion (U.S.) sovereign wealth fund, has been quietly accumulating stakes in resource firms including Canada’s mining company Kinross Gold (KGC). After a 5% gain yesterday, shares continue to climb slowly this morning.

Public Finance Update

A draft version of a Senate jobs bill, being called the “Hiring Incentives to Restore Employment Act,” includes provisions that would allow several tax-credit bonds to be treated like Build America Bonds through the end of 2010. Issuers will receive a direct subsidy payment from the federal government instead of providing investors with a tax credit. The draft bill also includes a provision that would grant small issuers a subsidy boost on the bonds. Issuers that sold less than $30 million during the calendar year would receive payments equal to 65% of interest costs, while larger issuers would receive 45% payments.

Pennsylvania Governor Ed Rendell has released a fiscal 2011 budget proposal that seeks an increase in the state’s sales tax and corporate tax to help address projected deficits in the Billions for fiscal 2012 and fiscal 2013.

Moody’s downgraded its outlook for Minnesota’s Aa1 rating to negative due to ongoing fiscal weakness. This follows a downgrade of New York’s Metropolitan Transportation Authority’s revenue bonds to A3 from A2.

Market Outlook

With speculation rising yesterday that the European Union would work closely with Greece on its deficit reduction program, the stock market grew increasingly positive. The Dow finished with a solid gain of 150 points and futures are pointing to a modest upside this morning. The very same consumer stocks and energy shares that had dragged down the market on the prior day, outperformed yesterday. The S&P 500 Energy Index climbed by more than 8% by the end of the day.

Stocks, the emerging-market and metals all rallied after Germany indicated it may help support Greece’s finances. Yields on Germany’s debt, however, moved higher on the news. Economic reports also showed recovering demand in Asia, which added to the optimistic tone among investors. Some experts, though, do fear setting a precedent for bail-outs and would rather see the International Monetary Fund as the intermediary in such cases.

In Asia, the major indexes failed to hold on to their session highs, but managed to stay to the upside at the end of the trading day. Industrial shares led the market, but most banks finished lower. Based on the statements of solidarity among EU officials, European stocks have soared in the first hour of trading. The major indexes are higher by an average of 1.5%, led largely by the financial sector. Bank shares in the US are also slightly higher in pre-market activity.

Commodities are somewhat mixed this morning, although metals and energy are strengthening. Oil has moved marginally higher; approaching the $74 mark in early trading. Gold has also added about $3 to reach $1080. The gold trade has held up rather well thus far, despite some strength on the Dollar. The greenback has gained on the Euro and Pound this morning, but is lower on the Yen.

Economic data scheduled for release today includes Mortgage Applications, Trade Balance figures, the EIA Petroleum Status Report, and the Treasury Budget Balance numbers. For earnings news we turn to Boston Scientific, Coca Cola, Computer Sciences Corporation, Dean Foods, Marsh & McLennan Companies, Masco, Sigma Aldrich, Sprint Nextel, Allstate, the New York Times, Torchmark, Wyndham Worldwide, and several others.

The Obama administration is working behind the scenes to promote what is being called the “Volcker Rule”, after the President’s economic advisor Paul Volcker. The rule would prohibit banks, thrifts, and holding companies from owning, investing in, or sponsoring hedge funds, private equity funds, or proprietary trading operations for its own profit. The administration believe that such operations create “unmanageable conflicts of interest” with a firm’s clients. The arguments are very similar to those leading to the Glass-Steagall Act. Some believe that the repeal of Glass-Steagall set the stage for the current financial crisis.

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

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