Morning Call

0 CommentsThursday • February 25, 2010 • by alwaters

“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.

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

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