A.L. Waters Capital, LLC

Morning Call

0 CommentsThursday • March 4, 2010 • by alwaters

“The ideal man bears the accidents of life with dignity and grace, making the best of circumstances.”
Aristotle

Morning Call
March 4, 2010

Gold Update

Gold is running relatively flat this morning, but indications are that there will be a strong move soon. Escalating sovereign-debt concerns will boost demand for the metal as an alternative to currencies. The Dollar has benefitted from expectations in Europe, but this tide is beginning to shift slightly and this will benefit the gold trade. A lot will be riding on this morning’s Jobless Claims and other economic data. If concerns grow about economic growth, we could see further gains for gold.

Hot Stocks

Western Refining (WNR) will release earnings this morning and we will expect some disappointing numbers. The entire refining industry, as we reported a few weeks ago, should have a strong year, but Western has lost its momentum; with shares down by about 30% in the past year. Put options on Western shares are attractive, even if we see modest numbers and a slight rise in shares early on.

Public Finance Update

President Barack Obama has sent to Congress proposed legislation, often referred to as the “Volcker Rule” which will ban banks from hazardous trading and impose limits on how large they can grow. The proposal looks to prohibit lenders from trading solely for their own profit and to prevent them from acquiring more than 10% of the total liabilities in the banking system. The measure instructs regulators to block mergers that would put bank market share over the limit, unless they are acquiring a failing bank with approval from regulators.
The Obama administration plans to release its “principles” for a new multi-year transportation bill within the next 90 days. A gasoline tax increase and a mileage tax are among the heated points of debate regarding revenue options, although the administration has said it does not support either.
In mid-April, The Massachusetts Department of Transportation will refinance by up to $2.27 Billion of debt stemming from Boston’s Central Artery Project, known as the Big Dig.

Market Outlook

The Dow finished flat yesterday and futures aren’t moving either this morning ahead of a major round of economic data due today. There will likely be a strong move in the markets after the announcements this morning, but the direction will largely be determined by the results. The bias is to the downside, so numbers at or below the consensus will most likely drive the market downward. There were some gainers yesterday. Basic materials and the energy sector saw some buying, while healthcare shares moved lower. Bank stocks were mostly lower yesterday and are mixed in pre-market trading today.
The Asian markets lost ground overnight, with an average of about 1% move to the downside. Banks and industrial shares weighed down the averages, while several technology stocks moved higher. China’s Industrial Bank said loan growth will halve this year as the government has ordered lenders to curb borrowing.
In Europe this morning, stocks have fought their way back to even after dropping considerably at the open. Greece has begun its sale of 10-year bonds while, in Athens, protesters occupied the finance ministry and blocked roads. The protests resulted from Prime Minister George Papandreou’s pledge to reduce Europe’s largest budget deficit by cutting wages and spending. German Chancellor Angela Merkel played down expectations of an aid package for Greece, saying a meeting in Berlin tomorrow won’t be “about aid commitments.” Greek bonds fell, pushing the yield on the 10-year security up 7 basis points to 6.05%. Greece has pledged to trim its deficit from the current 12.7% of gross domestic product to 8.7% this year.
Commodities are somewhat mixed this morning, but moving up off of earlier lows. Oil has moved up a few cents; just shy of the $81 mark. This may be the top end for crude prices, at this point, so we are cautious of a pullback by the end of the week. Gold has fluctuated throughout the morning; presently lower by a little more than a Dollar at $1138. The Dollar has weakened slightly, which may benefit gold prices between today and tomorrow. The Dollar is higher on the Euro, but down against the Pound and Yen this morning.
As mentioned, we will have an important round of economic data coming out this morning. The calendar includes Initial Jobless Claims, Productivity and Costs figures, Factory Orders, Pending Homes Sales, and a report on Money Supply. Scheduled for earnings reports today is Ciena Corporation, Fuel Systems Solutions, Energy recovery Inc., Midas, Suntech Power Holdings, TD Banknorth, Western Refining, and a few others.

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

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