Morning Call

0 CommentsWednesday • March 31, 2010 • by avickery

“You cannot conceive the many without the one.”

Plato

Morning Call
March 31, 2010

Gold Update

Several contradicting factors are affecting gold prices. A slightly weaker Dollar has boosted all commodities this morning and rising economic optimism translates to expectations of higher demand for gold in its industrial capacity. After bottoming below the $1100 mark, we are also seeing a slight effect from short covering. On the other hand, as an investment, rising optimism will take away from gold’s luster as a safe haven. A slight reprieve for the Euro and Pound is unlikely to last for long. As the European currencies fall back again, the Dollar will benefit relatively and may also weaken gold in the latter part of this week.

Hot Stocks

Research In Motion (RIM) will release its latest earnings report today. Analysts expect RIM will have sold 11 million BlackBerry SmartPhones in its latest quarter, which may offset the impact of falling prices and narrower profit margins.
RIM has been offering less expensive devices to compete with Apple’s iPhone and Motorola’s Droid. It is reported, however, that the margin on the cheaper phones may be greater than the high end products. Sales and subscriber growth will also be an important number. This will be a complex report to assess, but positive news could drive shares in RIM higher today.

Public Finance Update

Without as much fanfare as healthcare legislation and other regulatory efforts, President Obama signed a new law yesterday requiring all federally guaranteed student loans to be originated by the federal government. State and nonprofit entities are left wondering what it will mean for their future. The new legislation will eliminate the Federal Family Education Loan, or FFEL, and requires instead, loans to be originated through the Ford Federal Direct Loan program beginning July 1.
The Massachusetts Department of Transportation goes to market today with its first-ever bond issuance, a $274 Million fixed-rate refinancing.
In Connecticut, Democratic leadership are requesting direct talks with Governor Jodi Rell to discuss the $500 Million fiscal 2010 budget deficit.
In Rhode Island, Governor Donald Carcieri announced the appointment of Susanne Greschner to head the Division of Municipal Finance under the Department of Revenue.

Market Outlook

Again, a mixed bag of economic data and other news has investors at the edge of their seat and avoiding commitment. The Dow moved higher by a measly 11 points yesterday and futures indicate, coincidentally, the market will open lower by a similar margin this morning. Both Consumer Confidence and Home Prices ticked higher according to the latest numbers. Both are considered critical indicators for recovery here in the US. The employment situation is, of course, an important factor in sustaining consumer confidence. The numbers have shown some stabilization, but at the current pace it will take a few years to recover the jobs lost at the height of the financial crisis.
The view in Europe is much less rosy. As Greece continues to reign in its debt, the government will also pay about 13 Billion Euros ($17.5 Billion) more in interest on its new debt than it would have if yields had stayed at their pre-crisis levels. This will not make the long term prospects any easier. Meanwhile, reports are saying that Ireland’s banks will need another $43 Billion in new capital to shore up their balance sheets. Speaking before parliament, Finance Minister Brian Lenihan said “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come. Our worst fears have been surpassed.”
Stocks in Europe this morning have managed to pull into positive territory; held up by gains for the banking sector. Volume trading has been mostly positive, which is better news than the indexes indicate. The Euro has also strengthened slightly after its recent slide.
In Asia last night, the major indexes all fell just slightly below even. For the most part, industrial shares fared rather well, but the financial sector underperformed the broader market. The Yen also weakened as improving sentiment globally draws away from the Yen’s appeal as a refuge.

Commodities are beginning to move higher this morning following improving sentiment and a slightly weaker Dollar. Oil has managed to creep slowly higher; trading in the mid-$82 range. Gold has also edged higher; adding about $4 to $1109 in the early hours of trading. Both are likely to stay in a tight range today. The Dollar is up against the Yen, but has lost some ground on the Euro and Pound this morning.

The latest economic data due today includes Mortgage Applications and the Purchasing Manager Index. Earnings news will be coming from Acuity Brands, Global Payments, Harry Winston Diamonds, Research In Motion, Rosetta Genomics, Mosaic, and a few others.

Simply put, the markets are due for a correction. It appears that investors have gotten a little too far ahead of themselves based on modest earnings improvement and a better-than-the-worst mentality. If you get up in the morning and there has been no collapse in Greece or as crash in China, then all is well. The fact is that if economic data grows weaker, and sentiment turns sour, equities will prove to be ahead of themselves. If growth continues, the Fed will face tightening, and equities will prove to be ahead of themselves.

The assembled information disseminated in the Morning Call is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. All assembled information within the Morning Call is subject to change without notice. The assembled information within the Morning Call is based on information believed to be reliable as of the date of the report but no representation, expressed or implied, is made as to its accuracy, completeness or correctness.
Forward Looking Statements:
Information in the Morning Call will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. All readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance or portfolio performance is no guarantee of future price appreciation or performance.

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

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