Morning Call

0 CommentsWednesday • March 24, 2010 • by alwaters

“All things are accomplished by diligence and labor.”

Menander of Athens

Morning Call
March 24, 2010

Gold Update

Gold lost psychological ground this morning as it failed to hold the $1100 mark; falling just below it in early trading. Major concern for the Euro as the European Union struggles with the handling of the Greek debt crisis has lent strength to the Dollar in a flight to safety. This has hurt the gold trade as investors capitalize on movements in the currency markets.

Hot Stocks

After some gains yesterday, Toyota stocks are heading lower in pre-market trading. Toyota has launched an aggressive media campaign and incentives to keep buyers in the showrooms, but the dust has yet to settle after multiple product safety recalls. Reports are that Toyota Motor Corporation will be in court for the first time when a panel will decide whether thousands of owners can bring a multi-billion-dollar class action suit against Toyota Motor Corporation. A group of law firms across 20 states, dubbed the Toyota Action Consortium, is suing to recoup losses in the resale value of Toyota vehicles related to accelerator pedal malfunctions. The case could cost Toyota Motor Corporation $40 Billion or more.

Public Finance Update

With Florida’s Citizens Property Insurance Corp. pricing $2.15 Billion of debt the municipal market was flat to slightly weaker yesterday.
According to money-market fund officials, new terms some banks and issuers are including in variable-rate debt transaction documents may be infringing on bondholders’ rights, by reducing legal recourse to holders if the LOC bank is financially troubled and does not purchase the variable-rate bonds tendered to it.
Under new indenture language, if a bank does not honor its LOC commitment, neither the obligor nor the bank is in default — or the obligor’s default is delayed for several months.

Market Outlook

After a respectable triple digit gain on the Dow yesterday, a lot of commentary began to focus on whether we could reach the 11,000 mark soon. This morning, however, futures indicate that equities will at least start the day by giving back about half of yesterday’s upside. Global sentiment has turned negative despite some positive economic data. Greece continues to be a primary focus as it has become clear that the European Union may need help from the International Monetary Fund in dealing with the issue. French and German leaders indicated that any aid to Greece would need support from the Washington-based IMF. Meanwhile, Portugal was downgraded one step to AA- by Fitch Ratings, which cited the nation’s deteriorating public finances. All of this overshadowed reports that European services and manufacturing grew at the fastest pace since August 2007 and German business confidence increased. The euro fell to a 10-month low against the Dollar.

The tide began shifting in Asia last night. There, stocks ran relatively flat; weighed down by losses in the financial sector. Interestingly, several industrial stocks trended higher during the day.
The European indexes, however, are approaching a downside of nearly 1% in some cases. Technology and most financial stocks are lower this morning, although a select few banks are still clinging to positive territory.

Commodities are considerably lower this morning on the back of weakening economic sentiment. Oil has fallen by well over a Dollar, but remains comfortably above the $80 mark and should stabilize near this level. More concerning is gold’s loss of more than $6 this morning, which puts it below the $1100 support level at $1096. The Dollar continues to benefit from the troubles in Europe, and has risen sharply against its peers.

Analysts expect today’s economic data to be positive, but with general sentiment slipping today, any misses could be a problem for equities. On the calendar are Mortgage Applications and Durable Goods Orders. On the earnings side, we will hear from General Mills, Lennar, Paychex, Robbins & Myers, and a few others.

The recent rally in stocks has been relatively balanced across sectors. Investors have bought in to the concept of a slow but steady economic expansion, but a lot of the progress has been the result of unprecedented levels of stimulus. The Federal Reserve, meanwhile, is wrapping up its purchases of mortgage-backed securities. In the housing market, which is critical to sustainable recovery, some 35% of the homes sold last month were distressed sales, which is hardly a sign of progress.

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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.