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U.S Market Update

Thu, Apr 30 2009, 17:32 GMT

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- Equities are advancing in part thanks to positive data and a flood of earnings reports to decipher. The Labor Department said initial jobless claims fell to 631K last week, down from the prior week's 645K, providing more evidence that declines are at least pausing. Note that continuing claims surged to their highest level since 1982. The Chicago purchasing data was also much higher than expected, with big gains in both the new orders and employment components.

- While the any official announcement on Chrysler is is not yet out, President Obama is expected to speak on the auto sector at noonET, with hardly anyone doubting that Chrysler will enter bankruptcy today. Chrysler executives struggled to extract an agreement with its lenders until the very last minute, trying late yesterday to get its lenders to accept around 30 cents on the dollar for their collective $6.9B in debt, but apparently the bondholders see better chances in court. White House aides have indicated that the bankruptcy would be a brief affair, lasting only one or two months. There were also reports circulating yesterday that Fiat would sign its alliance deal with Chrysler today, with an Italian newspaper reporting earlier this morning that the deal had already been signed. Fiat has denied these reports, however. Negotiations with the UAW and bondholders continue over at GM. This morning the bondholders countered GM's latest offer (involving a debt for equity swap and the UAW owning 39% of the company), calling for an allocation of new GM equity equally across the board to union VEBA and GM bondholders, pro rata to the level of financial obligation owed to each by GM, with no cash component and no government equity stake.

- Shares of the leading financials made modest gains but have been losing ground early on. Bank of America's Ken Lewis has managed to keep his position of CEO, although shareholders stripped him of his title of chairman. Note also that the FBI is probing possible accounting violations at Freddie Mac, examining whether the firm delayed the recognition of billions of dollars of losses. Visa is up 5% after coming in ahead of analyst estimates and reaffirming its 2009 forecast.

- Major health insurance name Cigna missed on earnings and revenue this morning, sending its shares down 4% in early trading. General insurer Travelers' revenue came in below par, and the firm's full-year forecast was disappointing, sending its shares down 5%. Cardinal Health is trading around even after reporting in line with expectations.

- Dow Chemical is up nearly 20% after surprising investors with a quarterly profit of $0.20/shr (ex items), against analysts projections for a $0.21 loss, although revenue was well below estimates. The CEO noted that there are some signs that the pace of global economic decline is moderating, but still expects the global economy to remain in recession all year. Energy titan Exxon is down a few percentage points after reporting a 58% y/y decline in net income and missing earnings estimates, thanks to the global slowdown and sharply lower commodity prices.

- A handful of major consumer-facing names reported yesterday and this morning, including Kellogg, Colgate-Palmolive, Procter & Gamble, Safeway and Starbucks. Dow component PG is under pressure this morning despite a more-or-less in line earnings report, including a much improved revenue outlook for the year. On the conference call, executives said destocking has been a factor and should continue to be for another quarter. Competitor Colgate is also down slightly after an unremarkable quarterly report. Kellogg and Starbucks are both up around 10% after outperforming the Street by slight margins. Shares of supermarket giant Safeway are down nearly 10% after the company missed estimates and cut its guidance. Also note that Revlon was up as much as 25% before the open before it fell to around +10%, thanks to an unexpectedly large quarterly profit (versus a projected loss).

- In currencies, dealers noted a change in sentiment as the New York session commenced, with the euro turning softer in the wake of the April Euro-Zone unemployment data, which hit its highest level in 2-1/2 years, at 8.9%. EUR/USD retested the 1.3200 level after probing near 1.34 earlier today. Employment should remain the Achilles heel of the euro, given that it is considered a lagging indicator. Some of the Euro retracement was also attributed to rumors of discord inside the ECB ahead of its May 7th policy meeting. Dealers were discussing word of bickering over which non-standard measures should be implemented. Trichet has reportedly imposed a vow of silence on Governing Council members ahead of the meeting. Around the globe the rhetoric from both government and central bank officials has been more upbeat, with plenty of assertions that the worst of the global recession is over and that green shoots are appearing. The GBP/USD fell short of retesting the 1.50 handle, where some considerable GBP selling emerged earlier this month.The USD/CAD bounced off support seen around its 200-day moving average of 1.1847 (last violated back in early Jun of 2008). Currently the pair is seen consolidating with resistance pegged at 1.1970/90 level. Weaker energy and metal price action did little to derail the recent positive momentum for the commodity-related currencies.

Published on  Thu, Apr 30 2009, 17:33 GMT