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U.S Market Update

Mon, Jun 22 2009, 15:24 GMT

TradeTheNews.com

- US equity futures were weighed down in the premarket by European declines and pessimistic comments out of the World Bank. In the first hour of trading US indices are well into the red, and are testing last week's lows with the S&P bouncing off of 900.  Last night, World Bank Chief Economist Lin said the World Bank expects a deeper global recession in 2009, with the global economy -2.9% (versus the bank's prior -1.7% estimate). Despite a forecast for growth in 2010, Lin said that "recession-like conditions" will not go away next year. The Fed policy decision later this week is adding to the uncertainty; with no change in rates expected, commentators are speculating whether the Fed will expand its purchases of Treasuries or not. Front-month crude is way off last week's highs, down $2.50 to trade around $67, with major metals well off recent highs as well.

 - Fixed income futures were higher, with dealers citing duration extension buying as a factor complementing the risk aversion sentiment. There was a revival of demand for safe-haven government debt as European and US equity markets traded lower  ECB's Nowotny noted earlier today that the ECB was likely on hold for the remainder of 2009, while Germany's IFO  data was mixed in key segments.

- In an opinion piece in the Wall Street Journal, former Fed Governor Fredrick Mishkin wrote that the Fed is facing a serious dilemma regarding the best way to reckon with the rise in long-term interest rates, given their potential to choke off the recovery and hurt the housing market.  Mishkin warns that while the expansion of Treasury bond purchases by the Fed would have the benefit of lowering long-term interest rates temporarily to stimulate the economy, in the current economic environment it could be dangerous as it may enable fiscal irresponsibility and stoke inflation.

- In equity news, Shares of Goldman Sachs are holding up better than nearly all the rest of the financials this morning on a report in the New York Observer that Goldman staff have been told to expect large bonuses on estimates of substantial earnings growth in the first half of the year. Walgreens held things together in Q3, with earnings and revenue in line with Street estimates. On the conference call, Walgreen's CEO said the company plans to slow down opening of new locations next quarter and warned that consumers have cut back and are buying affordable essentials only. In its May master trust data, Target said that net charge-offs fell a hair over April levels, while the overall delinquency rate also fell a bit. Marvell Technology raised its revenue guidance for next quarter by a substantial margin. Marvell's CEO said the company is more optimistic based on improved orders in this quarter. And media outlets everywhere are chewing over reports that Apple CEO Steve Jobs had a liver transplant a few months ago in secret.

- In currencies, the euro is weaker across the board as market participants focus on ECB rhetoric regarding fiscal balance and the Maastrict Stability Pact. ECB officials have really begun preaching the gospel of budgetary responsibility now that the outlines of stabilization have begun to take shape in economic data and Euro Zone finances remain under pressure. Over the weekend ECB Chief Trichet said the Euro Zone was at a point where additional debt cannot be accumulated, despite the extraordinary events that had previously justified expansionist budgets. Risk aversion is being driven by lower commodity prices, which suggest the market taking a more realistic look at the green shoots. The reduced forecasts from the World Bank have only added to this sense of caution.

Published on  Mon, Jun 22 2009, 15:26 GMT