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U.S Market Update

Wed, Jul 8 2009, 15:32 GMT

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- The IMF helped US equities open higher this morning for the first time since last Wednesday, but all three major indices made their way back to the red around 11amET. Overall markets were hit with a fresh bout of risk aversion late in the NY morning as bids came into the Japanese Yen.  Nervous investors seem to be waiting for more robust positive signals to emerge from upcoming earnings reports. The IMF published an update to its World Economic Outlook report, raising its 2010 global growth forecast to +2.5% from +1.9% back in April (and slightly lowering its outlook for 2009 growth to -1.4%). However the IMF also warned that while the global economy may be beginning to pull out of recession, recovery would likely remain sluggish. Front-month crude continues to plumb new monthly lows, down $1.50 to trade around $61.25. In its medium-term outlook this morning, OPEC said it sees 2010 demand up a paltry 0.5%, while it said 2013 demand would remain below 2008 levels. The weekly DoE inventory figures are not helping things either with a larger than expected build in gasoline inventories. Gold is under pressure as well moving back towards the $900 mark for the first time in more than a month.

- US Treasury prices have been the beneficiary of the equity selling. The long bond yield has worked back toward 4.25% while the benchmark is nearing 3.4% once again. These are levels not been seen since late May while the curve has flattened back below 250 basis points in the benchmark spread. Markets are cautiously awaiting today's 10-year reopening as yields have come in more than 50 basis points from the June auction. Investors are anxious to see whether the US Treasury can continue to raise money easily in the face of discounted prices.

- A couple of consumer names have seen big moves in the wake of better-than-expected quarterly results. Discount retailer Family Dollar beat analysts' estimates by a hair last quarter and boosted its 2009 outlook for the third time, while its guidance for next quarter was well ahead of consensus estimates. Shares of FDO are up 10% in early trading. Casual dining name Ruby Tuesday did much better than expected in its Q4 and beat estimates in its guidance for next year, sending its share up 8% in the pre market; those gains vanished in the first half hour of trade, with RT in negative territory presently. Note that Pepsi Bottling beat earnings estimates but missed revenue targets in a big way thanks to FX impact and steady declines in volume world wide. Shares of Tractor Supply Company are up 9% after the agricultural machinery retailer hiked its earnings guidance for the year and crushed estimates for its Q2. Las Vegas Sands jumped 5% in the pre-market on news it was mulling an IPO for its Macau units, but shares are back to even mid morning.

- Currency trading in the New York session absorbed a flurry of reports from government agencies, cartel members and central banks without too much movement this morning. The greenback maintained its trading range from the Asian and European morning, but has broken out late in the morning led by the USD/JPY move below 94.  The Green is posting strong moves higher against the Euro, Pound, and Franc on risk aversion flows. The IMF report suggested that economies must remain supportive until economic growth resumed and deflationary risks subsided. Rising unemployment and loss of confidence in financial sector could trigger inflation but deflation risks are seen as small. The ECB published a report on the role of the euro, noting that international use of the currency was relatively stable in 2008 and stating it accounted for 26.5% of global reserves compared to 25.3% at the end of 2007. Dealers noting that ECB report on Euro's international role suggested that the global financial crisis has had no visible effect on the USD and maintained its preeminence in international financial markets. Reports implies that  emerging economic including China, Russia and India have had little success in actually reducing the USD's role in global affairs, despite repeatedly stance on such an objective. The OPEC report was followed by comments from El Badri, who said the cartel was still concerned about oil demand and hoping oil demand would bottom in 2009.

Published on  Wed, Jul 8 2009, 15:32 GMT