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U.S Market Update

Thu, Jul 30 2009, 16:57 GMT

TradeTheNews.com

- Equity indices are surging this morning after spending several sessions in the doldrums, with the DJIA up triple digits, Nasdaq above 2000 for first time since last October, and the S&P actually eying 1000. The continuing claims data was 100K below the consensus figure, offering optimists encouragement over employment, following on this week's hopeful housing numbers. Front-month NYMEX crude has recovered nearly all of yesterday's losses to trade above $66 after Goldman Sachs reaffirmed its $85 year-end WTI crude target, calling recent weakness temporary. Goldman forecasted US stabilization and Chinese growth would drive oil higher.  Commodities are bid up across the board with gold up 1%, copper higher by 3.5%, grains higher led by a 5% increase in soybean futures. Treasury prices remain lower as sentiment remains fragile ahead of today's 7-year and in the wake of the disappointing 2 and 5-year results. The US benchmark 10-year yield is holding right around 3.7%.

- Behemoth integrated energy firms Exxon and Royal Dutch Shell each reported sharply contrasting results this morning. Like ConocoPhillips, Exxon's revenue beat expectations but was down significantly from 2008 (-66%), while its earnings were well off the consensus view thanks to big quarterly declines in upstream and downstream profits. RDA blew out top- and bottom-line estimates, but said it too is facing a difficult environment in both upstream and downstream segments. RDS also warned that energy demand remains weak, cautioned about excess capacity in the market and complained that industry costs remain high. XOM is down a percent or two in early trading. Earnings from second-tier energy names Tesoro and Apache were better than expected, although Tesoro missed top-line revenue targets, while Apache outperformed on the top line. Both names are up 5% or so in the early going.

- Results from chemical industry leaders Dow and BASF indicate zero recovery for chemicals. BASF's net in Q2 was well below estimates and the firm warned it expects a significant decline in sales and earnings in 2009. Dow's bottom-line earnings were much better than expected while revenues were a big miss. Dow said its 2009 operating plan does not count on material improvements in market conditions for the remainder of the year. Note also that CitiGroup Raised DOW to Buy from Hold.

- Credit card rivals MasterCard and Visa both crushed the Street's earnings expectations, although revenue at both firms was merely in line. Both firms offer more qualitative guidance: Visa reaffirmed that it would achieve its targeted revenue growth in the high single digits in 2009, while MasterCard does not expect to meet its 2009 revenue growth target of 12%. MA's CEO said he does not expect global crisis will improve until some time next year, while a Visa executive said the company is not observing any indications of a sustained turnaround in the US economy.

- Newly-minted DJIA component Travelers was largely in line with expectations, and competitor Hartford Financial Services destroyed consensus estimates but cut its full-year outlook in half. Note that CIT took another step away from bankruptcy this morning, after Barclays extended another $1B in (very expensive) credit to the troubled firm
 
- Consumer staples names Kellogg and Colgate-Palmolive beat earnings targets and missed on revenue by a hair. On the conference call, a Kellogg executive said cost pressures this year are way down from 2008 levels, aiding results. Motorola managed to turn a (tiny) profit after two quarters in the red, but its guidance for next quarter makes it questionable whether it can earn a profit next quarter. Motorola's CEO sees Q3 mobile device sales flat q/q with unit shipments lower and said the firm has not changed its strategy of splitting off its mobile device business. Wynn Resorts surprised investors with a solid quarterly profit, but warned that its y/y results were not comparable as the quarter included Encore at Wynn Las Vegas, which was not open for Q2 2008.

- In currencies, corporate earnings are sustaining in the New York session the risk appetite that blossomed on Asian and European bourses. Also aiding sentiment was a reiterated pledge from China's central bank to "unswervingly continue applying appropriate, loose monetary policy," complemented by a drop in US continuing claims that only reinforced the sense that recessionary forces are moderating.

- EUR/USD began the NY session in the upper third portion of its session trading range but continued to struggle to pierce the 1.41 level. Mid-morning the IMF commented that the euro was overvalued by 15% versus fundamentals and urged the ECB to maintain low interest rates, insisting that the central bank had scope for more interest rate cuts. The tone of the IMF statements seemed to differ with IMF Chief Strauss-Kahn's recent comments that the USD was not weak and that the market was valuing it correctly. The USD's move into positive territory of 1.4015 was short-lived as equities and oil maintained their firm tone.

- USD/JPY tested the 95.70 area as the market gunned for stops that were lurking above the 95.30 area. Sterling sustained most of its earlier momentum after  better UK house price data, which rose for its third straight month. GBP/USD continued to hover around the 1.65 area after opening in Asia at 1.6355. Commodity-related currency pairs were firmer by 100 pips from their opening levels in Asia thanks to Goldman's big call on crude.
 

Published on  Thu, Jul 30 2009, 16:58 GMT