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U.S Market Update

Fri, Jul 31 2009, 15:32 GMT

TradeTheNews.com

- US equity trading has been jumpy and erratic this morning, with investors evidently undecided whether the Q2 GDP reading is a positive or a negative. The Commerce Department released its preliminary view of annualized Q2 GDP at -1%, beating expectations for -1.5%, while the personal consumption component was much lower than expected. Nevertheless, the economy has been in negative territory for four quarters now, its longest stretch in the red since 1947. Commentators have been discussing the figures ad nauseam this morning. The IMF said it sees a gradual economic recovery in the US, but warned that growth will stay lower than past recovery trends and said near-term risks are to the downside. JP Morgan's chief economist raised his Q3 GDP forecast to +3% from +2.5%, but warned that unemployment would remain high for years to come.

- Treasuries opened marginally higher this morning and prices accelerated to the upside after the initial look at Q2 GDP. While the headline figure beat expectations, GDP still contracted in the second quarter at a rate of 1% keeping inflation hawks from crowing too much. Despite these "better" outcomes, traders seem to have picked up on another revision of the Q1 figure to down more than 6% and following the data money came out of stocks and into bonds. The long bond future has gained more than a point, pushing the cash yield below 4.4%, while the 10-year is up more than half a point. As we have seen for much of the week the curve is getting flatter and the benchmark spread is narrowing below 245 bps.

- Chevron and Total were the final two global energy giants to report second quarter results, following reports from Exxon, Shell, BP and Conoco earlier this week. Like Exxon, Chevron missed earnings targets while beating revenue estimates by a significant margin. Profit was down 71% y/y, and its downstream segment operated at a loss for the quarter. Total's quarterly profit was in line with expectations, revenue was much better than expected. Shares of CVX are struggling to keep in positive territory, while shares and ADRs of the other four supermajors are down in low single digits.

- Car retailer AutoNation has been much in the news this morning with all the talk about cash for clunkers. The company's CEO told CNBC that it has seen a 36% surge in traffic following the initiation of the cash for clunkers program. The firm beat expectations in its second-quarter report, but missed revenue targets by 10% or so. Shares of AN are down 3% or so; fellow auto retailer Sonic Automotive is up 3% and Ford is up 6% in early trading

- Energy firm Constellation beat top- and bottom-line expectations and guided higher for the year. On the conference call, the firm's CEO discussed the ongoing tie-up with EDF, noting that the merger does not need to be made "at all costs." The company expects power prices to stay weak in the near term and then bounce back in 2011 and 2012. Utilities Dominion Resources, American Electric Power and PSE&G all beat earnings estimates, while the former two names missed revenue estimates. PSE&G warned the abnormally cool weather conditions this summer would make it hard to achieve its 2009 earnings guidance.

- In currencies, New York trading has centered around the US and Canadian GDP numbers as well as month's end liquidity concerns. The better-than-expected US number was certainly welcome, but the lower benchmark revision for 2008 GDP (+0.4% instead of +1.1% as previously reported) curbed risk appetite just a bit. Dealers cited the narrower trade deficit and a surge in government spending as positive factors for GDP. In Europe, ECB sources told the press that the bank does not have a clear outlook for the economy and reiterated there is the possibility of another credit crunch. According to the sources, some in the ECB believe government bond purchases need to be added to the current covered bond program. If the Euro Zone economies weaken further, the bank would discuss further rate cuts. In its report, the IMF said the USD is moderately overvalued. EUR/USD ending the morning at its best level moving above 1.42.

Published on  Fri, Jul 31 2009, 15:33 GMT