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U.S Market Update

Tue, Aug 4 2009, 15:36 GMT

TradeTheNews.com

- US equity indices opened slightly below yesterday's closing levels in the wake of the June personal income reading, which indicated the largest decline in the series since August, 2005. But equity markets picked up following the better-than-expected US pending home sales (which has registered positive gains in each of the last five months), sending indices back to around even by mid morning. Front-month NYMEX crude is largely unchanged, trading above $71.  Bond prices began the session in positive territory moving inversely once again to the pre-market weakness in stocks, but prices have reversed sending yields higher after the home sales figure. The 10-year yield has pushed back towards 3.7%.  Commodity prices trimmed early losses helped by the Dollar paring early gains.  Crude is fractionally lower near $71.50.

- At an analyst day event Caterpillar offered a long-term view of its future performance. It reaffirmed its FY09 outlook after tweaking the forecast two weeks ago in its second-quarter earnings report. It insisted that 2010 earnings would be better than 2009, even if the recession continues, and discussed its earnings potential out to 2012 as well. Executives also said the company's strategy in this period would be to maintain the dividend. Other major earnings included CVS, whose second quarter results and full-year outlook were in line with expectations. CVS missed analysts' expectations for next quarter in guidance, however. Ag giant Archer-Daniels-Midland missed earnings targets by a huge margin on collapse in demand for ethanol and sluggish demand in other businesses. On the conference call, executives reiterated their positive long-term view on ethanol.

- PepsiCo has achieved a breakthrough in its quest to take over its independent bottlers, Pepsi Bottling Company and Pepsi Americas. Pepsi launched its offer for the firms back in late May, and the two bottling companies have repeatedly turned down its offers as too small. This morning PBG accepted a deal at $36.50/shr in cash (or a prorated stock/cash combo), up from the original $29.50/shr offer; PAS accepted $28.50/shr (or the prorated stock/cash combo), up from $23.27. The aggregate value of the two deals stands at $7.8B, and will lead to the creation of one of the largest global food and beverage companies.

- Homebuilders DH Horton and Pulte Homes both registered quarterly losses that were larger than expected. However, revenue totals at both firms beat expectations and key metrics including closings, orders and backlogs showed sequential improvement. Note that these positive notes come hand in hand with this morning's m/m pending home sales improvement, as well as positive housing data from last week. Pulte's CEO said the company is seeing signs of stability emerging in Q2.

- In other earnings, manufacturer Emerson Electric offered largely in line results. Anadarko's quarterly loss was smaller than expected. Managed care name Healthspring beat EPS expectations, competitor Health Net missed by a hair, and healthcare product distributor Henry Schein was in line with the Street. GMAC said its Q2 loss would be nearly one third larger than last quarter's results, stating that the quarter was adversely affected by the overall turmoil in the industry and specifically by GM's bankruptcy process. Auto parts manufacturers ArvinMeritor and TRW Automotive both did better than expected, with TRW back in the black ahead of selected items. TRW's guidance for the coming quarter and the full year is well ahead of estimates.

- In currencies, risk appetite was looking hard for fresh energy during the New York morning after a touch of profit taking hit markets during European session. With data showing US personal income declining by 1.3% in June, investors expect consumer spending will take some time to recover, possibly providing an additional catalyst for risk aversion. Dealers noted that the decline partly stemmed from the unwinding of one-time transfer payments from the US stimulus plan. EUR/USD hugged the 1.4400 level through most of the New York session, ahead of the option expiration cut at 10amET. But the better-than-expected US pending home sales helped to calm risk aversion, sending EUR/USD back toward the 1.4430 level and USD/JPY back above 95. Now markets participants are waiting to see whether the US employment data due over the next three sessions will support the stabilization and economic recovery scenario; note that major commodities, equity indices and currencies have touched key psychological levels over the last 24 hours (NYMEX Sept crude is over $70, the S&P 500 is testing the 1,000 handle and GBP/USD is touching the 1.70 mark.

Published on  Tue, Aug 4 2009, 15:36 GMT