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U.S Market Update

Thu, Aug 13 2009, 15:25 GMT

TradeTheNews.com

- US equity indices have been pretty whippy since yesterday's FOMC decision, as traders try to decide what to make of the Fed holding steady on rates and asset purchases. Overall stocks are holding onto and in many cases adding to gains, while Treasury yields remain below where there were heading into the announcement suggesting the Fed is doing a decent job corralling market expectations. The flood of debt and equity offerings continues apace, leaving investors and prognosticators alike to wonder whether the rush to raise capital indicates a temporary top or a healthy indicator this rally has legs. Initial jobless claims came in slightly higher than estimates and above last week's figure, reminding everyone once again that the jobs picture is far from clear. Last night RealtyTrac reported that US foreclosures in July were up 7% m/m (and 32% y/y), for a new record high in the company's monthly foreclosures data. To top off a dreadful data morning, the July advanced retail sales numbers declined unexpectedly, underling the continuing threats to consumer spending and the overall recovery from the toxic combo of rising unemployment, declining home prices and tight credit. The front-month NYMEX contract shot up above $72 on European GDP strength, but has traded off somewhat on equity declines in the US.

- Bond prices are higher this morning as investors become more comfortable that Fed will remain on hold in terms of raising rates for the foreseeable future regardless of volatility in the economic data. The long bond yield is just below 4.5% ahead of this afternoon's auctions results while the benchmark rate at 4.66% is some 7 basis points below where yesterday's auction went off.

- Hedge fund manager John Paulson (who won big betting against subprime last year) bought 168M shares (for a 1.9% stake) of Bank of America, making him the fourth-largest holder in the bank. Paulson also added 2M shares in Goldman Sachs, as well as new positions in Capital One, Regions Financial, State Street, M&I and Suntrust Bank. BoA jumped 5% in the premarket on the news, while other tier-one financials rose modestly on the news as well. Regions Financial was up 7% in the premarket on the news, Suntrust is up 5% in early trading and other regionals have gained one or two percent. Elsewhere in the financials, CIT is up nearly 15% after adopting a rights plan to protect its substantial tax assets.

- In earnings, Walmart came in slightly ahead of earnings estimates and a bit below revenue targets, but same-store sales notably turned negative for the quarter, declining significantly from last quarter and turning negative for the first time in years. Mid-market department store chain Kohl's reported in line and guided a bit below expectations for the coming two quarters and the full year. On the conference call, Kohl's CEO said the company had gained significant market share in 2009. Dr Pepper Snapple blew out profit estimates and raised its full-year forecast. Revenue for the quarter was in line.

- In currencies, the better risk appetite stemming from gains in European markets hit turbulence early in the US session. The price action in most commodities and equities described a parabolic arc, soaring upward in the European morning and plunging back again as US trading got underway, coupled with a modest retracement in the greenback's soft tone. The yen benefited most from the risk aversion, with USD/JPY probing the lower end of its 95 handle. Dealers were talking about big USD sell stops building below the 95.10 area. EUR/JPY and GBP/JPY crosses retreated almost 200 pips from session highs to move back into negative territory. Dealers did note that the JPY was lagging behind the risk appetite theme earlier today, with rumors making the rounds that Japan's DPJ might be willing to tolerate a strong yen if the party took power after the Japanese national elections on August 30. The South African Central Bank unexpectedly cut its interest rate by 50bps to 7.00%. The ZAR weakened against the major pairs in the aftermath of the rate decision. The Danish Central Bank also unexpectedly lowered its key  interest rate by 10bps to 1.45%.

Published on  Thu, Aug 13 2009, 15:26 GMT