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U.S Market Update

Thu, Aug 27 2009, 15:51 GMT

TradeTheNews.com

- US equity indices pushed out to weekly lows in the first half hour of trading this morning, before retracing some of their losses. The second reading of the US Q2 GDP data echoed the initial reading back at the end of July, coming in slightly better than expected but still in negative territory. Initial claims were a hair greater than expected, but continuing claims showed some slight improvement. Fed hawk Lacker discussed the exit strategy in a speech this morning, noting that the Fed may not need to raise rates until the economic growth is "vigorous." In the aftermath of his comments, the yield on the 10y Note rose almost 8 basis points to test the psychological 3.50% level, but was unable to sustain any move above that mark and swiftly retreated. The stronger USD and JPY helped push both energy and metal commodities into negative territory for the session with NYMEX Oct crude futures move below $70/barrel, off by $1.50.

- The FDIC has reminded investors that the financial sector is a long way from normality with two widely anticipated moves over the last 24 hours or so. Yesterday afternoon, the board of the FDIC voted to lower capital ratio standards for the private equity firm's investments in failed institutions to 10% from the 15% prior recommendation. Then this morning the FDIC released its Q2 quarterly report on the banking sector, increasing the number of 'troubled' institutions on the list by about 25%, to 416 in Q2 from 305 in Q1. The FDIC fund for insuring deposits is now just above $10B, its lowest level since the S&L crisis in the early 1990s. Top tier US financial names are mostly in negative territory, although Citi  is up 2% after the NY Post reported that John Paulson had acquired a 2% stake in the group and called its shares "undervalued."

- Toll Brothers offered mixed results in its Q3 report, losing far more than expected in the quarter after various tax allowances and non-cash charges were included in earnings. Minus charges, the company would have turned a modest $3.7M profit. The company saw another uptick in new contracts, although the growth was less than last quarter's big jump. For the first time in three years, the number of homes in the backlog grew compared to the prior quarter, reversing a twelve-quarter trend. Shares of TOL fell 3% or so in early trading, before bouncing back somewhat; other homebuilders fell even further in the wake of gains from two consecutive days of positive housing data, with DHI and PHM down 6% before rebounding.

- In other news, Boeing rolled out a new delivery schedule for its troubled new 787 Dreamliner jet. The company now expects first flight by end of 2009 and first deliveries by Q4 2010. Boeing also said it would log an estimated Q3 non-cash charge of $2.21/share for continued delays in the program. Canadian banks Toronto Dominion and Royal Bank of Canada both beat earnings and revenue expectations in quarterly reports this morning, once again confirming the relative health of the Canadian financial sector. TD is up 3% but off its best levels, while RY is sustaining a 6% gain.

- The greenback has shrugged off a mixed session to firm up against its European counterparts in currency trading this morning. Although the revised US Q2 GDP data beat expectations, some risk aversion has made its appearance given the initial claims data remains a thorn in the side of the recovery. Initial claims saw only a moderate net improvement; the August average is 570K, higher than the 558K July average. Fed Governor Lacker's interest rate comments also provided some support for the greenback, after he said the Fed might have waited too long to raise rates in the 2003-04 period. Lacker insisted the FOMC would take these issues into consideration when looking at future rate moves. However the timing of any rate hikes were subject to GDP growth achieving "sufficient magnitude." EUR/USD is holding to its 24-hour trading range, with continued chatter of sovereign bids on the approach of 1.4200. AUD and CAD are off their best levels thanks to the weakness in commodities.

Published on  Thu, Aug 27 2009, 15:52 GMT