Market Summary

{+++}US Market Update (subscribers-let me know if you like these updates) *************

Dow -12 S&P -3 NASDAQ -20
– US equity indices gained a bit in the premarket, but headed lower and slipped back into the red in another morning of lighter volume and little data. Comments from various high-profile figures are competing to set the tone this morning. Goldman Sachs’s CEO Blankfein, who seldom comments publicly on the economy, told reports this morning that he expects a long, protracted recession, and said that the current upturn is not the real recovery. Later in the morning, PIMCO’s McCulley responded, saying that he sees green shoots and believes the recovery is for real. In comments to the North Carolina State Senate, Fed Governor Lacker said the labor market may weaken further although he is seeing evidence of consumer resilience, and predicted the recession could end later this year. Note also that Chrysler and Fiat have finalized their alliance now that the US Supreme Court has signed off on Chrysler’s bankruptcy process. The company is expected to emerge from Chapter 11 very shortly. Front-month NYMEX crude nearly broke $72 in early trading after the Kuwaiti Oil Minister said OPEC may consider raising output if oil reaches $100/bbl and Gazprom’s CEO warned that the oil market has pinpointed $100/bbl as the 2010 benchmark price. Spot gold continues to its inability to retake the $1,000/oz mark and has descended back into negative territory for the session, hovering around the $950.

– Treasury yields have moved out to fresh 2009 highs in the benchmark bringing 4% into view. The 10-year traded above 3.91% after a Russian central bank official was quoted as suggesting Russia is considering moving away from USTs and buying IMF bonds. This rehashed concerns sparked by Chinese comments last week that suggested they were looking at IMF bonds as well. It is worth noting that these comments were released conveniently ahead of today’s 10-year note reopening from the US Treasury. At 1pm the results of the $19B sale will be announced followed by the beige book release and later on an announcement from the Fed regarding the schedule of upcoming coupon purchases.

– Shares of Citigroup are outperforming this morning after the bank launched its share exchange operation (which it first proposed back in February), aiming to convert $58B in preferred shares and other preferred securities into common shares in order to pad its capital base. The Treasury will convert about $25B of its $45B preferred investment, giving it a 34% ownership stake. According to press reports, it looks like BlackRock has managed to snatch Barclay’s iShares unit out from under the nose of CVC Capital Partners. The WSJ writes that a deal may be near for BlackRock to buy the unit for $12-14B, which is a bit more than the FT targeted on June 5th. Also note that there are reports the Obama Administration has dropped plans to cap compensation at financial firms who take bailout funding, leaving the job of regulating Wall Street pay to Congress.

– Various firms are fine-tuning guidance in an attempt to get out ahead of the unsettled economic situation. Home Depot tinkered with its 2009 forecast, saying that earnings would be -7% to flat y/y (better than its prior -7% view), while revenue is still seen as -9% y/y. HD opened a few percent higher on the news. Aerospace and industrial manufacturer Barnes Group has withdrawn its 2009 guidance, citing increased uncertainty in the transport sector. Barnes shares are down 7%. Real estate giant CB Richard Ellis offered a “highly preliminary” view of its second quarter that was below expectations. Shares of CBG jumped up to 20% on the news, before trading off to +15%. Visa said it sees high single-digit growth in 2009 and believes it will return to 15-20% revenue growth in 2010, depending on the course of the crisis.

– Comments from various sources are buffeting the big chip manufacturers. Industry analyst Isuppli said that Intel’s Q1 microprocessor share -2.5% q/q to 79.3% while AMD’s share rose 2.3% q/q to 12.8%. The group sees Q1 global microprocessor revenue -21% y/y and sales -16% y/y. AMD’s CEO echoed recent comments from the likes of Michael Dell, saying its too early to say PC market has hit bottom. He also predicted that Q4 is the earliest time for on-year revenue and PC demand growth (note just the other day Intel’s CEO said he is confident the bottom has been reached in the PC market). Taiwan Semi believes the worst is over for the chip industry and expects industry growth of 5-6% in 2009, with recovery arriving in the second half of the year.

– In currencies, the greenback managed to shake off its earlier vulnerability in the choppy European session price action. Alleged comments from the French Finance Ministry, to the effect that currencies rates would not be discussed at this weekend’s G8 summit, helped the pair test 1.4144 ahead of the New York session. The dollar seemed poised for a beating after Russian Central Bank First Deputy Ulyukayev commented that Russia was mulling plans to reduce its share of reserves held in US Treasuries in exchange for IMF bonds. The central banker noted that it would diversify reserves if the Chinese Yuan (CNY) became a new global reserve currency. Note that Russia’s $401B of reserves include roughly 30% US Treasuries. EUR/USD retested the 1.4140 level, but failed to make a fresh session high on the Russian comments. Dealer chatter then focused on the pending IMF bond issue and debated whether there really was going to be any central bank portfolio adjustment away from treasuries and into IMF bonds. Keep in mind that the IMF has not disclosed the makeup of its pending bond issue, and it remains an open question whether they will be denominated in USD, EUR or a basket comprised of Special Drawing Rights (SDRs, which are an accounting chit only and not a circulated currency). Risk aversion returned after comments from Goldman CEO Blankfein, sending the EUR/USD probing below the 1.4000 level as oil and energy markets took note of the cautionary outlook from Goldman’s chief. AUD and CAD are off their best levels, while USD/CAD is retesting 1.11, 150 pips above its NY morning lows. AUD/USD at 0.8050 after testing 0.8130 overnight.

Data from tradethenews

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