Market Update

{+++}US Market Update

Dow +51 S&P +7 NASDAQ +12
– Equities continued their post-beige book rally before and then after the bell taking heart from the Fed’s assertion that the slump is moderating in nearly half its districts. However indices did encounter some early resistance around 950 on the S&P keeping a lid on gains thus far. Before the open May advance retail sales came in even with estimates, at +0.5%, making for the biggest gain in the series in four months. Data was aided by consumers snapping up discounted auto deals and then paying higher prices at the pump. The initial jobless claims were a bit lower than expected, while continuing claims moved out to yet another all-time high. Front month crude continues to rally, trading above $72 after the IEA raised their monthly demand forecast.

– Sellers returned to the US Treasury markets in the early going. Talk still centered on the 4 basis point tail required in yesterday’s 10-year reopening which briefly sent the benchmark yield above 4%. But following another loss of 600K jobs for the latest week buyers stepped in and yields have backed off. The long bond is only fractionally lower yielding 4.775% ahead of this afternoon’s auction results.

– Ratings upgrades are moving selected financial stocks. Bank of America is up 7% after Keefe Bruyette raised the name to Outperform from Market Perform, noting that the completion capital raising takes away a level of uncertainty surrounding the bank. Note that BoA CEO Lewis is getting grilled in front of Congress this morning on questions regarding his bank’s acquisition of Merrill Lynch. Among the regional banks, Regions Financial rose as much as 9% before trading off while Fifth Third rose 6% after Goldman Sachs boosted the names to Buy from Neutral.

– Another crop of corporations sought to mold expectations by adjusting guidance ahead of earnings season. Qualcomm raised its revenue forecast for Q3 by 10% or so (but refrained from offering earnings guidance), noting that robust demand for chipsets would aid its top line. Clorox reaffirmed its forecast for 2010 and raised its dividend by a bit. Medco Health affirmed its full-year forecast. Railroad Genesee Wyoming cut its earnings outlook for next quarter thanks to declining traffic, sending its shares down 4% on the news.

– Recent comments from Boeing and Yahoo have provided insight to the two companies respective industries. Boeing dropped a bombshell mid morning, trimming its long-term 20-year demand forecast by a small amount as the airline industry continues to reduce capacity in the face of the economic crisis. Last night a Yahoo executive said that the company is seeing lots of advertising activity from mid-level customers, stating that advertising is “coming back.”

– In currencies, the greenback continued to consolidate under a barrage of data, bond issues and commentary, providing good two-way price action. Nonetheless, market participants are well aware that green shots could easily be replaced by a George Constanza-style “double-dip” recession. Aiding these fears was White House Advisor (and former Fed Chairman) Volcker, who commented that prospects for a strong recovery were unlikely, despite some growth in late 2009. Volcker also added to the ongoing conversation on global reserve currencies, noting that some sort of special reserve currency would ultimately be logical but there were no practical alternatives to the dollar today or “for many tomorrows.” A Goldman Sachs economist chimed in as well, noting that central banks need to hold fewer dollars and forecasted a softer dollar in the medium and long term on the growing risk of reserve diversification.

– Some key levels looking ahead for EUR/USD are in the 1.3950 to 1.4090 area. Dealers are noting that a break below 1.3800 could alter the recently constructive Euro picture. Above the 1.4150 would elect another round of Euro buy stops. The USD/JPY pair faces critical resistance line at the 99.00 area, which represents the August downtrend line.

– The Swedish Kroner (SEK) continues to get whipsawed thanks to the economic meltdown in the Baltic states. EUR/SEK tested above the 10.82 on rumors of political turmoil in Latvia; Sweden has substantial banking exposure to the former Soviet satellite. SEK sentiment was also weighed down by dovish comments from the Riksbank’s Svensson, who commented that another interest rate cut (rates are at 0.50%) was possible, while the Riksbank’s Wickman-Parak said low interest ratse might be necessary for a relatively long period of time

– Two notable meetings are on the horizon. Firstly, G8 finance ministers are meeting in Rome this weekend. French and German officials have commented that currencies are unlikely to be discussed at the confab. It should be noted that it is the finance ministries meeting in Rome who would provide central banks with any currency intervention orders. Then next week Brazil, Russia, India and China (the so-called BRIC countries) are set to meet in Moscow on June 16. Markets expect further talk about diversification of reserves away from the U.S. dollar. Brazil stated yesterday that it was not attempting to weaken the USD and did not benefit from a weaker USD. Russia has been the most vocal on creating a new reserve currency, while China has remained a large buyer of US treasuries this year despite inaccurate stories to the contrary. China’s “diversification” steps have been to purchase many USD based commoditiesTrade The News Market Update System.

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Update 6/11/09 15:00

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