Market Summary 6/12

{+++}US Market Update

Dow -7 S&P -4 NASDAQ -21
– Trading is once again subdued and unsettled this morning, with US indices opening to the downside before the DJIA and S&P recovered to just short of breakeven. Weakness in tech names is keeping the Nasdaq weak. The preliminary June University of Michigan Confidence survey came in a hair below expectations, with both one- and five-year inflation expectations above the 3% level. Dollar strength and lots of “commodities are overbought” commentary shaved around $1.50 off the price of front-month crude earlier this morning, although some of those losses have vanished as oil heads back over $72. Bond prices remain firm following yesterday’s 30-year auction, aided by comments from Japanese Finance Minister Yosano.

– Shares of BlackRock opened down 2% and then dropped to -6% the morning after consummating its purchase of Barclays investment unit for $13.5B and becoming the world’s largest money manager. Threats of Congressional subpoenas have benefited Bank of America, whose shares are outperforming those of the leading banks after a top Republican official on US House financial oversight panel threatened to drag Fed Chairman Bernanke and former Treasury Sec Paulson before the committee to testify on the BoA/Merrill Lynch deal.

– Troubled insurer Hartford Financial announced a big share secondary yesterday evening. The firm plans to sell $750M in common equity, or about 16.4% of its current market cap. Hartford also commented that it would accept TARP funding, although an executive qualified this statement earlier this morning, saying that the firm was still “evaluating” participation in TARP. The exec also said Hartford might take “significantly less” than the $3.4B initial authorization from back in May. Shares of HIG are down 8% in early trading. Principal Financial Group said last night that it had decided not to take TARP funds, citing the stabilization of the financial systems and the firm’s improved capital position. Shares of PFG are down a few percent in early trading.

– Landmark legislation granting the FDA the power to regulate tobacco passed the Senate yesterday afternoon in a 79-17 vote. A nearly identical version of the bill moves to the House today, with most commentators noting that passage is virtually assured. President Obama (a smoker himself) has pledged to sign the bill. Shares of tobacco companies have not really responded to the Senate action; most believe the legislation is a net positive for the industry. In other tobacco news, there was vague chatter making the rounds yesterday that Star Scientific had reached a settlement in its long-running patent infringement suit against Reynolds American. Shares of STSI have fallen off a cliff this morning, trading down as much as 10% on the rumors.

– In other equity news, shares of National Semi are off 8% despite the company reporting a smaller-than-expected Q4 loss and beating revenue targets in its guidance for next quarter. Shares of Savient Pharmaceuticals are up 50% on chatter that FDA staff have released a positive report on drug candidate Krystexxa ahead of an advisory panel meeting next week.

– In currencies, the dollar is extending its rebound from weekly lows thanks to verbal relief from reserve diversification jitters. During the Asian session, Japan said its trust in US Treasuries was “unshakable.” Softer Euro Zone Industrial Production data was also cited as behind the shift in sentiment, with the numbers pointing toward continued contraction and prolonged economic weakness. The Spanish Government cut its 2009 and 2010 GDP forecast and raised its 2010 budget deficit estimate to 7.9% of GDP from 4.8% prior, and the two main Spanish unions said the government had approved an additional €17B in unemployment aid. Events like this highlight the fragility of the current incarnation of the Maastrict stability pact, which dictates a 3% debt-to-GDP ratio for most members. Also note that position squaring ahead of the G8 finance ministers conference was also a factor in the USD’s firm tone.

– EUR/USD has held below the 1.40 level for the bulk of the New York session while GBP/USD is 200 pips off its Asian highs of 1.6600. USD/CAD is 200+ pips higher, well above the 1.1220 level, while AUD/USD is off 100 pips from its Tokyo open to trade below 0.81. USD/JPY remains within striking distance of breeching its August downtrend line, with a close above 99.00 set to elect some further upside dollar momentum in the pair.Trade The News Market Update System.

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