Market Update

{+++}US Market Update

Dow -3.7 S&P +1.4 NASDAQ +9.75
– US equity indices are moving sideways this morning as another round of grim industrial production data clouds out any sunshine from the mildly positive housing data. The May housing starts and buildings permits data came in slightly above estimates, rising by the biggest amount in three months. However, the May industrial production and capacity utilization data provided herbicide for green housing shoots, with both readings still in negative territory. The industrial production data showed its seventh straight month of contraction, while capacity utilization marked its fourth consecutive record low. Bearish comments from various quarters are also weighing on sentiment: Goldman Sachs Chief Economist said he still sees the potential for a market correction over next several weeks, while the American Bankers Association forecasted US unemployment peaking at 10% and above 9.5% throughout 2010. Note also that Morgan Stanley expects to repay its TARP funds sometime today. NYMEX crude has recouped its losses from yesterday on the weaker USD, with the front-month contract back over $72 mid morning.

– US Treasury prices opened to the downside after it was reported Russian President Medvedev would raise the reserve currency issue at today’s BRIC meeting. But the official outline of the communiqué failed to really spook investors and another coupon purchase from the NY Fed sent prices into positive territory and yields lower. The 10-year is yield has returned towards 3.7% while the long bond offers 4.53%.

– In earnings, shares of Best Buy are down 5% after the company came in more or less even with analysts’ estimates and reaffirmed its 2010 forecast. Smithfield Foods’ loss was slightly less than expected, while its revenue was well below estimates. The company believes the A(H1N1) virus only had a short-term effect on US pork demand. As consumers received more accurate information about the virus, Smithfield saw domestic market conditions begin to move back to more normal levels. International markets still face some restrictions, however. La-Z-Boy was in the black in its Q4 crushing estimates for an $0.11 loss. Shares of LZB are up 15% but off their best levels.

– In other equity news, Genzyme temporarily shut down drug production at its Allston Plant after it detected a virus that impairs cell growth in one of six bioreactors at the facility. The company expects the plant to be fully operational by the end of July. Shares of GENZ fell 7% before the open and have recovered somewhat in early trading. Steelmaker Nucor essentially reiterated their earlier qualitative guidance for Q2 with hard numbers before the open. The company said its loss in the quarter would be smaller than expected, sending its shares up 4%. According to Nucor’s CEO, order entry has improved in recent weeks, although the economic outlook remains very uncertain in light of the continuing structural economic challenges. Shares of Tyco are up 8% after the firm guided substantially higher than the Street for its Q3, citing additional revenue in consumer markets and undersea telecom segments.

– In currencies, the greenback was softer headed into the New York session on price movement ahead of the BRIC summit in Russia and better German ZEW data. EUR/USD tested the 1.3930 level before meeting solid selling from sovereign names in Asia. Dealer chatter of euro buy-stop orders above the 1.3950 level are safe for the time being. The BRIC draft communiqué came out just before the equity open, calling for a “diversified, stable, predictable currency system,” with no mention of the role of the dollar or any supra-national currency. The statement indicates there are conflicting views among Russian and other BRIC finance officials, given that the reserve currency issue was brought up in a general sense but without any specific mention the dollar’s role.

– JPY price action has been choppy as dealers continue to debate the situation at Japan’s public pension fund, the worlds largest. There was news the fund might sell JGBs to cover payments; dealers were noting that this could mark the beginning of the end for Japan as a capital exporter. In addition, Japanese tax laws could encourage repatriations of funds back home. These raise question about whether you can expect the JPY to be in demand for the foreseeable future. The steady dollar during the mid-NY morning helped the energy and metals consolidate their earlier gains. The CAD and AUD currencies were paring their gains as a result.Trade The News Market

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