Market Update

{+++}US Market Update

Dow – 21 S&P +0.35 NASDAQ +3
– US equities opened in the black this morning, as the weekly initial jobless claims fell below 600K for the first time in 24 weeks (continuing claims remain at all-time highs around 6.8M). Better-than-expected results from earnings season opener Alcoa, as well as initial positive investor reaction to June SSS figures supported sentiment. But like yesterday the gains were short lived and evaporated quickly in trade that continues be characterized as thin and choppy. Front-month NYMEX crude futures strengthened to above $61 before dropping below $60 level this morning for the first time since May 26. Treasury prices opened lower but yields are remain below the levels seen ahead of yesterday’s 10-year note auction results.

– Mid-cap financial group CIT is up 10% in today after the FT reported executives at the company are pushing regulators to stop stalling its requests to issue government-backed bonds. CIT is the only major financial group that received TARP but has not been given the go-ahead to FDIC-backed debt. In other financial sector news, Citi shook up its senior management yet again, bumping CFO Ned Kelly to vice chairman and naming John Gerspach CFO in his stead. Former CFO Gary Crittenden is leaving the company. In March Gerspach was moved to be chairman of Citi Holdings, the entity created to manage bad assets the company is looking to sell.

– Alcoa kicked off earnings season yesterday after the close by surprising investors with a smaller-than-expected loss and impressive revenues. On the conference call, executives said the company’s liquidity situation is much better and said they were “very close” to being free cash flow positive. Shares of AA gained 5% before the open this morning, but have dropped into negative territory in mid morning trading. A couple of small cap names are also moving on earnings news, with both Scansource and Helen of Troy up 8% or so after much better than expected earnings performances last quarter. Note also that SCSC is down 14% after guiding revenue for next quarter much higher.

– The June same-store numbers were a mixed bag this month, with most companies still well below last year’s levels but more than a few outperforming expectations. TJX and ROST blew out estimates, coming in at +4% versus -2.6%e and +1% versus -2.3%e, respectively. ARO continues to stand out from the pack, with sales up 12%, although its worth noting this growth is less than the stronger growth seen in April and May. Department stores reported declines across the board, although they nearly all did better than expected, with high-end names SKS (-4.7% v -10.7%e) and JWN (-10% v -11%e) doing surprisingly better than expected. Higher-end mall retailers continue to suffer. LTD was much worse than expected (-12% v -8.3%e), while AEO and ANF racked up yet another month of big double-digit declines, with both worse than expected. Big box discounters BJ and COST were both a little better than expected, but still showing uncomfortable y/y sales declines, while TGT did worse than expected, at more than -6%.

– In currencies, the dollar once again tried to regain its composure during the New York morning as the G5 made vague comments on the reserve currency issue. A Chinese official reiterated that management of reserve currency system must be improved, with a “more diversified” system a chief goal. World Bank President Zoellick insisted the dollar would remain the primary reserve currency but warned its role cannot be taken for granted by the United States. EUR/USD briefly probed above the 1.40 handle in early NY where it meet some selling pressure (rumored to be the Bank of International Settlements). Risk aversion crept back in after the mixed picture presented by the US claims data. Dealers noted that the initial claims number was likely impacted by seasonal factors as auto layoffs were far less than expected. Note that the German finance minister reiterated calls for the Bundesbank to consider making corporate bond purchases, citing need to improve lending given the looming threat of a credit crunch persists in the second half of 2009. The Bundesbank declined to comment on the remarks. The BoE left both its interest rates and quantitative easing measures unchanged. GBP/USD tested 1.6270 in the aftermath of the decision on relief that the £125B QE was left alone for the time being.Trade The News Weekly Update System.

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