May 24 - May 31 - Ron will not be "radio-active" this week.
Have a great Memorial Day!
May 21, 2010
The futures perked up a little this morning after the lower house of the German Parliament approved the European bailout package. But that optimism faded very quickly and we’re looking at another pretty dismal open for stock prices. Futures on the Dow Industrials are indicating an open below the 10,000 level.
Dell’s earnings and sales were better than expected last night. However, higher materials cost put pressure on margins. That, and some less-than-robust guidance had the stock indicated lower. Red Robin also beat estimates, but cut their full-year guidance.
The Senate finally managed to pass a 1,400 page bill yesterday which appears to once again greatly expand government’s reach in order to attack the symptoms rather than the cause of our systemic Wall Street problems. Now the bill goes to conference, where the water can get even more muddied up.
For all the problems in Europe, the Bank of Japan says that things there are getting better. The BOJ held interest rates steady at one-tenth of one percent and upgraded their economic outlook, saying the Japanese economy is “recovering moderately.”
The 3 month LIBOR rate is up again, at just a hair under one-half of one percent. That’s twice the rate of a couple months ago.
Markets in Hong Kong and South Korea were closed overnight in celebration of Buddha’s birthday. The Shanghai in China was up over one percent but other overseas markets are lower. At this point, adjusted for fair value, the S&P 500 futures are down more than 9 points, the Dow futures are down 78, and the NASDAQ futures are 12 points below fair value.
At 8:30, the weekly jobless claims are expected to come in pretty much unchanged at the 440,000 level. At 10, the April Leading Indicators and Philly Fed Survey may get some attention. However, most of the headlines will again come from Europe. Greek labor unions are calling for big protests against their government’s newly hatched efforts to live within their means. Traders will be keeping an eye on the >
In the U.S., the big earnings report of the day comes after 4 o’clock, when Dell reports.
We’re still waiting to find out what caused the “flash crash” two weeks ago. While they may not know what happened, that certainly won’t stop the SEC from trying to stop it from happening again. The SEC is set to impose some new “circuit breakers” to slow down volatile price action and they’d better hurry, because the today’s open is shaping up to be no walk in the park.
Markets overseas are all lower.
Our futures have been pretty ugly all morning long. At this point, adjusted for fair value, the S&P 500 futures are down 22 points, the Dow futures are down 167, and the NASDAQ futures are more than 36 points below fair value.
Earlier this morning, the German government, in keeping with the history of governments everywhere, saw a problem and aggressively attacked the symptom rather than the cause. Germany this morning banned naked short selling of euro-denominated bonds, some derivatives and stocks of 10 large German financial institutions. Of course, naked shorting is already illegal in France and Portugal, and those countries are in great financial shape. Financial markets in Europe immediately responded by selling and shorting whatever they could, although things have started to recover a little over there.
Back to the stuff that should matter to us stateside, this morning’s earnings reports are pretty good. Target earned 90 cents for the quarter versus the expected 86 cents. Last night Hewlett-Packard also announced a 4 cent beat and raised full year guidance in line with expectations. Deere absolutely blew away estimates, earning $1.58, versus the $1.09 estimate.
Just in case you thought the April 30thexpiration of the Homebuyer Tax Credit wouldn’t have any impact on home sales – think again. The Mortgage Bankers Association reports that mortgage applications last week fell over 27 percent. That’s the biggest drop since 1997. It’s amazing what happens when the taxpayers stop making the down payment for you.
Markets overseas are lower. The stock market in Thailand is on fire. I mean really – the stock exchange there is on fire.
Our futures have improved a lot over the past fifteen minutes or so, but are still indicating a slightly lower open. At this point, adjusted for fair value, the S&P 500 futures are down 4 points, the Dow futures are down 32, and the NASDAQ futures are 3½ points below fair value.
All eyes around these parts are focused on the 8:30 announcement from General Motors. GM will announce their first quarter operating results. It’s expected that GM turned the corner to profitability, and that’s a corner at the end of a three-year-long road.
Home improvement company Lowe’s reported a good news/bad news story this morning. The good news is that operating earnings of 34 cents came in 3 cents better than expected. The bad news, weaker earnings guidance for the second quarter, has Lowe’s stock looking to open about 2 percent lower this morning.
The Securities and Exchange Commission is expected to announce some new stock market circuit breakers later today, in response to the “flash crash” from a week ago Thursday. The SEC may also make some comments on a proposed fiduciary standard for stock brokers, although it’s hard to believe that they’ll really come up with a rule requiring that the customers’ best interest be put first. After all, eliminating conflict of interests is just downright un-American – or at least very un-Washington D.C.
Don’t look now, but if you have a loan based on the LIBOR, your interest rate may be on the way higher. The three-month LIBOR rate is at 46 basis points – that’s almost one-half of one percent. It was at a quarter of a percent just a couple of months ago.
At this point, adjusted for fair value, the S&P 500 futures are up a fraction, the Dow futures are up 2 points, and the NASDAQ futures are just a point above fair value.
The bad news is that traders are continuing to focus on European sovereign debt and some even posing the crazy idea that Europe can’t solve a big debt problem by piling on more debt. Imagine that. The good news for the dollar is that it looks like the stronger currency compared to the euro. Of course, over here, we’re still in the process of piling on massive debt. In Europe, payment is starting to come due.
There was a story in a Spanish newspaper this morning that France recently threatened to pull out of the European Union if certain countries didn’t start getting their spending in line. Spain and Portugal have suddenly announced austerity programs. We’ll see if there, as well as in Greece, if there is follow-through.
The April Retail Sales report comes at 8:30 and is expected to show only a two-tenths of a percent increase. Then, just before 10 o’clock, the University of Michigan’s first estimate of May Consumer Confidence is expected to continue it’s slow climb higher to a level of 73.5.
Overseas stocks are pretty much a mess. Major European markets are lower anywhere between 1½ and 3½ percent. We’re looking a little messy as well.
At this point, adjusted for fair value, the S&P 500 futures are up down almost 10 points, the Dow futures are down 69, but the NASDAQ futures are above 13 points below fair value.
According to the New York Times, the New York Attorney General’s office has launched an investigation of eight big banks regarding their past mortgage lending practices. Included are Goldman Sachs, UBS, Merrill Lynch (now owned by Bank of America,) Citigroup, Morgan Stanley, Deutche Bank, Credit Suisse and Credit Agricole.
Separately, the Congressional Oversight Panel has released a report regarding just what happened to all those TARP funds the big investment banks got from the taxpayers a year and a half ago. Evidently, the rate of their lending to small business fell dramatically compared to lending to big businesses. Of course that’s not illegal, since Congress attached no strings to the money in that regard.
In a related story, a major investment bank laid off 25 congressmen this morning. Just kidding about that one. Sort of.
Real jobless claims news comes at 8:30 this morning, as new claims for unemployment benefits for the past week are expected to have held pretty much steady at the 440,000 level.
Kohl’s reported earnings that beat estimates by 2 cents per share this morning, but their full year guidance was pretty weak and the stock will likely be under some pressure this morning. Cisco also with a good report last night, but cautionary comments has the stock lower this morning.
Overseas markets are mostly higher and our futures are indicating just a slightly higher open. At this point, adjusted for fair value, the S&P 500 futures are up 2 points, the Dow futures are up 22, but the NASDAQ futures are just a fraction of a point above fair value.
It should be a relatively quiet day for economic and financial news, as European markets continue to evaluate the Greek bailout package and whether or not it has much of a chance at working. This morning, Spain, which is the next European country with a lot of debt to roll over, announced 19 billion dollars in spending cuts, as they attempt to get their financial house in order.
Americans appear to be doing more to get the debt on their actual houses in order. The Mortgage Bankers Association reported this morning a nearly 4 percent overall rise in mortgage applications last week. Boosting the overall number was a 15 percent rise in refinancings.
Microsoft launches that latest version of their Office software today – that’s Office 2010, in case you’re keeping track.
Macy’s reported earnings pretty much as expected. Last night Disney reported much better than expected numbers on the strength of “Alice in Wonderland.” However, Disney shares are looking to open about a dollar per share lower, clearly a case not of “what have you done for me lately,” but “what will you do for me next.” Pepsico and Constellation Brands received broker upgrades this morning.
At this point, adjusted for fair value, the S&P 500 futures are higher by about 5 points the Dow futures are up 40, and the NASDAQ futures are almost 7 points above fair value.
Our stock indexes opened four to five percent higher yesterday and pretty much stayed there for the entire trading day. So, what we saw may have been a large short-covering rally as those who were betting on another market meltdown scrambled to cover their positions early in the day on the heels of the European bailout package.
It looks like a little reflex pull-back is in the works this morning, although the futures are in better shape than their worst levels of the morning.
Toyota reported a billion dollar profit for the quarter gone by and a 2¼ billion dollar profit for the fiscal year. That’s a lot better than the 4½ billion dollar loss from fiscal 2009. The interesting part here is the forecast of a 3 billion dollar profit for the current year. While that’s an increase in profit, it’s far short of was many analysts expected. Ahead of the news, Toyota shares closed about 7/10 of a percent lower in Japan.
At 10 o’clock, the March Wholesale Inventories report is expected to be little changed from the February number.
In light of the European debt problems, which have been band-aided but not resolved, markets overseas are moderately lower, with the exception of Spain, which is almost 5 percent lower. It looks like we’re looking at a pullback of about one percent at 9:30.
At this point, adjusted for fair value, the S&P 500 futures are down 12 points the Dow futures are down 97, and the NASDAQ futures are 18 points below fair value.
Last week’s market malfunctions had many investors wondering whether we were witnessing October of 2008 all over again. That of course, is logical if you’re looking only at your account balance rather than what’s going on with the economy. Not that things are perfect around the world, mind you. But those who sold on their fears of Thursday and Friday will be scratching their heads (and licking their wounds) this morning.
Now that the British and German elections are over, the cavalry has finally arrived with the big fat Greek bailout. The European Union and the International Monetary fund have pledged up to one trillion dollars of assistance. Its announced purpose is to give the Greek Government time to implement the budgetary fixes they’ve promised. We’ll see how successful they are in raising taxes and cutting entitlements.
In the meantime, European banks stocks are roaming around buying up sovereign debt. That’s pumping up the price of that debt and European stocks as well. Stocks in the U.K. and Germany are higher by about 5 percent. The French market is up about 9 percent.
Not to be left behind, our futures are indicating a 4 to 5 percent bump in stock prices at 9:30. At this point, adjusted for fair value, the S&P are up 46 points, the Dow futures are up 353, and the NASDAQ futures are 73 points above fair value.
To err is human. To really screw things up requires a computer.
Watching the stock market between 2:40 and 3:10 yesterday afternoon required lots of Dramamine, as the Dow Jones Industrials dropped about 700 points within ten minutes and then rose 600 points over the next fifteen. Someone at a big investment firm may have entered a sell order in the billions rather than the millions, but that has not yet been proven. We do know that there were huge moves in the currency market just before the big dive. In any event, major indexes gapped lower and triggered a host of computer-driven sell programs.
So, are the computers at fault? Whether unrestricted high-frequency trading should be allowed is a legitimate question. However, remember that the Dow was already down several hundred points before the 2:40 roller coaster arrived.
The real root of the problem with yesterday lies in Greek debt and the threat of default. That’s the root of the problem. However, that root is giving life to concerns about the >
All this overshadows what would otherwise be the big story of the day. At 8:30 the April Payroll report is expected to reflect 200,000 new non-farm jobs, but little or no change in the unemployment rate at 9.7 percent.
Overseas markets are generally lower. Our futures were higher earlier and still appear to be significantly higher on an unadjusted basis. In reality, adjusted for fair value, the S&P are up only about 2 points, the Dow and futures are up 15, and the NASDAQ futures are higher by only about 4 points.
The Japanese stock market traded for the first time this week, and the bulls kind of wished that maybe they could have taken the whole week off. The Nikkei Index fell more than 3 percent. Stocks were more than 4 percent lower in China as Asian markets fell across the board.
Things appear to have stabilized a bit in Europe this morning. As expected, the European Central Bank held interest rates steady at one percent. Within the next hour, the ECB is expected to have more to say about steps to bail out the Greek government. For their part, the Greek government is expected to pass some of the proposed austerity measures that continue to spark citizen protests that closed the Athens airport and some tourist venues yesterday. More protests are expected around the time of that vote, about 1 o’clock this afternoon.
It’s a mixed bag of news from big retailers. Costco reported an April same-store sales increase of 11 percent this morning, That’s pretty good, but traders were really looking for 11½ percent. Target reported a decline in sales of 5.9%, which is worse than the 2.3% drop that was expected. Limited Brands was right in line with an increase of 4 percent. Macy’s reported a better than expected sales increase and raised their future guidance.
The weekly jobless claims announcement at 8:30 is expected to reflect another 445,000 new claims for benefits.
The dollar index is about a half percent higher this morning and that’s pressuring our stock futures, which had been positive most of the morning.
Right now, adjusted for fair value, the futures on the S&P 500 index are down 1½, the Dow futures are down 15, and the NASDAQ futures about 2½ points below fair value.
It’s Cinco de Mayo, the big Mexican holiday that is, as I understand it, celebrated just about everywhere on the globe, except in most of Mexico. In any event, between their margaritas, traders across the globe continue to wring their collective hands over who owes whom money in Europe and how or if they’re planning bail each other out or to pay each other back.
Yesterday our market decided to sell first and wait for answers later, today we may see a good bit of volatility.
On the earnings front, Time Warner checked in with 61 cents of operating profit. That blew away the 48 cent estimate on better than expected revenue. Devon Energy made $1.85 versus the expected $1.47. Locally PulteGroup (you may remember them as Pulte Homes) reported a 3 cent per share loss, which was much better that the 22 cent loss expected. Revenue was up 75 percent from a year ago.
The Challenger Gray & Christmas monthly layoff report showed 38,000 announced layoffs in April. State and local governments accounted for the bulk of the job cuts. Overall it’s a 43% drop from March and the lowest number of layoff announcements in almost 4 years.
Japanis still closed for a holiday. Other markets overseas are lower. Our futures were moderately positive a couple of hours ago, but have been pretty much on the slide ever since. Right now, adjusted for fair value, the futures on the S&P 500 index are down 3 points, the Dow futures are down 28, and the NASDAQ futures are more than 6 points below fair value.
Traders’ focus will again turn to earnings, a least until later in the week when we get the weekly jobless claims and monthly unemployment data.
Two big drug makers, Pfizer and Merck, each turned in better-than-expected operating earnings this morning. Merck earned 83 cents, 8 cents better than expected and Pfizer beat a 53 cent estimate by 7 cents. Neither firm, however, raised their full year guidance above the high end of analyst estimates. So, they may see rougher seas ahead, or they’re just low-balling so as not to disappoint in the future. Pfizer stock is looking to open a bit higher and Merck a bit lower.
CVS/Caremark was 2 cents better than expected, but MolsonCoors and Archer Daniels Midland both missed their numbers.
UBS says that things are looking better as the rate of customer defections is reportedly slowing.
We’re looking at a solid set of red arrows both in Asia and in Europe. Spain, the next big country with a lot of debt coming due is 3 percent lower as the Greek Government braces for citizen protests over proposed austerity moves. Interestingly, the Fitch rating service this morning did reaffirm their triple-A rating on Spain’s debt.
Much of our big run-up yesterday may be given back in the early going today. Adjusted for fair value, the futures on the S&P 500 index are down 10 points, the Dow futures are down 71, and the NASDAQ futures are about 18 points below fair value.
The rumored Greek bailout plan was finally cobbled together over the weekend. The good news is that the Greek government will not go bankrupt right away. The bad news is that the bailout is, so far, in large part in the form of loans from other countries whose economies are not in great shape either. We’ll see if the Greek Government and its voters can eventually wake up to the fact that you have to have a way to eventually pay back what you borrow.
The earnings news starts to tail off this week. But at least for today, economic reports will pick up the slack.
At 8 o’clock we’ll find out how consumer income and spending is doing, and the numbers are expected to be positive. Personal Income is expected to have risen three tenths of a percent in March after no increase in February. Spending, after a three-tenths of percent increase in February, is expected to have risen six-tenths of a percent in March.
Construction spending data and the April ISM Index come at 10 o’clock and are each expected to be marginally better than the prior month.
China’s market, Russia’s market and Japan’s were closed overnight. In fact, Japan is closed through Wednesday. Other major markets are mixed, but generally lower after our big selloff last Friday. However, our futures are pointing to a partial recovery ion the early going. Adjusted for fair value, the futures on the S&P 500 index are higher by about 4 points, the Dow futures are up 37, and the NASDAQ futures are about 10 points above fair value.
Daily Reports @ WJR
For an explanation of "fair value" please click here.