Markets Opening Cautiously Higher - Street Looking for a Queue
April 8, 2009 – The futures are indicating a slightly higher opening for the broader markets, having reversed course about an hour before the open. The early on negative sentiment in the futures came as the Street reacted to some negative earnings reports (Alcoa) and jitters increase about general corporate outlook. Oil and gas, as well as food and beverage stocks are leading stocks lower. In terms of groups showing relative strength, the auto sector is one of the stronger groups in pre-market activity.
The dollar is stronger against the euro again this morning, which has been helped by a recent interest rate cut in the UK and lower consumer confidence in the region this morning. The euro is getting $1.3244 against the dollar. We continue to believe it is only a matter of time before the $1.8 trillion or so added to the national debt since March last year catches up with the dollar and tips it into a slide.
Gold is up slightly, buy $0.90 to $884.20. The primary catalyst in either direction, lately, for gold has been the general sentiment about the economy and specifically performance in the equity markets. Gold fell last week as investors moved back into stocks on increasing expectations, and hopes, that the worst is behind us. Now, heading into earnings season, stocks have under some pressure and gold has been up-ticking. The more relevant correlation that we see is the performance of the dollar, and recently, in light of weakness in peer currencies and despite the underlying fundamentals of the US economy and increase in debt, the dollar has been the currency of choice amongst traders.
While oil prices are moving lower again this morning as traders continue to recalibrate valuations based on renewed soberness with respect to the depth of the global economic crisis and a growing sense that the recession may last longer than expected in the US. Also adding to oil weakness this morning is a view that US crude inventories increased in the past week.
On the corporate front,
· Alternative Energy – Solar – Solon SE (SOO1.GY) fell after the company said it may face a €40 million impairment loss as a company it has an indirect stake in (Silicium de Provence SA) filed for “placement under administration.” Manz Automation AG, which is partnered with Roth & Rau AG to make solar-cell production lines, is cutting workforce hours by 20% to cut expenses.
· Housing Sector – Pulte Homes (NYSE:PHM) is buying Centex (NYSE:CTX) in an all stock transaction valued at about $1.3 billion.
In international markets, China’s auto sales have exceeded US auto sales for the third straight month, reaching about 1.03 million in March (about 857 thousand vehicles sold in the US in March, down 37% Y/Y). In the UK, consumer confidence fell 2 points to 41 in March. Thailand cut its key interest rate by 25 basis points to 1.25% (five year low). Iceland cut its key interest rate by 125 basis points to 15.5%. In Germany, exports are down 23.1% on a Y/Y basis to €64.8 billion ($86.3 billion).
In terms of what we expect in today’s session. It looks like stocks are set to open slightly higher, and the fact that the DJIA, for example saw a pretty significant decline in volume amidst yesterday’s 186 point selloff could be indicative of the fact that traders are reluctant to give up their hopes that the worst in the US economy may be behind us. Still, we just see too much systemic risk in place to suggest that we are anything but close to the high end of the trading ranges across all indices.
This is why we recommended on Friday to hedge against downside risk with the Short Dow30 Pro Shares (NYSE:DOG). We would be inclined to add to this position on any move above 8,000. Looking for catalysts in today’s session, we don’t see many.
On the earnings front, Alcoa was the first negative pill that had to be swallowed of the earnings season. Expectations are not high for this earnings period, with companies forecast to see earnings fall 37% on a Y/Y basis.There aren’t any other significant reports due today. Traders may position a bit for tomorrow’s weekly jobless claims, which are expected to support the view that the economy is not finished cutting its work force.
We expect a choppy session today, and are sitting on the sidelines, generally speaking at the current levels. On a rally, we would be hedging against downside risk. We are not close, however, to a level on the downside which we think could be touched on again, to begin accumulating on weakness.
Wit, Wisdom, Fools and Folly
Nouriel Roubini, one of the few economist/pundits that we reference with regularity in our commentary that we have a true respect for, said of CNBC’s Jim Cramer, that Cramer is a “buffoon”, being “one of those who called six times in a row for this bear market to be a bully market rally and he got it wrong. And after all this mess and Jon Stewart he should just shut up because he has no shame.” We totally agree. We would also ask Larry Kudlow to shut up. And Tobias Levkovich, for starters.
Forecasts
· UBS AG cut its 2009 forecast for crude oil by 15% to $51.
· GFMS Ltd. said gold could “easily” reach $1,000 an ounce. While Walter de Wet of Standard Bank Plc said he “expects physical demand for gold to rise at these price levels, which should support the gold price” amidst “systemic risk in the financial system.” He added that “While the stimulus packages announced last week should assist global growth, we doubt it can cure the problems entrenched in the financial system.”
Fast Facts
· The national debt is up to $11.1 trillion as of this morning. The debt held by the public is now over $6 trillion. Each taxpayer’s share is over $36 thousand.
· China has increased its ownership of US debt to $739.6 billion, as of January, 2009, up 50% on a Y/Y basis. Of the total debt owned by foreign entities, China holds the most, representing 24% of total foreign owned US debt. Japan trails in second with $634.8 billion.
