Markets To Get a Lift at Open on Ford Report, Better Than Expected Durable Goods
April 24, 2009 – The futures turned into positive territory this morning on better-than-expected results from Ford. Prior to the release from Ford the focus was more downbeat, on what results the so-called ‘stress test’ will be for the banking sector and whether the US economy has turned the corner, or has just taken a respite lately, in a longer-term recessionary cycle. Durable goods orders for March came in down 0.8%, better than expected.
The dollar is software against the euro as traders recalibrate based on softer economic data in the US. The euro is trading at $1.3223. We continue to maintain our thesis that the dollar will trend sharply lower into 2010, while our outlook for gold over this period is a bullish one. Gold is up $4.20 this morning to $910.80.
China reported a 76% increase in its gold reserves, which is interesting in light of the fact that it has taken a more active role in banking the world’s debt. Meanwhile, the IMF is looking to sell some of its own reserves. This is an important development to pay attention to. Keep in mind as well, that China has been calling for a new global currency to replace the dollar.
Oil prices are up $0.31 to $49.93. Traders in oil truly lack conviction. The downward thesis against oil is pretty simple: higher inventories and lower global demand amidst the current recessionary environment. The thesis for higher prices is less simple: OPEC is meeting on May 27 and will likely cut production, while countries like China and India will pick up the rest of the world’s slack for oil demand.
· This week the EIA reported that oil inventories increased 3.86 million barrels to 370.6 million barrels while US fuel demand averaged 18.5 million barrels a day for the four weeks ended April 17, down 6.5% on a Y/Y basis.
On the corporate front,
· Aerospace & Defense – Honeywell (NYSE:HON) reported a 14.6% decline in Q1 revenue on a Y/Y basis to $7.57 billion, and net income of $397 million, or $0.54 per share, compared with net income of $643 million, for the same period last year. Results were in line with expectations.
· Automotive Sector – Ford (NYSE:F) reported a 37% Y/Y decline in Q1 revenue to $24.8 billion, and a loss of $1.4 billion, or $0.60 per share, compared with a loss of $70 million for the same period last year. Expectations were for a $1.23 per share loss on revenue of $22 billion.
· Oil & Gas Equipment – Schlumberger (NYSE:SLB) said Q1 revenue slipped 5% Y/Y to $6 billion, and net income came in at $938.5 million, or $0.78 per share, compared with net income of $1.34 billion for the same period last year. Expectations were for earnings of $0.73 per share.
In international markets, Britain’s economy contracted by 1.9% in the Q1, according to the Office for National Statistics. For the year, its economy is expected to contract by 4.1%. In Germany, business confidence increased more than expected in April to 83.7 points, though still hovering near 26-year lows. In Spain, the unemployment rate has increased to 17.4%.
In terms of what we expect in today’s session, more choppiness. There just isn’t any conviction out there. Yesterday, the markets managed to post gains, but on pretty meager volume. Futures were fully set to set stocks in motion into lower territory this morning until Ford beat-the-street, but we doubt whether that is going to be enough in its own right to buoy stocks throughout the session heading into the weekend.
At this point, we don’t see any real catalysts for a strong move in either direction. But we do think that the risk is more significant, all things being equal, to the downside than there is opportunity for stocks to move higher. In which case, our recommendation is to remain on the sidelines in today’s session, and until the markets make a decisive break in one way or the other.
