Markets to Get Lift on BofA Report
July 21, 2008 - The markets are set to open higher this morning on news that a Yahoo (Nasdaq:YHOO) and Microsoft (Nasdaq:MSFT) is getting closer, and with better than expected earnings reports from Bank of America (NYSE:BAC). The BofA results and reaction are further validation of what we call the ‘glass is half-full’ rally. The fact is, that the results are really pretty bad but expectations have been lowered to such a degree that even bad news can be spun to look good. This is going to be a pretty light week in terms of economic data so likely that earnings and oil prices will remain the focus for traders. Crude oil is back over $130 per barrel this morning on renewed concerns about tensions rising in the middle east. There was a sense of optimism heading into the weekend which was helping oil prices pull back, with the U.S. expected to join discussions with Iran regarding its nuclear program. Apparently, the discussion didn’t go well, with six countries giving Iran an ultimatum and two weeks for response or sanctions from the U.N. will be forthcoming. Meanwhile, the euro is back on the rise again this morning against the dollar, at $1.5884 while the dollar is slipping to 106.59 against the yen as well. Our outlook for the dollar continues to be bearish amidst a rising U.S. deficit where nobody in Washington has a plan to curb spending. The recent rate hike from the ECB exacerbated relative weakness for the dollar against the euro as well. On the corporate front, · Despite profit falling 41 percent at Bank of America to $5.76 billion, or $0.72 per share on a Y/Y basis, the company beat estimates and shares are rising in pre-market activity. · LG Electronics reported higher profit by 84% for Q2, to $694.4 million on sales of $7.1 billion. Record hand set sales were a key driver, as well as sales of flat screen televisions. · CECO Environmental (Nasdaq:CECE) announced that it has received 10 orders totaling about $8.2 million involving projects for its air pollution control equipment to be shipped to the middle east. In terms of economic data to be released this week, Monday – Leading Indicators for JuneWednesday – Weekly Crude Inventories and Fed Beige BookThursday – Weekly Jobless Claims and Existing Home SalesFriday – Michigan Sentiment Review and New Home SalesExpectations for this week’s economic data are pretty muted, and likely the weekly oil supplies and weekly initial claims will likely carry the most weight. Our expectations for today’s session, despite the fact that stocks are set to open higher is for stocks to come under pressure. The bottom line in our opinion is that the economic environment is still really bad, and with oil prices on the rise again this morning, as well as the dollar continuing its slide, we think inflationary pressures will continue to weigh on consumers’ moods and will be a big concern for business outlook. The ‘good news’ from Bank of America this morning isn’t good news. The company’s profit declined by 41% Y/Y. So what if it came in better than expectations. Expectations were just that bad. We were happy to the markets get a reprieve last week, but we think that stocks are likely to retrace this week, unless oil prices pull back to the low $120 level. Fast FactsAmericans carry $2.56 trln in consumer debt, up 22% since 2000 alone, according to the Federal Reserve Board. The average household’s credit card debt is $8,565, up almost 15% from 2000. ?verage US student emerges from college carrying $20,000 in educational debt. Household debt, including mortgages and credit cards, represents 19% of household assets, compared with 13% in 1980. Share of disposable income that consumers must set aside to service their debt has risen to 14.5% from 11% just 15 years ago. US savings rate, which exceeded 8% of disposable income in 1968, stood at 0.4% at the end of the first quarter of 2008, according to the Bureau of Economic Analysis. (Source: IT Facts)A New Green Deal British think-tank, the New Economics Foundation, in a report this morning called “A New Green Deal” is calling for world-leaders to forge ‘New Deal-like’ policies to address climate change, high inflation and economic challenges.
