Markets to Open Lower Ahead of Week 2 of Earnings Season - Several Banks to Report This Week
April 13, 2009 – The futures are indicating lower openings this morning ahead of the second week of earnings season and a series of reports coming from the banking sector.
The dollar is weaker this morning against most of its European peers. The euro is up slightly at $1.3262. Meanwhile gold is up $6.30 at $887.30. With Friday’s announcement from the Treasury Department that the budget deficit increased by $192.3 billion, more than the $150 billion expected, and already totals $956.8 billion, ahead of pace to hit the administration’s target $1.75 trillion this year, we think the dollar is going to face continued pressure. You simply can’t keep printing money the way it is being printed now and not expect the dollar to weaken and prices to move higher. This dynamic, we think, is the fundamental bullish case for gold. Although in the near term, gold could see pressure with anticipation that the IMF is trying to sell its gold supply. On the other hand, we think that if the IMF sells gold to raise $50 billion for aid to the poorest countries, likely that there will be buyers lined up at the central banks.
A downward revision by the International Energy Agency (IEA) on global oil demand this year is creating downward pressure on oil prices this morning. In Nigeria, gunmen riding in 18 boats attacked an oil facility this morning. Shell said the attack didn’t disrupt production.
On the corporate front,
· Health Insurance Sector – Express Scripts (Nasdaq:ESRX) is buying Well Point Inc. (NYSE:WLP) for close to $4.68 billion.
Key economic data on tap this week include the PPI data for March, retail sales for March and business inventories for February (all tomorrow); the CPI data for March, Empire Manufacturing Index for April, capacity and industrial production for March, weekly crude inventories and the Fed’s Beige Book (on Wednesday); building permits and housing starts for March, weekly jobless claims and the Philly Fed for April (on Thursday); and rounding off the week on Friday with the University of Michigan’s preliminary consumer sentiment report for April.
In terms of what we expect in today’s session, we think stocks will move modestly lower at the open as traders stay focused in today’s session on earnings, outlooks and preannouncements – primarily in the banking sector. Several of the largest banks are queued up to report this week, and those reports will be heavily scrutinized to determine whether there is any indication that the worst, is in fact behind us – which was the message that so many wanted to cling to on Wells Fargo’s preannouncement last week.
We think that over the 8,000 level, stocks are much closer to the high end of the range than the downside. In which case we continue to advocate at this level that hedging against downside risk is a prudent strategy.
Wit, Wisdom, Fools and Folly
Jim Rogers, a favorite of ours at the Small Cap Pulse, told Bloomberg, with respect to the increase in government spending, that whenever you have huge amounts of currency created it always leads to higher prices and inflation. He expects that to happen in this case too. He said the best skill children can learn today is to learn Mandarin. He said in his view, Asia will lead in the twenty-first century.
For more of our notes on Roger’s interview, click here.
Fast Facts· The national debt is up to $11.2 trillion this morning. The taxpayer portion of this debt is now higher than $6 trillion. Your share, and mine, of the US debt, is now more than $40,000.
