Futures Set to Move Slightly Higher At Open - Dollar Optimism Continues, As Does Hopes of Recovery
March 10, 2010 – The futures are indicating slightly higher openings for the broader markets, which continue to be remarkably resilient given a general lack of bullish catalysts and the fact that stocks are trading on the higher end of trading ranges. In addition, the Street seems to have come to relative grips with the continued saga in Greece, where the latest report is that if Greece doesn’t get help from its EU neighbors it will go to the IMF for help.
In terms of economic data, expectations are that the federal budget deficit for February will increase by $28.1 billion on a Y/Y basis to $222 billion, pushing the deficit for the YTD to $653.14 billion, up 10.7% over the same period last year.
The dollar is basically flat against the euro this morning, with the euro trading at $1.3601. The fact that the mood amongst traders regarding the dollar continues to be so positive continues to be surprising, given the mounting U.S. debt. Granted, other major currencies are being weighed down by their own geopolitical pressures, but this is just more of a reason to see them all under pressure and for commodities, especially gold, to really outperform.
Bloomberg reported that, according to a TrimTabs/Barclay Hedge survey, 57% of hedge funds are bullish on the dollar, compared with 11.5% on the Brazilian real and 8.2% on the Aussie dollar & “other”. On the lower end of the scale, 8.2% are bullish on the Japanese Yen, 6.6% are bullish on the Canadian dollar and 4.9% on the euro.
Gold prices are up $2.90 this morning to $1,125.90. We remain bullish on gold and would look for any dips into the $1,050 to $1,080 as opportunities to accumulate. The most liquid way to get exposure here, in our opinion, is the SPDR GLD Trust (NYSE:GLD).
Oil prices are up $0.26 this morning to $81.75 on increasing optimism that stimulus remains well in place on a global basis and economies continue to recover. Yesterday the EIA’s updated its forecasts, projecting West Texas Intermediate (WTI) to average above $80 per barrel this spring, rising to an average of about $82 per barrel by the end of the year and to $85 per barrel by the end of 2011. And this morning, OPEC raised its projections for oil demand growth this year by 100,000 barrels per day. However, it said that gains could be eroded if the U.S. and other governments scale back on stimulus efforts before the country's economy fully recovers. It expects global oil demand to climb to almost 900,000 barrels per day.
On the corporate front,
· Alternative Energy – Solar Sector – ReneSola (NYSE:SOL) reported Q409 revenues of $179.9 million, up 27.7% sequentially, and up 13.4% on a Y/Y basis. Gross margin was 2.7%, 3.3% and negative for Q408 respectively. Net loss for Q409 was $19.9 million, or $0.12 per diluted share, compared with a net loss of $10.2 million in Q309 and $128.3 million for Q408. Shipments were 202.9MW in Q409, up 38.1% from Q309. Total wafer and module shipments were 187.4MW and 14.6MW, respectively, up 39.5% and 35.2% over Q309.
For the FY09, revenues came in at $510.4 million, down 23.9% from FY08. For the FY09 gross margins remained negative, as in FY08. Net loss for the year was $63.7 million, or $0.43 per diluted share, compared with a net loss of $54.9 million for FY08. For the year, total product shipments were 526.6MW, up 50.4% on a Y/Y basis.
In terms of guidance, management expects demand in 2010 to remain “robust” through the first half with stabilizing poly prices and increased wafer spot pricing .It expects total solar product shipments in the range of 215MW to 230MW, and revenues in the range of $195 million to $205 million, with gross margins of 16% to 18%. For the FY10, it expects total product shipments to be in the range of 900MW to 950MW, with profitability and gross margins in the range of 17% to 20%.
GT Solar’s (Nasdaq:SOLR) stock may see some weakness this morning after pricing a secondary offering of 25 million shares of common stock at $4.85 per share, being sold by GT Solar Holdings LLC .The selling stockholder has granted the underwriters an option to purchase up to an additional 3.75 million shares of common stock at the secondary offering price to cover over-allotments, if any. UBS Securities LLC and Credit Suisse Securities (USA) LLC are the joint bookrunning managers for the offering, Thomas Weisel Partners LLC is the lead manager and Pacific Crest Securities LLC and Raymond James & Associates, Inc. are the co-managers.
In international markets, in China exports rose by 45.7% Y/Y in February (expectations were for 35% to 40% growth). Imports were up 44.7%. In Germany, exports increased by 0.2% and imports dropped by 1.4% in January 2010 compared to the same month a year ago, according to the Federal Statistical Office. Compared to December 2009, exports fell by 6.3% in January and imports rose by 6.0%.
In terms of what we expect in today’s session, it looks like stocks will drift modestly higher at the open, but we continue to urge cautiousness based, from a technical standpoint, on the fact that volume throughout the latest rally has been anemic. From a fundamental standpoint, we continue to see serious headwinds. A Reuters survey of more than 70 economists said U.S. GDP will expand by 2.6% between January and March, down from 5.9% in the previous quarter. It projects the economy to expand by 2.9% for 2010.
If the economy can get this much back on track that would be impressive, in our opinion, but it would not be particularly good news for the labor market, which requires real GDP growth of 3.3% in order to maintain a flat unemployment rate. In addition, expectations are that the Fed Funds Rate will be increased later this year to 0.75% from 0.25%, and then to 1.5% by mid-2011. Headline inflation is expected to increase at a 2.1% rate this year.
These are additional headwinds to corporate performance. Other factors to be concerned about is the continuing increases we are seeing in foreclosures and credit card delinquencies, which are a reflection of a beaten-down consumer sector. It shouldn’t be any surprise that consumer confidence has been eroding again lately. But the consumer sector has to be a major contributor if the economy is going to have any chance at recovery.
We agree with David Tice, who told Bloomberg yesterday that the government finance bubble has replaced the housing bubble, which was supplanted by the corporate finance bubble. We are trying to solve the problem of too much debt with more debt. Tice acknowledge that there has been a substantial rally but it is “like a shot you give a drunk friend to keep him partying for awhile longer but he ends up with a bad, bad hangover the next day.” Again, we agree, and think a cautious approach to stocks at current levels is prudent.
