We had mixed news yesterday with the banks needing more money and the jobless rate (ADP) slowing. The market was mixed – the tech sector and NDX was weak, while the banking sector drove the SPX higher. The banks seem to continue to climb, even with the need of 10s of billions more – from leaked information – official results to come. The good news, well I guess it means banks are not insolvent, but sarcastically how could they be if the government is going to continue to lend them money?
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ECB cut rates
Recently the dollar has weakened against foreign currencies and commodities. Treasuries are hard to measure as to inflow of capital, since the Fed is purchasing massive amounts. However – yields have gone up, which traditionally mean money is coming out and most definitely going into equities. The dollar being weak also spurs commodity prices. So the ECB cuts its key interest rate to a record low 1% and may extend the terms of loans to banks to keep the EU counter parts solvent and release the debt burden. However – many question Trichet as the bickering between strong currency vs. credit problems continue. Unlike the U.S. – the ECB has to deal with many countries.
The question is – does the cut give any relief to the U.S. dollar.
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Jobless claims decrease – but those that remain increase….
First time jobless claims decreased by 34,000 to 601,000, however those that remain on unemployment climbs and reaches a record 6.3 million. The numbers seem to follow the earlier ADP jobless contraction – which reflects a slowdown in layoffs (and firings). The numbers are still at a 25 year high and expectations are still for a 8.9 to 9.1 unemployment rate for 2009.The auto sector still looms as a sore spot that could see continued jobless claims – questions remain at the trickle down from the auto-markers to the auto-part suppliers. While GM and others will close plants for 6-9 weeks – these employees are NOT being laid off – which was some concern mentioned by analyst. The question remains after the 1-2 month period and if they see a pickup in auto sales to see plants come back online.
A state-by-state breakdown shows 17 states reported a increase in new jobless claims, while the balance showed a decline. All eyes on California – which had seen are large contraction in the construction sector – saw a decline in the construction and service industry jobless claims - which is a sign of bottoming.
Futures remain flat after the number, as expectations were quickly lowered, after the ADP report yesterday.
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GM’s loss – less than expected!
I don’t know how great the news is – but GM sees only a $5.9 billion loss, less than expected. I am thinking we are becoming numb to the billions of reported losses and government bailouts. The automaker still needs to have $44 billion of debt forgiven to avoid the imposed June 1st bankruptcy deadline.
(Image courtesy of Speakingof Cars, http://www.speakingofcars.com)
The loss was $9.66 per share, for a company that is trading less than $2 a share – that’s a whopper. The bad news going forward is that auto sales continue to contract – revenue had fallen 47% to $22.4 billion – as it reflects less than half of initial sales projections for 2009. This isn’t only bad news for GM, but for all auto companies. Consumer spending in this sector continues to contract and with no credit availability – it only hampers the buying process further.
It is still a very uncertain future for GM.
Bloomberg has more detailed coverage:
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Futures Pre-market
The futures are slightly higher following a ramp from yesterday from the jobless claims drop. The spreads are fairly narrow – but expect a mix opening.
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Support / Resistance
We continue to leg up – and banks (which seems surprising) leads the way.
INDU 8000 / 8500 (We had a good run to 8500 and closed just above it – futures are looking slightly higher. Watch the close to see if we close above it.)
NDX 1400 / 1450 (The NDX stalled yesterday as the SPX and INDU continued to rally – lead by banks. The futures spell a flat opening .)
SPX 850 (900) 950 (900 may be a pivot point – as it could be a future support or resistance. The banking sector drove the index higher as tech stocks were generally weak – reflected in the NDX. Banks are looking higher this morning, but the general market is fairly flat. Certainly a push-pull)
RUT 450 / 500 (We closed just above the 500 level – I would say it is a pivot point – check deltas as this could be a resistance or support area.)
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Gold 900+ (Gold is making a run again above 900 and out of the 850-900 range – can it continue this time?)
Silver 12+ (Silver is heading higher and has touched 14 this morning.)
OIL 50+ (We are making a strong run in oil – at 57 this morning – could 60 be in the cards?)
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Conclusion
The perception remains positive, the jobless claims contracting is good news of a slow down and that we may see a bottom in the next quarter or two (at least in 2009). But we must remember – from an economic view point – that it is not a sign of recovery, but a slowdown in the recession. That’s good news for sure – but I make that point only so that we can remain cautious and keep downside risk in check. Even Bernanke mentions the economy remains fragile.
The banking sector remains bullish in the stock market, but very skeptical outside of just their stock price. Rumors are they bullied the examiners in their bickering of the Stress Test results – which caused a delay. The banking sector seems to rule the roost – as they continue to get money from the Government, Federal Reserve, and back-door channels (ala receiving billions from AIG, which received 100s of billions from the Fed). The stocks are strong – no doubt – but are the balance sheets reflective of that strength? Even with a skeptical stress test, which shows about 100 billion more needed for banks, I would say it does not. It is amazing that Bank of America (Countrywide and Merrill) – booth that had created massive debt for the company and the stress test shows (rumored) that they will need about 35 billion more – is rallying hard in the face of that news. Buy the rumor and sell the news – who’s to say – but balance sheets have a total disconnect from the stock price. The additional problem in the banking sector remains the increasing defaults in credit cards and commercial paper. Does that mean that another stress test will be needed?
Not saying we have a plutocracy - but reading this article in the Economist - makes one wonder.
http://www.economist.com/finance/PrinterFriendly.cfm?story_id=13579244
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