Market Moves Tuesday July 13, 2010

Tuesday, July 13, 2010

The Fed's worry list grows

A fading recovery, high unemployment, Europe's debt troubles. Now the Federal Reserve can add another worry to its list: crumbling state finances. The Asian giant is notoriously secretive in managing its foreign currency reserves, but signs are emerging that China is finally becoming more transparent.

China stocks tumble on property and drag down Asia

Chinese stocks fell 2 percent on Tuesday on reports that Beijing will not relax tougher property measures any time soon, weighing on the Australian dollar and curbing early gains in Asian shares.

China's banking regulator left few doubts that efforts to rein in real estate speculation will remain in place despite media reports of easing restrictions in some cities. That touched a nerve among investors, who are already sensitive to how much China's economy is slowing.

The Shanghai composite index (^SSEC - News) fell 2 percent, bringing year-to-date losses to 25 percent, the poorest performing equity market in Asia.

Hong Kong's Hang Seng index (HKSE:^HSI - News) was nearly unchanged on the day, with strength in financial stocks offset by weakness in utilities and energy shares.

Japan's Nikkei edged lower on Tuesday, weighed down as Shanghai shares fell after China said it had no plans to relax tougher property measures anytime soon, though falls were checked by hopes for U.S. earnings later in the day.

The Nikkei share average (Osaka:N225) fell 0.4 percent, surrendering early gains. It has had difficulty rising above its 25-day moving average, a technical gauge used by domestic investors.

Many investors were anticipating earnings forecasts to be revised downward given expectations for slowing economic activity in the United States and China.


US Stock Market Monday Market Close

Dow 10,216.27 +18.24 (0.18%)
S&P 500 1,078.75 +0.79 (0.07%)
Nasdaq 2,198.36 +1.91 (0.09%)
Crude Oil closed down at $74.95
Gold closed at 1196.80 down 1.17%
Silver 18.02 - 0.61%
Copper 3.00 - 1.48%

Stocks closed mixed Monday as investors grew more cautious ahead of the start of second-quarter earnings reports. U.S. stocks moved between small gains and small losses all day as strength in technology companies competed with lagging materials and many investors retreated to wait for the start of second-quarter earnings reports.

The market struggled to find direction as investors hesitated before the start of second-quarter earnings reports, beginning Monday afternoon with Alcoa. Alcoa Inc. said Monday that worldwide demand for aluminum was increasing and posted a second-quarter profit that topped analysts' projections, along with CSX Corporation.


Market watchers are hoping the reports will help return investors' focus back to U.S. company fundamentals, but global concerns are likely to keep weighing as Europe continues to deal with its debt crisis while China is working to slow its growth.

Treasurys

Long-term Treasury futures prices were a little higher, lifted by jitters ahead of quarterly corporate earnings season. Also, there was caution before this week's euro-zone government debt auctions, including supply from debtor nations' Greece, Portugal, and Spain.

Forex
The dollar made very minor gains, as investors took a defensive stance ahead of upcoming debt auctions in Europe and the start of the U.S. second-quarter earnings season. The U.K. pound fell against the dollar after Standard & Poor's affirmed the country's top-shelf credit rating, but warned that its debt level could threaten the country's coveted AAA standing.

Fed's Lacker: Fed Far From Easing

The U.S. Federal Reserve is far from considering further policy easing and probably wouldn't take such a step unless there were a "substantial unanticipated adverse shock," Richmond Fed President Jeffrey Lacker said.

Lacker, who isn't a voting member of the Fed's policy-setting Open Market Committee this year, said he is comfortable with the current interest rate environment.

"We need to be patient, watch the recovery unfold," he said, taking questions from reporters after an event at the Richmond Fed. "My feeling about rates will depend on how the data comes in and what I learn from my colleagues."

Business Loans Vital

Federal Reserve Chairman Ben Bernanke urged banks and regulators to seek out ways to ensure that small businesses get the credit they need to create jobs.

"Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges," Bernanke said in prepared remarks to the Fed's forum on restoring credit to small businesses.

Declaring small businesses as "central" to tackling unemployment, the Fed chief said not enough is being done to ensure that financially sound companies can obtain loans.

Fed officials have become increasingly worried about the stubbornly high unemployment. The jobless rate edged down to 9.5% in June from 9.7% the previous month. But the economy shed jobs for the first time this year, with nonfarm payrolls falling 125,000 last month.


Portfolio Managers See Stock Gains

Like a losing team undeterred by the halftime score, many portfolio managers expect the stock market to climb later this year despite the recent slew of disappointing economic data pointing to a less rosy outlook.

Weak jobs and housing data have sobered investors who no longer think the economic recovery will be as robust as they had hoped back in December. Concerns about European sovereign debt,
potentially slower growth in China and the May 6 "flash crash" all contributed to bringing the major benchmark indexes into negative territory for the year's first half.

The Standard & Poor's 500 index closed a tumultuous second quarter down nearly 12% in its worst quarter since the last three months of 2008, while the Dow Jones Industrial Average ended the quarter off almost 10%, snapping a streak of four quarterly gains.

But stocks bounced back with a vengeance last week - the Dow gained 5.3% in its biggest weekly gain in nearly a year - fueled by optimism for the second quarter earnings season that begins Monday.

Some observers think the market's recent volatility may not foreshadow a sustained slump.

"Every expansion starts with a burst of activity," said Thomas Lee, chief U.S. equity strategist at J.P. Morgan Chase. Earlier this year, government stimulus programs and a build-up in inventories helped the economy accelerate, he said. "Now we actually have to see the hand-off toward pent-up demand and private-sector expansion and that's the juncture we're at right now."

Lee is sticking to his estimate that the S&P 500 will reach 1300 from current levels around 1077 by the end of the year, though without some of the conviction he felt earlier. "If you had taken
our pulse in April, we probably would've told you there was a lot more upside," he said.

Business strength has helped support expectations that stocks will continue to rise this year. Banks have significantly repaired themselves, shaking off the misery of 2008 and early 2009, and companies have taken advantage of historically low interest rates to boost their cash positions.

"Until we see some firmer evidence that consumers have indeed changed their spending habits from the trajectory they were on, we're maintaining our thoughts that the second half of the year
should be much better than the first half," said Tom Villalta, lead portfolio manager of the Jones/Villalta Opportunity Fund. He predicts the S&P 500 could go up 10%, climbing close to 1230, boosted by business spending.


Tuesday's Calendar

7:30 a.m.
Jun NFIB Index of Small Business Optimism Index (previous 92.2)

7:45 a.m.
Jul 10 ICSC-Goldman Sachs Chain Store Sales Index - WoW (previous +1%), YoY (previous +3.9%)

8:30 a.m.
May U.S. International Trade in Goods & Services Deficit (expected -39.5B), Exports (previous 148.81B), Exports Percent Change (previous -0.7%), Imports (previous 189.09B), Imports Percent Change (previous -0.4%)

8:55 a.m.
Jul 10 Johnson Redbook Retail Sales Index MoM % Change (previous -0.5%), 12MonChgPct (previous +3%), 52WkChgPct (previous +3.1%)

10:00 a.m.
Jul IBD/TIPP Economic Optimism Index (previous 46.2), 6-Month Economic Outlook (previous 46)

10:00 a.m.
May Job Openings & Labor Turnover Survey

2:00 p.m.
Jun Monthly Treasury Statement of Receipts & Outlays of the U.S. Govt (expected -69.5B)

4:30 p.m.
Jul 9 API Weekly Statistical Bulletin, Crude Stocks (Net Change) (previous -7.26M), Gasoline Stocks (Net Change) (previous -0.19M), Distillate Stocks (Net Change) (previous -1.02M), Refinery Runs (previous 86.7%)

5:00 p.m.
Jul 11 ABC News Consumer Confidence Index (previous -42)


EU Officials Want Banks to Seek Private Cash Before State Help.

Brazilian share prices closed lower Monday on falling global commodity prices amid a malaise caused by disappointing Chinese import data.