Market Update - Monday, July 26, 2010

Monday, July 26, 2010

Market Update

The Dow Jones industrial average has had its third straight triple-digit advance after investors got some unexpected good news about the economy.

The Commerce Department reported a better-than-expected jump in new home sales for June. Sales rebounded from a record low. The major averages have pulled back off their best levels of the day in recent trading but remained moderately higher throughout the day and closed up 100 points on the DOW at the close. The industrial sector led U.S. stocks higher Monday following a bigger-than-expected jump in new-home sales.


Stocks Come To Life As New Home Sales Surprise To The Upside

After a lackluster start, stocks are posting modest gains in mid-morning trading on Monday, helped higher by a bigger than expected rebound in new home sales and upbeat guidance from shipping giant FedEx (FDX). The major averages are all in positive territory, building on the one-month closing highs set on Friday.

A short time ago, the Commerce Department reported that new home sales increased by more than expected in June after showing a steep drop in May due to the expiration of the home buyer tax credit.

New home sales shot up by 23.6 percent to an annual rate of 330,000 in June from the revised May rate of 267,000. Economists had expected sales to edge up to 310,000 from the 300,000 originally reported for the previous month.

However, the housing report wasn't all positive, as the June new-home sales level was the second-lowest on record since 1963 and May's sales were revised lower.

"I wouldn't get too excited about it either way, but it just underscores how low expectations were," said Barry Knapp, managing director of equity research at Barclays Capital. Knapp said a drop in inventories was encouraging, but he pointed to the downward revision in May's sales as a clear negative.

The Nasdaq Composite rose 0.5% to 2280. The Standard & Poor's 500 index added 0.6% to 1109, with its industrial sector leading to the upside, boosted by a 4.7% jump in FedEx. The shipping giant boosted its earnings predictions for the fiscal first quarter and rest of the year, saying express and round volumes have been higher than it anticipated.

The activity comes as investors are looking to move on from last week's stress tests of European banks to focus again on corporate earnings and economic data. The Dow has climbed more than 6% this month so far on better-than-expected earnings. That puts the measure on pace to close out its best month since July 2009.

Still, Knapp said the gains have come on relatively weak volume, Knapp noted. "It's not terribly convincing," Knapp said. "I don't think it's enough to carry us to new highs."

In corporate news, FedEx Corp. announced that it has raised its first-quarter earnings outlook to a range of $1.05 to $1.25 per share from its prior estimates of $0.85 to $1.05 per share. Analysts had expected the company to report earnings of $1.01 per share for the quarter.

The dollar slipped against both the euro and the yen, with the U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, off 0.2% recently. Treasurys also edged lower, pushing the yield on the 10-year note up to 3.02%. Crude-oil futures fell slightly, as did gold futures.


The price of gold lingers below $1,190

Gold for August edged up $0.40 to $1,188.20 an ounce and closed at $1183.


Oil Flat

Nymex crude mostly flat after mixed data, crude oil settles flat at $78.98/Bbl. According to the US Govt., 26.77% Oil, 9.65% natural gas output shut in the Gulf after the storm. Crude futures wavered between gains and losses Monday as economic data and equities markets left traders with a hazy picture of oil demand.

Light, sweet crude for September delivery recently traded 8 cents, or 0.1%, lower at $78.90 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 13 cents higher at $77.32 a barrel.

About 26.77% of oil production and 9.65% of natural gas output in the U.S. Gulf of Mexico remained shut in after the passage of tropical storm Bonnie on Monday, the U.S. government said.

The figure is a significant improvement that shows that companies are quickly re-occupying the offshore facilities they evacuated because of the storm. On Sunday, some 47% of oil production and 22% of gas production were shut in.

The Bureau of Ocean Energy Management, Regulation and Enforcement said Monday that a production capacity of about 428,246 barrels of oil a day and 617 million cubic feet of natural gas a day remained shut in.

"The economic data is driving the equities market and crude is looking to the equities market for some guidance since there is such a confused picture at the moment," said Matt Smith of Summit Energy. "Crude is focusing more on trying to get guidance from the economic data coming out as opposed to its own fundamentals."

Oil prices have been confined to a range between $70 and $80 for months, vacillating on cross-currents of economic data that so far have failed to offer a clear picture of future demand. The end to worries about a tropical storm in the Gulf of Mexico had helped send crude lower Monday, after crude tried, and failed, to hit $80 a barrel last week.

Oil stockpiles remain well above average, and last week's oil inventory data from the Department of Energy showed an increase of 360,000 barrels to already flush supplies.


Dow Jones 10,525.43 +100.81 (0.97%)
S&P 500 1,115.01 +12.35 (1.12%)
Nasdaq 2,296.43 +26.96 (1.19%)
Crude Oil 78.97 - 0.01%
Natural Gas 4.62 -
Gasoline 2.11 -
Heating Oil 2.05 -
Gold 1183.41 (- 0.49%)
Silver 18.17 (+ 0.17%)
Copper 3.23 (+ 1.57% )


Asian Pacific Markets

In overseas trading, stock markets across the Asia-Pacific region closed mostly higher. Japan's benchmark Nikkei 225 gained by 0.8 percent, while Hong Kong's Hang Seng Index edged up by 0.1 percent.

Asian markets ended mixed with India, Indonesia and Singapore closing in the red, while Australia, China and Hong Kong closed higher.

The People's Bank of China on Monday laid out how a more flexible exchange rate will help alleviate inflationary pressures in the Chinese economy and generally improve the effectiveness of its monetary policy. Although the statement mostly focuses on past inflation pressures, its sharp focus and hawkish rhetoric on inflation likely indicate the central bank would like to allow further yuan appreciation if it perceives continued inflationary risks in the economy.


In Australia, the benchmark S&P/ASX200 Index advanced 27.70 points, or 0.62%, at 4486 points, while the All-Ordinaries Index ended at 4,504, representing a gain of 29.30 points, or 0.65%.

The major European markets have turned higher and are up by modest margins. The U.K.'s FTSE 100 Index, the German DAX Index and the French CAC 40 Index are all up by roughly 0.4 percent.

Brazil Hopes To Restart Beef Exports To US In One Month.


US Official Rules Out Military Action Against Venezuela

The United States on Monday ruled out military action against Venezuela after Venezuelan President Hugo Chavez threatened to cut off oil supplies to the U.S. if it backed a Colombian attack.

"As we have stated in the past, the United States has no intention of engaging in military action against Venezuela," Virginia Staab, a State Department spokeswoman, told AFP.

"The United States has long enjoyed a mutually beneficial energy relationship with Venezuela, and we wish to see that relationship continue," she said.

Importing 1.4 million barrels of oil a day, the United States is the main oil consumer of Venezuela, a member of the Organization of Petroleum Exporting Countries (OPEC) and South America's largest oil producer and exporter.

Chavez, Venezuela's President, said on Sunday he had intelligence that "the possibility of an armed aggression against Venezuelan territory from Colombia" was higher than it has been "in 100 years."

If Colombia were to launch an attack "promoted by the Yankee empire, we would suspend oil deliveries to the United States, even if everybody over here has to eat stones," he warned.

Chavez broke off diplomatic relations with Bogota Thursday in response to charges by Colombian President Alvaro Uribe that 1,500 Colombian guerrillas had set up camp inside Venezuela and were launching attacks from its territory.

"We encourage Colombia and Venezuela to work through dialogue and diplomacy to ensure their shared border is secure and peaceful," Staab said.

Colombian President-Elect Juan Manuel Santos said he will seek to restore trade with Venezuela after taking office, his future finance minister, Juan Carlos Echeverry, told reporters on Monday.

"What we will seek is to reestablish the most trade as possible, the soonest as possible," Echeverry said. In the meantime, the Colombian government will try to help affected companies.


Global Currency Trading Grows Strongly

The global currency-trading business expanded at a double-digit rate in the six months to April this year, data from key monetary authorities around the world showed Monday.

The strong growth puts the foreign-exchange market on track to top a record $4 trillion in daily trading volume as the recovery continues after the credit crunch caused activity to dry up in the first part of 2009.

Worries over the euro-zone's sovereign debt crisis and concern over the pace of the global recovery are likely to keep volatility--the key driver behind the currency market's rebound in volume--high.

"No question front and center was the euro," said Jeff Feig, managing director and global head of G-10 foreign exchange at Citigroup and the chairman of the Foreign Exchange Committee sponsored by the Federal Reserve Bank of New York. "The volume growth was really a result of the volatility and the fact that you had real end users actively hedging their exposures." Worries over the euro-zone's debt crisis prompted corporations and other investors to shield themselves from sharp swings in the common currency by turning to the perceived safety of the dollar, yen and Swiss franc.

Currency trading flows in the U.K., the world's biggest dealing hub, grew by 15% in six months to April, taking the daily average to $1.747 trillion, data released by the Bank of England showed Monday. Within that total, trading in the spot market surged by 25% to $642 billion a day.

In the U.S., daily currency flows grew by a slightly more modest 11.8% to $754 billion in the six months to April, but that total was just shy of the record $762 billion seen in October 2008. The total includes spot transactions as well as currency derivatives.

London grabs roughly one-third of global currency-trading flows, with New York taking around one-fifth. Other trading hubs around the world account for the remaining half. Central banks and other monetary authorities in each of the major trading center compile trading volume statistics on an annual, or semiannual basis.

Daily trading volumes in Australia soared by 54% in the year to April, taking the total to $191.2 billion. Japanese flows grew by 15.7% to $294.1 billion over the same period--a sign of pick up in overall economic activity, analysts said.

The pickup in volumes was broad-based, with no one sector dominating growth. Automated--or algorithmic--trading continued to expand its share of total volume, as it has over the past year and half to two years, said Ed Brown, head of business development and research at ICAP.

Electronic Broking in Jersey City, N.J. But that could moderate in the future, Brown said, noting that a substantial number of clients still need manual interaction.

The worldwide daily foreign-exchange market should now stand at more than $4.1 trillion, according to an HSBC analysis by Mark McDonald, foreign exchange strategist and David Bloom, global head of foreign-exchange strategy research.

That's a significant jump from the $3.2 trillion figure established in 2007 by the Bank for International Settlements in its latest survey. The BIS is due to update the official figure later this year.

April was a busy month in the global currency markets, with concern over European sovereign debt sparking panicky trading conditions at times. Heavy intervention by the Swiss National Bank to hold down the franc also likely contributed to the surge in trading volumes.

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