Market Update - Sunday August 1, 2010

Market Update
Sunday, August 1, 2010

At market open in the Asian/Pacific markets are trading up and the US Dollar is trading under Friday's close. The $DXY is trading at the day's range of: 81.41 - 81.55. The N225 - Nikkei 225 is 9,655.79 10:00PM EDT, Up +118.49 (+1.24%), the HSI - Hang Seng is 21,265.27 10:30PM EDT Up +235.46 (+1.12%), the SSEC - Shanghai Composite is 2,642.51 10:29PM EDT Up +5.01 (+0.19%). Crude oil is trading slighly lower at $79.14 a barrel. $80-a-barrel level will likely remain a strong point of resistance, however, and futures have failed to settle above that level since early May.


Friday, July 30, 2010 - Market Closing Summary:

Stocks:

Not even a slowdown in second-quarter economic growth could keep U.S. stocks down as indexes finished their biggest monthly gains in a year more or less flat on the session. Friday marks the final session of a blockbuster month that has seen the Dow and the S&P 500 climb more than they have in any month since last July. It also marks the measures' first positive month since April. The gains have come as a strong set of second-quarter earnings provided a big source of encouragement to investors. US regulators closed five more banks and two Credit Unions in six states Friday evening,.

Treasurys:

Prices of Treasury securities rose Friday, sending the two-year note's yield to a fresh record low of 0.543%, as a government report showing the pace of U.S. economic growth slowed significantly in the second quarter bolstered demand for safe assets. The report added to concerns about the economic outlook.

"Lower yields...reflected the market's fear of a protracted period of well below-trend economic growth," said Michael Cloherty, head of U.S. interest-rate strategy at RBC Capital Markets.


Forex:

The U.K. pound scrambled to a five-month high Friday, bolstered by buying against the euro in unsettled market conditions. The US Dollar Index continues a strong correction. Expect retracement to test the new resistance level at 85, but respect would signal a primary down-trend. The yen advanced against the dollar and the euro as concerns about global growth remained a dominant theme, but ceded most of the gains against the dollar in volatile trading. "On balance, the yen strength has to do with jittery financial markets, and uncertainty about growth in China and the U.S.," said Vassili Serebriakov, currency strategist at Wells Fargo Bank.


Dow Jones 10,465.94 -1.22 (-0.01%)
S&P 500 1,101.60 +0.07 (0.01%)
Nasdaq 2,254.70 +3.01 (0.13%)
Crude Oil 78.93 + 0.73%
Natural Gas 4.92 + 1.82%
Gasoline 2.11 + 0.44%
Heating Oil 2.04 + 0.27%
Gold 1181.10 + 1.18%
Silver 17.98 + 2.39%
Copper 3.30 + 0.55%

World markets:

Shanghai 2,637.50 -10.61 (-0.40%)
Nikkei 225 9,537.30 -158.72 (-1.64%)
Hang Seng Index 21,029.81 -64.01 (-0.30%)
TSEC 7,760.63 -38.36 (-0.49%)
FTSE 100 5,258.02 -55.93 (-1.05%)
CAC 40 3,643.14 -8.77 (-0.24%)
S&P TSX 11,713.43 -15.21 (-0.13%)
S&P/ASX 200 4,493.50 -30.60 (-0.68%)
BSE Sensex 17,868.29 -123.71 (-0.69%)



Monday, August 2, 2010 U.S. Economic Calendar

9:45 a.m.
July Dow Jones Economic Sentiment Indicator DJ Economic Sentiment
- Indicator (previous 40.3)

10:00 a.m.
- July Online Help Wanted Index (previous 4154000)

10:00 a.m.
July ISM Manufacturing Report on Business Manufacturing PMI

- (previous 56. ) 2 Prices Index (previous 57) Employment Index
- (previous 57.8) Inventories (previous 45.8) New Orders Index
- (previous 58.5) Production Index (previous 61.4)

10:00 a.m.
Jun Construction Spending - Construction Put in Place New Construction (previous -0.2%)
- Residential Construction (previous -0.4%)

11:00 a.m.
July Global Mfg PMI



US Stocks Are Finding Support At Key Levels - Growth Slows

The U.S. economy slowed in the second quarter and the government said the recession was deeper than earlier believed, adding to concerns over the recovery's strength.

The Commerce Department Friday said gross domestic product, or the value of all goods and services produced, rose at an annualized seasonally adjusted rate of 2.4% in April through June. In its first estimate of the economy's benchmark indicator, the government report showed growth was lifted by business investments and exports while consumer spending, a big engine for the U.S. economy, made a smaller contribution to growth.

First-quarter growth was revised to 3.7% from an original 2.7% increase, but growth estimates back to the start of 2007 were revised lower.

Economists polled by Dow Jones Newswires were expecting second-quarter GDP to rise by 2.5%. Separately, the closely watched survey of Chicago area purchasing managers suggested the pace of U.S. business activity accelerated in July and signaled the nation's economy isn't headed to a double-dip recession.


Treasury Secretary To Discuss Reforms

Treasury Secretary Timothy Geithner will discuss the "next steps for financial reform" Monday afternoon at New York University's Stern School of Business. He is scheduled to talk about the Wall Street reforms included in recent legislation passed by Congress.


July Jobless Rate Expected To Rise

Economists expect the July jobless rate, to be issued next Friday, tick up to 9.6% from 9.5% in June. In June, only 83,000 private-sector jobs were created, according to the Labor Department's initial reading. Overall, the U.S. shed jobs in June for the first time this year as hundreds of thousands of part-time Census jobs ended. The number of U.S. workers filing new claims for unemployment benefits fell slightly last week, but that followed a big rise the previous period.


Friday marks the final session of a blockbuster month that has seen the Dow and the S&P 500 climb more than they have in any month since last July. It also marks the measures' first positive month since April.

The gains have come as a strong set of second-quarter earnings provided a big source of encouragement to investors after they spent much of May and June fretting over the impact of euro-zone debt troubles and China's efforts to put the brakes on its growth.

"Earnings have definitely been a leading reason as to why the market has responded so favorably," said Tom Stringfellow, president and chief investment officer at Frost Investment Advisors. "Everything that's just transpired with corporate earnings that have climbed as high as they have" has helped making the chance of a double-dip recession seem increasingly less likely, he added.

With 70% of the S&P 500's companies having reported through Thursday, earnings are now estimated to total $19.26 a share, up 42% from $13.51 share a year ago, according to Howard Silverblatt, senior index analyst at S&P. Sales are up 9%, and profit margins are sitting at 9.7%.

July's gains have come on light volume, a sign there may be less conviction behind the climb. The month claimed two of the six sub-4 billion volume days so far this year in terms of NYSE Composite volume. The daily average is about 5.4 billion shares a day in NYSE Composite volume.

Investors are concerned that even as U.S. companies seem to be doing well, the economy is still suffering as unemployment remains high and continues to constrain consumer spending. Underscoring those worries, the government Friday morning reported 2.4% economic growth for the second quarter, smaller than the expected increase as well as the first quarter's growth.

The market was also disappointed with some of the companies in Friday's round of earnings reports. Readings on consumer sentiment and Chicago-area business activity showed some improvement and topped expectations, providing some relief.


Canada Dollar Ends Higher

The Canadian dollar ended higher Friday, recovering from earlier weakness as investors shifted towards riskier assets in late-morning activity.

Canadian financial markets and institutions will be closed Monday for the Civic Day holiday.
C$1.0318 at 8:00 a.m. EDT (1200 GMT), and from C$1.0353 late Thursday. The Canadian dollar weakened off in early trading after news that the Canadian economy grew at a slower-than-expected pace in May after stalling in April. Gross domestic product grew by 0.1% falling short of the 0.2% expected by economists.

"Once risk sentiment improved throughout the day, the Canadian dollar just continued to outperform its peers," said David Watt, senior currency strategist at RBC Capital Markets. Month-end related buying also supported the currency, he said. Analysts said the Canadian currency might also have been supported by the Swiss National Bank, which has reportedly been in the market buying the Canadian unit against the euro.

The move is said to be part of the Swiss central bank's management of its foreign exchange reserves rather than a policy-driven intervention in the market. No one at the SNB could be reached for comment Friday afternoon.

"If we get through that, it's still got a lot of support, but the next big level would be C$1.0135," said Michael O'Neill, managing director at Knightsbridge Foreign Exchange. "I think the currency and equity markets will see choppy trading ahead of the employment data on Friday," O'Neill said.

A risk/reward analysis suggests buying the U.S. dollar against its Canadian counterpart around current levels and selling it around C$1.0400, he said.

RBC's Watt said it's possible Canadian job creation was weak in July after its robust performance in earlier months. "I think that could sort of take some of the froth out of the Canadian dollar,"
he said.



Ecuador Foreign Debt In May Down 20%

Ecuador's total foreign debt in May was $13.66 billion, a 20% decrease from $17.18 billion in the same month of 2009, the central bank said. According to the bank, the country's public debt totaled $7.66 billion in May, down 24% from $10.12 billion in the year-on-year comparison.

The May public debt figure is equal to about 13% of gross domestic product. Private sector debt, meanwhile, stood at $6.0 billion, down 15% from the $7.06 billion posted in May 2009.



Euro-Zone Inflation Marked its Highest Point Since 2008

Consumer prices across the 16 countries that use the euro rose at the fastest pace in 20 months in July, bringing inflation back in line with the European Central Bank's definition of price stability.



Credit Derivatives Indexes Slide After US Data, Then Regain Ground

Credit derivatives indexes fell slightly Friday morning after the U.S. Labor and Commerce Departments released weaker-than-expected data, but they subsequently regained some ground.

The Markit CDX North American Investment Grade index weakened as much as 3.01 basis points from Thursday night's close to trade at 106.73 basis points as of 8:46 a.m. EDT after the data, but by 10:09 a.m. EDT it had strengthened to 105.35.

The CDX High Yield, a sister index to the North American Investment-Grade, was down 0.48 points compared to Thursday's close just after the data's release, trading at 97.38 cents on the dollar. But by 10:09 a.m. EDT, it was trading just 0.16 points worse than the day before at 97.69.

Gavan Nolan, credit analyst at Markit in London, said the initial snap was a reaction to the extent of revisions on data from prior quarters. First-quarter GDP figures were revised to 3.7% from 2.7% but growth estimates back to the start of 2007 were all revised lower. "The expectations had been going down over the past few days, but some of the prior revisions were a bit worrying," said Nolan.

Europe's credit derivatives benchmark index, known as the iTraxx Main, was also 3 basis points wider straight after the data, but then improved by more than half a basis point to trade at 105.64.


Germany's DAX index bucked the negative trend to end up 0.2% at 6,147.97, led higher by shares of Adidas AG, which rose 2.1%. The DAX gained 3% in July.

France's CAC-40 index ended down 0.2% at 3,643.14, but posted a monthly gain of 5.8%. The International Monetary Fund urges France to take additional measures to meet its medium-term deficit reduction targets, warning that economic growth is fragile and risks to the outlook are slanted to the downside.

In Spain, the Ibex 35 index fell 1.5%, as shares of Banco Santander shares moved down 2.8%.

Greece's ASE Composite index ended down 1.6%.


Greece Cracks Down On Truck Strike; Military Mobilized

A Greek government interministerial committee decided Friday to crack down on striking truck drivers as a crippling five-day strike leads to widespread fuel shortages.

The country will also mobilize its military to assist in distributing supplies. Truck drivers decided earlier Friday to continue striking, despite marathon talks and some slim concessions, in open defiance of a Greek government directive ordering them back to work.

"The refusal to return to work is a heavy insult to the rule of law, harms the social whole and will be confronted," socialist government spokesman George Petalotis said in a press release. The Greek army will be mobilized to provide fuel to airports, electricity utilities and hospitals. Navy ships will also be contributing to the effort, if necessary, to cover the rising needs of the islands at the height of the tourist season.

"Anyone who disobeys the civil mobilization order to go back to work will face legal sanction, which could include the loss of their trucking licenses," Petalotis said. The law also prescribes heavy fines and even incarceration for drivers who don't obey.

Earlier Friday Giorgos Tzortzatos, head of the Greek truckers' federation, defiantly told journalists after a union meeting: "We will continue the strike dynamically. We will continue, and we will move ahead."


South American Markets

Argentina's June Construction +8.4% On Year, -1.2% On Month. Argentine construction activity rose by a seasonally adjusted 8.4% in June from a year earlier, the national statistics institute, Indec, reported Friday. But activity fell 1.2% on the month, Indec said, also citing seasonally adjusted data.


Chile Posts 2Q Fiscal Surplus

Chile Posts 2Q Fiscal Surplus Of 0.9% Of GDP, 1H 0.8% Surplus. Chile posted a fiscal surplus of 0.9% of gross domestic product in the second quarter and a surplus of 0.8% of GDP in the first half of 2010, the country's budget director said Friday.

Last year, Chile posted a record high deficit of 4.5% of GDP, equivalent to $7.22 billion. The government bases its budget on the structural surplus rule, which takes into consideration long-term copper prices and trend growth rates. The rule is credited with contributing to Chile's economic stability.


Mexico's stocks traded lower on Friday

Data confirming expectations that U.S. economic activity is slowing reduced the appetite for Mexican assets due to the country's close economic ties to the world's biggest economy.

The Bank of Mexico has forecast 4%-5% growth for gross domestic product this year largely thanks to a surge in shipments of manufactured goods to the U.S., buyer of about 80% of Mexico's overall exports. Consumer spending and private sector investment remain anemic amid unemployment that is still well above pre recession levels, which leaves Mexico vulnerable to a drop in demand for its exports.

The benchmark IPC index of leading shares was down 0.4% at 32350 points around 10:44 a.m. EDT. Volume was 36.3 million shares worth 945.8 million pesos ($74.7 million).

Mexico's May Mining Production Rises 10.9% On Year - Mexico's mining production rose 10.9% year-on-year in May as mining companies boosted output of precious metals and zinc, according to government data published Friday.

The National Statistics Institute, or Inegi, said mining production in May fell 2.47% from April in seasonally adjusted terms.

In May, the production of silver rose 3.6% to 247,164 kilograms, gold 48.7% to 5,409 kilograms, zinc 17.4% to 32,573 metric tons, and metallurgical coal 35.7% to 142,258 metric tons, Inegi said.

Copper production fell 11.5% to 16,592 metric tons, and lead output declined 7.5% to 10,561 metric tons.

Coal output fell 10.9% to 790,657 metric tons, and the production of iron ore pellets was nearly unchanged at 650,360 metric tons.


Ecuador Foreign Debt In May Down 20% To $13.66B

Ecuador's total foreign debt in May was $13.66 billion, a 20% decrease from $17.18 billion in the same month of 2009, the central bank said.

According to the bank, the country's public debt totaled $7.66 billion in May, down 24% from $10.12 billion in the year-on-year comparison.

The May public debt figure is equal to about 13% of gross domestic product. Private sector debt, meanwhile, stood at $6.0 billion, down 15% from the $7.06 billion posted in May 2009.

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