Stock Market Update - Tuesday, August 31, 2010

Stock Market Update
Tuesday, August 31, 2010

Latest News Headlines:

DJIA up +4.99 points to 10,014.72
NASDAQ dn -5.94 points to 2,114.03
S&P 500 up +0.41 points to 1,049.33
10-year T-note 101 05/32 at 2.4900 yield
NYMEX Crude down $1.95 at $71.74/bbl
Dollar/Euro up 0.0036 at 1.2699

Historically, the week prior to Labor Day has been a loser for investors.

Fed Continues To Expect Recovery To Pick Up In 2011
Fed Chairman Ben Bernanke emphasized that the decision preserve the size of the balance sheet was done only to avoid any tightening of financial conditions. But he also provided the strongest signal yet that the central bank is ready to pursue additional easing if "unexpected developments" cause a significant worsening in the economic outlook.

Bernanke still expects economic growth to pick up again next year, in line with the views expressed by other Fed officials at the last FOMC meeting.

Despite evidence that the pace of economic recovery "remained sluggish" going into the third quarter, Fed staff and policy makers alike continued to predict the recovery would accelerate in 2011, according to the minutes.

Chicago Business Barometer Shows Economy Slowed

A closely-monitored index of U.S. business activity slipped during August, indicating that the economy is still growing--but at a slower-than-desired pace.

At the same time, some of the key components of the Chicago Business Barometer released Tuesday showed some potentially troubling signs for economic growth in the coming months, due in part to depleting inventories and lackluster production and new orders.

The Institute for Supply Management-Chicago said its business barometer fell to 56.7 in August, from 62.3 in July. The August reading was below economists' consensus forecast of 57.6 from a Dow Jones Newswires survey.

"The August report suggests the economy remains, barely, on the recovery side of the center line," ISM-Chicago said in a news release.

The headline index shows 11 straight months of economic expansion, as it remained above 50.0. Sub-50 readings indicate a contraction in the economy. Inventory builds evaporated in August, falling to 46.5, from 50.8 in July. The inventory index had reached the year's high of 56.4 in May. Production fell to its lowest level since September 2009. It dropped to 57.6 in August, down sharply from a 65.0 reading in July. New orders dropped sharply to 55.0 in August, from 64.6 in July.

The closely-watched employment index showed slower job market growth in August, slipping to 55.5, from 56.6 in July. The prices paid component, an indicator of inflation, posted its fourth consecutive monthly drop, which hasn't happened since 2006.

The prices paid index was at 57.2, down from 58.1 in July, 61.9 in June, 64.0 in May, and 71.4 in April. The Chicago business barometer is derived from a survey of regional purchasing managers representing a variety of sectors, including retail, manufacturing, and resources.

The purchasing managers conduct business in the U.S. and abroad, so their responses provide a snapshot of economic activity beyond the Chicago area. Similar to last month, the ISM-Chicago data came amid concerns that the economic recovery is faltering.

Federal Reserve Chairman Ben Bernanke said Friday that the central bank stands ready to enact unconventional means of stimulating the economy if conditions worsen. By unconventional methods, Bernanke was referring to another round of quantitative easing, in which the Fed would expand its balance sheet by purchasing U.S Treasurys or mortgage-backed securities.

Currently, the Fed is keeping its balance sheet stable by reinvesting proceeds from maturing debt to buy Treasurys. Many investors consider the business barometer as an indicator for the upcoming national manufacturing index, due for release Wednesday by the Institute for Supply Management.

Economists surveyed by Dow Jones Newswires project the August ISM reading will slip to 52.5, from 55.5 in July. The August ISM report is scheduled to be released Wednesday at 10 a.m. EDT. The business barometer is formerly known as the Chicago Purchasing Managers Index, or PMI. Kingsbury International compiles the data for ISM-Chicago.

Next month's report is scheduled to be released Sept. 30 at 9:45 a.m. EDT.


US Stocks Gain After Consumer Confidence; DJIA Up 45
U.S. stocks turned positive Tuesday after a reading of consumer confidence provided some encouragement to investors bracing for slower economic growth.

The Dow Jones Industrial Average rose 23 points, climbing back above the 10000 level in a morning of jumpy trading. Stocks erased earlier losses after a reading of consumer confidence came in better than expected.

The Nasdaq Composite gained 0.1% to 2123. The Standard & Poor's 500-share idnex rose 0.2% to 1051, after bouncing off key support at the 1040 level.

U.S. consumer confidence increased more than expected in August

The Conference Board, a private research group, said its index of consumer confidence rose to 53.5 this month from a revised 51.0 in July, first reported as 50.4. The August reading was better than the 51.0 expected by economists surveyed by Dow Jones Newswires.

The present situation index, a gauge of consumers' assessment of current economic conditions, fell to 24.9 from a revised 26.4 in July, first reported as 26.1. Consumer expectations for economic activity over the next six months rebounded to 72.5 in August, after plunging to a revised 67.5, originally reported as 66.6.

"Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future," says Lynn Franco, director of the Conference Board Consumer Research Center.

On the job front, only 3.8% of respondent thought jobs were "plentiful," down from 4.4% in July, while 45.7% viewed jobs as "hard to get" this month, up from 45.1% last month. But expectations about labor markets showed some improvement, which probably pulled up the overall expectations index. The percentage of consumers expecting more jobs in the months ahead rose to 14.6% from 14.2%, while the proportion expecting fewer jobs slipped to 19.4% from 20.9%.

Income worries, however, remain significant. The report showed 10.6% of consumers expect their incomes to increase in the next six months, while a larger 16.1% expected a pay cut. Fears about future hiring and paychecks could cause consumers to be reluctant to increase spending in the second half.

US Home Prices Rise
U.S. home prices are up for the third-straight month in June, pushing prices up 4.4% during the second quarter, according to the S&P Case-Shiller home-price indexes, thanks to boosts from a winding-down government tax credit for home buyers.

US Banks In Trouble
The Federal Deposit Insurance Corp. said Tuesday that 829 of the nation's roughly 7,800 banks were on its "problem list" at the end of June, up from 775 at the end of the first three months of the year. Already 118 banks have failed this year, well ahead of the pace set last year when 140 were seized by regulators.

The FDIC said nearly two-thirds of U.S. banks reported a year-over-year improvement in their quarterly results, though 20% of firms still reported a net loss.

The FDIC said 829, or more than one in ten banks, were on its "problem list" of banks at risk of failure at the end of June, up from 775 at the end of the first quarter. Already 118 banks and 18 credit unions have failed this year, well ahead of the pace set last year when 140 were seized by regulators.

DOW Opens At 9,989
The Dow opened below the critical benchmark of 10,000 despite a report that home prices were up sharply in June, and following weakness in global markets, as the major averages looked set to end the month with the first losing August since 2005. US Indices on Track for Worst August Since 2001.

Stock index futures were lower on Tuesday as investors awaited data on housing and consumer confidence. Japan's Yen near 15-yr high.


OIL FUTURES: Nymex Crude Falls As Supply Concerns Grow
Nymex Crude Closes Down $2.75 At $71.95/Bbl
Crude futures tumbled Tuesday, as investors turned their attention toward increasingly high U.S. oil supplies and the slowing economy.

Light, sweet crude for October delivery recently traded $2.10, or 2.8%, lower at $72.60 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded down $1.75, or 2.2%, at $74.85 a barrel.

Analysts are expecting Wednesday's report from the U.S. Energy Information Administration to show new additions to oil and fuel stockpiles already at their highest combined level in nearly 27 years.


Crude Oil & Petroleum Products:

Crude Oil	71.73	- 0.26%
Natural Gas	3.79	- 0.81%
Gasoline	1.87	- 1.09%
Heating Oil	1.97	- 1.07%

U.S. Gold Prices
$1248.77 per troy ounce, up $8.52
Silver 19.36 + 1.68%
Copper 3.34 - 1.38%



Canadian Market:

Canada 2Q GDP Expands 2%, Slowest Rate Since 3Q 2009
The Canadian economy in the second quarter expands at less than half the pace set in the first quarter, dropping to the slowest rate since the third quarter of 2009, on weaker spending in the retail and wholesale sectors and a downturn in housing.

The Canadian economy in the second quarter expanded at less than half the pace set in the first three months of the year, dropping to the slowest rate since the third quarter of 2009, on weaker spending in the retail and wholesale sectors and a downturn in the housing market.

Gross domestic product, the sum total of goods and services produced in the country, grew at a 0.5% quarterly rate or an annualized 2.0%, down from 5.8% in the first quarter, Statistics Canada said Tuesday. The first-quarter figure was revised down from the originally estimated 6.1%.

The market had expected second-quarter GDP to grow at an annualized rate of 2.5%, below the central bank's revised forecast of 3%, down from 3.8%, in last month's Monetary Policy Report.

On a monthly basis, GDP expanded 0.2%, in line with market expectations, with gains in manufacturing, retail trade, utilities and forestry offset by declines in mining and oil and gas extraction, along with lower activity by real estate agents and brokers.

In July, the Bank of Canada cut quarterly growth forecasts to the first quarter of 2011, citing a weaker and more uncertain outlook for the global economy. Third-quarter growth was also lowered, to 2.8% from 3.5%. The Bank expects GDP to grow 3.5% this year and 2.9% in 2011, down from earlier forecasts of 3.7% and 3.1%.

The Bank has raised interest rates twice since June, with a third rate decision set for early September. Canada's recession was the shortest and least severe among G7 countries. The economy emerged from recession in the third quarter of last year after shrinking for three consecutive quarters.

"The GDP will raise even more questions about whether the Bank of Canada will raise interest rates next week. We have already seen it support the short end of the bond market and take some further steam out of the Canadian dollar," said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto.

The U.S. dollar gained against the Canadian dollar following the release, ticking to an intraday high of C$1.0662 after the data, from C$1.0635 just before. It was at C$1.0589 late Monday, according to EBS via CQG.

Canada's two-year bond price moved modestly higher, to 101.574, from 101.503 just ahead of the data. The Overnight Indexed Swap, the most accurate gauge of market expectations, was estimating a 44% likelihood of a September rate increase, from 52% before the data.

The GDP figures show that Canada's economy is "on the right track," Finance Minister Jim Flaherty said in an e-mailed statement. He pointed to economic growth and employment gains as signs that the economic plan and tax cuts are working.

Consumer spending on goods and services grew 0.7% in the second quarter, down from 1% previously. Spending on furniture, furnishings, and household equipment and maintenance rose 0.1%, down from 1% in each of the previous three quarters. Spending on used motor vehicles fell 2.9%, while households spent less on electricity and natural gas, the second consecutive quarter of declines.

Business spending on plant and equipment rose 3.5%, the largest quarterly gain since 2005, led by a 6.7% increase in spending on machinery and office equipment.

Toronto Indexes, Volume; 11 AM EDT Composite Up 65.97

S&P/TSX Composite 11961.52 up 65.97 or 0.6%
S&P/TSX 60 Index 697.64 up 3.79 or 0.5%
Financials 169.84 up 0.65 or 0.4%
Materials 384.49 up 6.91 or 1.8%
Energy 273.40 off 0.40 or 0.1%
Industrials 100.32 up 0.37 or 0.4%
IT 27.07 off 0.04 or 0.1%



South America Markets:

Mexico

Mexican stocks opened higher Tuesday
Mexican stocks opened higher Tuesday, helped by a rise in U.S. equities, which pulled up from opening losses after positive consumer confidence data. The market's IPC index of leading issues was up 0.7% to 31,614 points around 10:35 a.m. EDT. Volume was 21.1 million shares worth 606 million pesos ($46 million).

Local stock trading was halted for about half an hour due to technical problems early in the session.



Brazil Stocks Open Higher On Positive Local Data

Brazilian stocks opened marginally higher Tuesday on renewed optimism after Brazil's statistics agency IBGE announced a recovery in industrial production levels. The benchmark Ibovespa stock index opened at 64,261 points, from Monday's close of 64,260 points. The index gained ground to 64,881 points within minutes of opening, after several days of negative performance.

The benchmark Ibovespa stock index opened at 64,261 points, from Monday's close of 64,260 points. The index gained ground to 64,881 points within minutes of opening, after several days of negative performance.


Colombia

Colombia's July Urban Jobless Rate 13.3% Vs 12.8% Year Ago
Colombia's urban unemployment rate rose to 13.3% in July from 12.8% in the same month a year earlier, the national statistics institute, known as DANE, said Tuesday. In a nationwide survey, which economist say produces a less exact indicator of the job market, unemployment stood at 12.6%, the same level as a year earlier.


Ecuador
Ecuador, Development Bank Of China Sign $1 Billion Loan
Ecuador's government signed a loan agreement for $1 billion with the China Development Bank Corp. Tuesday.

The loan will have two tranches, one for $800 million and another for $200 million. It will have a fixed interest rate of 6% per year, for a four year term, and an additional six month grace period. The loan will be used to finance Ecuador's investment program for infrastructure and other budgetary outlays for the 2010-11 period. It will also be used to finance oil projects of national interest, said Ecuador's Finance Minister, Patricio Rivera, in a press release.

Rivera said the first tranche of $800 million will be for Ecuador's discretionary use--for projects including infrastructure, mining and telecommunications--while the other $200 million will be used for oil sector projects. The minister said that with this loan Ecuador had ensured its budget financing for 2010. Rivera added that the loan will not be repaid in oil, and that no oil-related guarantees had been given.


European Markets:
Europe stocks extend August slide on economic fears before recovering.

European Stocks Turn Higher After US Data
European stocks erased significant losses to finish higher Tuesday after data showing a rise in U.S. consumer confidence allayed near-term concerns over the pace of the economic recovery. The Stoxx Europe 600 index finished up 0.1% at 251.31 points, rebounding from an intraday low of 247.82. The index has dropped 1.6% this month.

UK Summary: Stocks End Up On Positive US Data

FTSE 100 5225.22 +23.66 +0.45%
FTSE 250 9825.14 +45.24 +0.46%
DJ UK Smaller Companies 818.12 +9.12 +1.13%

London stocks end in positive territory after staging a comeback late in the session. A positive performance on Wall Street after several positive pieces of US economic data help.

The FTSE's miners stage the biggest U-turn as a result of improved sentiment, and the sector finishes in the black. But Ben Critchley at IG Index pours some cold water on the reversal. Says, "while there's a sense that equities have a serious dose of pessimism priced in at these levels, it will take a jolt of unambiguously strong data to help markets make significant gains from these levels." On Wednesday, UK PMI manufacturing is at 0830 GMT. Economists at Commerzbank cautioned investors not to read too much into the increase, pointing out that consumer confidence has more or less trended sideways since May 2009, when the index was at 55.

Anglo Irish Bank Gets More State Aid As Losses Rise
Anglo Irish Bank Corp. Chief Executive Officer Mike Aynsley Tuesday put a EUR25 billion estimate on the government's bill to bail out the bank, as it reported a massive first-half loss and said it will seek to wind down at least 80% of its business over 10 years.

UK Broad Money Supply Remains Subdued In July
The Bank of England's preferred measure of broad money supply was flat in July, marking a slowdown from the previous month and underscoring the challenges facing the U.K. economic recovery.

BA Suspends More Staff; New Strike Ballot Possible
Tensions between British Airways PLC (BAY.LN) and cabin crew could escalate after trade union Unite Tuesday disclosed that up to 80 staff have been suspended or sacked as a result of the dispute over working practices.

UK July Consumer Lending Slows
U.K. net consumer lending rose at a slower rate in July as mortgage lending remained lackluster, underscoring the view that the housing market will remain subdued for some time.

UK Consumers More Upbeat On Economy In Aug
U.K. consumers became significantly more optimistic about the outlook for the economy during August, driving the first pick up in confidence since February.

UK Homes Bought During Peak Face 4 Yrs Of Negative Equity
U.K. homes bought during the recent market peak in 2007 face four more year of negative equity, where the value of assets are worth less than what they're paid for, and more families would likely be forced to rent homes or settle with cheaper ones as banks remain cautious on mortgage lending, the U.K.'s National Housing Federation said Tuesday.

France
The French CAC 40 index gained 0.1% to 3,490.79

French Economy To Grow 1.5% In 2010
French Prime Minister Francois Fillon Tuesday said gross domestic product is expected to rise 1.5% in 2010, above the official forecast of 1.4%. "With 1.5% of growth in 2010 we will be leading the pack in the European union," Fillon said in an address to the majority UMP party in the Yvelines, west of Paris. He reiterated the government's target of 2% growth for 2011, which was recently cut from 2.5%.


Germany
Germany's DAX 30 climbed 0.2% to 5,925.22
German unemployment figures which fell by 17,000 in August.


Russia

Russia Won't Intervene To Curb Soaring Food Prices
The Russian government won't intervene to curb prices for basic food stuffs as inflation soars after the country's worst ever drought, Economic Development Minister Elvira Nabiullina said Tuesday. Forty-five Russian regions saw prices for certain foods grow by more than 30% in the 30-day period up to Aug. 23, Vedomosti business daily reported Tuesday, citing a report by the economic development ministry.

World market snapshot:

Shanghai	2,638.80	-13.87 (-0.52%)
Nikkei 225	8,824.06	-325.20 (-3.55%)
Hang Seng Index	20,536.49	-200.73 (-0.97%)
TSEC	7,616.28	-124.92 (-1.61%)
FTSE 100	5,172.23	-29.33 (-0.56%)
CAC 40	3,454.26	-32.75 (-0.94%)
S&P TSX	11,932.17	+36.62 (0.31%)
S&P/ASX 200	4,404.20	-48.50 (-1.09%)
BSE Sensex	17,971.12	-60.99 (-0.34%)

Commodities
Crude Oil	73.60	- 1.47%
Natural Gas	3.78	- 0.84%
Gasoline	1.91	- 1.28%
Heating Oil	2.01	- 0.81%
Gold	1248.39	+ 0.95%
Silver	19.37	+ 1.73%
Copper	3.38	- 0.88%
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Market Summary:

Stocks:

U.S. stocks fell, adding to the market's decline for the month as weak personal income and manufacturing data highlighted a slowdown in the economic recovery and overshadowed deal activity. "Sentiment seems pretty negative on stocks," said Kevin Kruszenski, director of equity trading at KeyBanc Capital Markets.

Treasurys:

Treasury prices pushed up as market participants, on edge about the shaky global economic recovery, sought refuge in the low-risk U.S. government bond market. The latest catalyst fueling fears about the health of the global economy was a move by the Bank of Japan to further ease monetary policy. Meantime, the week's first pieces of U.S. data reinforced the idea that the U.S. economic recovery remains very fragile.

Forex:

The dollar declined against the yen Monday after measures from the Bank of Japan lacked sufficient punch to halt the yen's advance. The greenback also retreated against the Swiss franc but gained against other widely traded currencies as investors abandoned last week's move into riskier assets and shifted into traditional safe harbors. The dollar surrendered gains made in anticipation of the emergency BOJ meeting.

Tuesday's US Economic Calendar

7:45 a.m.
Aug 28 ICSC-Goldman Sachs Chain Store Sales Index - WoW (previous -0.4%), YoY (previous +2.3%)

8:30 a.m.
Aug ISM-NY Report on Business US ISM-NY Business Index (previous 58.4)

8:55 a.m.
Aug 28 Johnson Redbook Retail Sales Index MoM % Change (previous +1%), 12MonChgPct (previous +2.7%), 52WkChgPct (previous +2.6%)

9:00 a.m.
Jun S&P / Case-Shiller Home Price Index SP Composite-10 MoM (previous +1.2%), SP Composite-10 YoY (previous +5.4%), SP Composite-20 MoM (previous +1.3%), SP Composite-20 (expected +3.9%)

9:45 a.m.
Aug Dow Jones Economic Sentiment Indicator (previous 42.3)

9:45 a.m.
Aug ISM-Chicago Business Survey - Chicago PMI Employment Index (previous 56.6), New Orders Index (previous 64.6), Prices Paid Index (previous 58.1), Purchasing Managers Index (Adjusted) (expected 58), Supplier Deliveries Index (previous 59.4)

10:00 a.m.
Aug Consumer Confidence Index (expected 51), Expectation Index (previous 66.6), Present Situation Index (previous 26.1)

2:00 p.m.
Federal Open Market Committee meeting minutes

4:30 p.m.
Aug 27 API Statistical Bulletin Crude Stocks (Net Change) (previous -1.85M), Gasoline Stocks (Net Change) (previous +0.69M), Distillate Stocks (Net Change) (previous +1.89M), Refinery Runs (previous 85%)

5:00 p.m.
Aug 29 ABC News Consumer Confidence Index (previous -44)