Weekly Outlook June 14 – 18
The upcoming week consists of inflation figures from all over the world, a major German survey, rate decisions from Japan and Switzerland among other events. Did the dollar take a pause, or will its new weakness continue?
We see a growing gap between the commodity currencies and the rest of the world. Australia enjoys a great job market, the rate has been lifted in New Zealand, and Canada is doing well on all parameters. This week will be mostly about the US. Let’s start:
1. Japanese rate decision: On Tuesday morning. The BOJ isn’t expected to change the rock-bottom Overnight Call Rate of 0.1%, but the rate statement, and especially the press conference afterwards, will probably trigger interesting statements about the state of the economy. Officials in the new Japanese government warned that Japan could face a “Greek-style” debt crisis. Are they trying to aggressively weaken the Yen?
2. British CPI: Published on Tuesday at 8:30 GMT. The new British Prime Minister, David Cameron, said that inflation must be tackled. The current level of 3.7% is above the government’s target of 1-3%, and this isn’t expected to changed. CPI is expected to tick down to 3.5%. Mervyn King, the BOE’s governor, dismissed inflation until now. Raising the rates while the economy is struggling isn’t tempting. King and other senior members will speak in front of the Treasury Committee about inflation.
3. German ZEW Economic Sentiment: Published on Tuesday at 9:00 GMT. This survey of 350 analysts and investors is highly regarded and has a strong impact on the Euro. The forecast is for a slight recovery, from 45.8 to 48.7, after the initial wave of the contagious European debt problems. Note that there’s also an all-European figure, but the German one tends to have more impact.
4. American TIC Long-Term Purchases: Published on Tuesday at 13:00 GMT. This indicator shows the flow of money into our out of the US, being a sign of confidence. The turmoil in Europe, as last month saw a huge leap - 140 billion instead of 50 that was predicted. The safe haven status that the US has will probably be reflected in this figure once again.
5. British employment data: Published on Wednesday at 8:30 GMT. The number of unemployed people, as seen in the Claimant Count Change, dropped significantly in the past three months, exceeding expectations time after time. While this is good for the Pound, the complementary figure, unemployment rate, which is a lagging figure, rose to 8% and isn’t expected to move from there.
6. European inflation data: Published on Wednesday at 9:00 GMT. Also in Europe, prices are rising, but the inflation rate isn’t a headache for the ECB, not yet. CPI is expected to show an annual rise of 1.6% and Core CPI a rise of only 0.8%. Any surprise will shake the Euro.
7. American housing figures: Published on Wednesday at 12:30 GMT. Building permits disappointed last month as they weakened to 610K. A rise to 630K is expected now. A rise above 700K will convince the markets that the recovery is strong. Housing starts reached a higher level, 670K, but they’re expected to drop this time to 650K. Together with the PPI, this time is very volatile for the dollar.
8. American PPI: Published on Wednesday at 12:30 GMT. Producer prices fell last month by 0.1%, and this fall is expected to accelerate this month to 0.5% – this is mainly the result of the drop in oil prices. Core PPI, which the Federal Reserve closely watches, is also expected to be tame – 0.1%. No inflation pressures from here.
9. Swiss rate decision: Published on Thursday at 7:15 GMT. The Swiss National Bank makes a decision on the Libor Rate only once a quarter. No change is expected this time, so the focus will be on the accompanying release of the SNB Monetary Policy Assessment. Will the central bank express concerns about the currency? After the fall of the Japanese government, the Swissy got some renewed attention as a safe haven currency. The low levels of EUR/CHF could trigger an intervention, and this might happen together with the rate decision, as seen in the past.
10. American CPI: Published on Thursday at 12:30 GMT. The main inflation figure isn’t expected to be different than producer prices. CPI is expected to drop by 0.2% and Core CPI will probably rise by 0.1% – Bernanke will probably leave the wording about “interest rates being low for an extended period of time” once again, weakening the dollar.
11. American Unemployment Claims: Published on Thursday at 12:30 GMT. Last week saw another disappointment, as jobless claims are refusing to go down. This week isn’t expected to be different – the forecast is for a minor drop from 456K to 454K.
12. American Philly Fed Manufacturing Index: Published on Thursday at 14:00 GMT. This major gauge has risen steadily in recent months, reaching 21.4 points. This trend will probably stop. The global turmoil will probably take its toll on this indicator.
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Euro makes multi year low: June 7 – 11 Weekly Outlook
After the whopping Non-Farm Payrolls, the new week starts slowly but becomes intense later on. Rate decisions from New Zealand, Europe and Britain, and American retail sales and consumer confidence are the highlights among other events. Let’s see the major market movers this week.
European news has been slower in the past week, with no major credit downgrades or depressing statements. But the crisis is far from over. Traders understand that the austerity measures that flood the continent are a serious damage to growth. These worries can be reflected in the European rate decision. OK, let’s begin:
1. Ben Bernanke talks: First appearance due on Tuesday at midnight GMT, at a conference in Washington; the second event is an official testimony in front of the House Budget Committee on Wednesday at 14:00 GMT, and the last one is later that day, at 20:00 GMT, at a conference in Richmond. Almost every public appearance provides some headlines that move the markets. With questions expected in most events and the growing pressure to raise the rates, it will interesting to see what wording Bernanke will use, and what delicate balance he’ll find behind hope of recovery and worries about Europe.
2. American Beige Book: Published on Wednesday at 18:00 GMT. Two weeks before the FOMC meeting that decides on the rates, this report about the current economic conditions will shed some light on the state of the US economy, and might provide hints for the rate decision, now that some members are expressing the need to raise the rates.
3. New Zealand Rate decision: Published on Wednesday at 21:00 GMT. The RBNZ will probably be the third Western central bank to raise the rates. In his previous rate decision, Alan Bollard hinted about raising the rates. Fundamentals in New Zealand have been stabilizing. While they haven’t been superb, this could be enough to follow Australia and Canada and raise the Official Cash Rate from 2.5% to 2.75%. It’s important to notice the rate statement that accompanies the event.
4. Japanese Final GDP: Published on Wednesday at 23:50 GMT. More bad news is expected in Japan after the resignation of the government. GDP for the first quarter will probably be revised to the downside – from 1.2% to 1.1%, pushing the yen lower.
5. Australian employment data: Published on Thursday at 1:30 GMT. Australia continues to enjoy economic growth and has a good outlook for the future. This will probably be reflected in another gain in jobs. Australian employment change is expected to rise by 16K and the unemployment rate is expected to remain unchanged at 5.4% – lower than most countries.
6. British rate decision: Published on Thursday at 11:00 GMT. Mervyn King, head of the BoE continues to face a dilemma – on one hand, inflation continues to pick up, making a rate hike necessary, but the fragile state of economy, that hardly emerged from the recession, means leaving the stimulus measures unchanged. King dismissed inflation so far. Consensus is for another month of unchanged rates – 0.5%. It’s important to watch the MPC Rate Statement. Any concern about inflation could boost the Pound.
7. European rate decision: Published on Thursday at 12:45 GMT. Jean-Claude Trichet of the ECB faces a similar problem, but in Europe the inflation is softer and the economic issues are harder, making it easier for him to leave the European Minimum Bid Rate unchanged. There are even calls for lowering the 1% interest rate. His words regarding the debt issues and the economy in general at the press conference (45 minutes later) will also shake the markets.
8. American and Canadian Trade Balance: Published on Thursday at 12:30 GMT. This double-feature release of the trade balance in both countries always shakes USD/CAD. The Canadian surplus is expected to rise to 0.7 billion, while the American deficit is expected to remain almost unchanged around 40 billion.
9. American Unemployment Claims ublished on Thursday at 12:30 GMT. The first release of jobless claims after the whopping Non-Farm Payrolls is expected to be rather stable – a drop from 453K to 447K, still within the same range that this weekly indicator showed us in recent months.
10. American Retail Sales: Published on Friday at 12:30 GMT. Sales volume is advancing steadily. The pace of growth is expected to ease this time, from 0.4% last month to 0.2% this time. Also core retail sales, which are closely watched by the Federal Reserve, are predicted to slow to 0.1% from 0.4% last month.
11. American Consumer Sentiment: Published on Friday at 13:55 GMT. The last event of the week is very important – consumer sentiment is expected to edge back up from 73.6 to 74.9, indicating that the drop we saw recently was only temporary. The university of Michigan publishes this preliminary report close to the market’s close, in a very volatile timing.
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Daily Binary Options Update – May 12, 2010
Gold, Gold, Gold!
This is the time to buy Gold! On Tuesday, the June and May gold futures contracts rallied to finish at record closing levels. Gold futures topped $1,233 an ounce in electronic trading Wednesday morning in Asia, extending the hefty gains seen in New York as European debt concerns continued to draw investors to the precious-metals market. Silver is also making big moves to the upside.
European markets are up!
Earnings-related gains from ING and Deutsche Telekom and the appointment of David Cameron as Britain’s new prime minister, worked to offset more losses from banks in Europe on Wednesday.
The Euro is making a comeback against the Dollar
The euro staged a comeback against the dollar and yen in Asian trading Wednesday, as investors reacted to a report about a probe by U.S. Federal prosecutors into allegations against Morgan Stanley.
U.K. shares, sterling up after Cameron named PM
Expect U.S. stock markets to recover, following recovery in U.K., European markets in the coming days.
U.S. Banking stocks expected to take a hit today
U.S. Federal prosecutors are looking into whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against, The Wall Street Journal reported Wednesday, citing people familiar with the matter.
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Greek Economy Spells Trouble For Eurozone – Market Weekly Outlook – February 15-19
A volatile week full with hope and fear comes to an end with currencies returning to the same spots. The week ahead contains a nice mix of events from all over the world: a rate decision in Japan, employment data from Britain, and lots of American numbers, with important inflation data to close the week. Here’s an outlook for the major events in the week ahead.
The Greek crisis is far from over. While Greece is only a small country at the edge of the Euro-zone, the implications of debt and the ways to deal with it have an impact on many other troubled countries in the region that is on the brink of new recession. This also has a wider impact – debt problems trigger risk aversion trading – dollar buying. OK, let’s start the review:
| 1.Japanese GDP: Published on Sunday at 23:50 GMT. As of Q2 of 2009, Japan is out of recession. The growth rate has dropped to 0.3% in Q3, after being first reported at 1.2%. Apart from slow economic growth, Japan historically suffers from deflation, a problem that won’t be solved soon. Growth of 1% is expected now.
2.British CPI: Published on Tuesday at 9:30 GMT. This important indicator has risen sharply in recent months. The last print was 2.9%, and the upcoming number is predicted to be 3.6%, above the government’s target. Mervyn King dismissed the inflation threats and signaled that no rate hike is underway. Will he continue this stance once again? Rising inflation isn’t seen elsewhere, and it will be interesting to see the impact on the whole market.3.ZEW Economic Sentiment: Published on Tuesday at 10:00 GMT. This is a major market mover – especially the release for Germany. In the past months, it has deteriorated sharply, going hand by hand with the Eurozone’s troubles, and Germany’s stagnant economy. It’s expected to dive again – this time from 47.2 to 41.9 points. 4.American TIC Long-Term Purchases: Published on Tuesday at 14:00 GMT. Foreign investment in the US has made a leap last month, rising from 20 to 126 billion dollars. This confidence in the US economy and the dollar probably won’t repeat itself, at least not so strong – 50 billion is predicted this time. A stronger number will boost the dollar. 5.British Employment Data: Published on Wednesday at 9:30 GMT. The number of unemployed people made a turnaround in Britain two months ago and the positive trend continued last month as well. The Claimant Count Change, an early an important indicator is expected to show another “positive loss” of unemployed people this month – 14.3K. The British Unemployment Rate is predicted to remain stable at 7.8%, but economists were wrong with this figure over and over again. Positive numbers will also push towards a rate hike. 6.American Building Permits: Published on Wednesday at 13:30 GMT. The housing sector was one of the main contributors to the downturn in the economy, and is recovering slowly. The annualized number of 0.65 million is predicted to be followed by a drop to 0.62 million. The economy cannot make a significant advance without a healthy housing sector. Also note the housing starts published at the same time. 7.FOMC Meeting Minutes: Published on Wednesday at 19:00 GMT. Although the wording of the statement hasn’t changed, there was one surprise in the recent American rate decision – one member voted to change the wording and start signaling a future rate hike. When the minutes will be revealed, we’ll get to see if other members also began thinking out loud about such an option. 8.Japanese Rate Decision: Published on Thursday, in the early hours. No rate hike is expected in Japan, which suffers from deflation. The Overnight Call Rate is predicted to remain unchanged at 0.1% but the views that that will be expressed about the economy by the BOJ usually move the Yen. 9.American PPI: Published on Thursday at 13:30 GMT. Producer prices aren’t always a market mover, but this time, a rise of 0.8% is predicted, much higher than last month’s 0.2% rise and much higher than previous months. Such a rise might cause Bernanke to rethink the “extended period” wording in the FOMC Statements. 10.American Unemployment Claims: Published on Thursday at 13:30 GMT. After a surprise last week – a drop to 440K, the drop in jobs seen in the NFP can be forgotten. A small rise to 445K is predicted this time. Only another drop, preferably below 430K can boost the dollar. 11.American Philly Fed Manufacturing Index: Published on Thursday at 15:00 GMT. This important gauge has seen 6 months of improving conditions, but last month was disappointing with a drop to 15.2 points. A steady rise to 17.2 is predicted this time. 12.American CPI: Published on Friday at 13:30 GMT. The major inflation figure closes the week. Contrary to the expectations from the PPI, consumers probably didn’t see a significant rise in prices. CPI is predicted to rise by 0.3% and Core CPI, an indicator that the Federal Reserve watches, is expected to rise by 0.2% – very stable. A jump will make the markets jump, seeing another crazy Friday. For USD/CAD traders, note that the Canadian CPI is published around the same time. This Market Weekly Outlook was brought to you by our partner ForexCrunch.com. Click here to Trade Binary Options with us. Best Regards, Disclaimer: Binary options trading might carry potential rewards, but also potential risks. You must be aware of the risks and willing to accept them in order to trade in the financial markets. Don’t trade with money you can’t afford to lose. |
StartOptions.com Market Weekly Outlook – January 25-29
A busy week is ahead of us: rate decision in the US, Japan and New Zealand and GDP releases from the US, UK and Canada are part of an eventful week. Will we see more dollar strength? Here’s an outlook for the last week of January.
Beginning on Wednesday, the World Economic Forum meets in Davos, Switzerland. In their 4-day annual meetings, many central bankers, senior politicians and business leaders from all over the world chit-chat with reporters and also make official and moving statements. Their sporadic comments can shake the markets during most of the week.
Monday, January 25th: Australian PPI provides a strong start to the week, as this is a quarterly figure that has a strong impact on the Aussie.
American Existing Home Sales are expected to post a big drop after two strong months, and fall to 6.04 million.
Tuesday, January 26th: The Bank of Japan makes a rate decision. While the Overnight Call Rate isn’t expected to move from 0.1%, but the Monetary Policy Statement could sure shake the Yen, especially if economic forecasts are changed.
German Ifo Business Climate is an important survey for the Euro. It’s expected to continue the steady rising trend and edge up to 95.3 points. Last week’s survey, from ZEW, was bad and sent the Euro down.
Britain probably finished the recession. Prelim GDP for Q1 is expected to show growth of 0.4%. The unofficial number from NIESR talked about 0.3% growth, and they are usually correct, so there’s a good reason to be optimistic. Right after the release, Mervyn King will be speaking.
Last week King weighed on the Pound. A volatile time for the Pound.
In the US, the year-over-year S&P/CS Composite-20 HPI is expected to show a smaller drop in the prices of homes, 4.9%. The more important figure is the CB Consumer Confidence, that recovered from a big fall, and is now expected to climb to 53.7 points.
Wednesday, January 27th: Australian CPI is a quarterly release and has a strong impact on policymakers. After a modest rise of 0.1%, Q4 is expected to show a rise of 0.4%. A stronger rise is necessary to push the Aussie higher.
American New Home Sales are expected to recover from last month’s big fall, and rise to 372K. This will be a warmup for the big event.
Bern Bernanke is expected to leave the interest rate unchanged. The Federal Funds Rate will probably stay at a maximum level of 0.25%, and traders will focus on the usually confusing FOMC Statement. Last month, it took the market 6 hours to digest the statement, which seemed balanced at first. As they focused on the upside of the statement, cautious signs of recovery, the dollar rose. But the message sure was confusing.
Also in New Zealand we have a rate decision. The hot air came out of the balloon with low CPI in New Zealand and China’s tightening measures. So, the Official Cash Rate will probably remain unchanged at 2.5%. Hints for future policy will be provided in the RBNZ Rate Statement.
Thursday, January 28th: American Durable Goods Orders are expected to jump by 2.1% after remaining almost unchanged last month. Core Durable Goods Orders, no less important, are expected to do the opposite and rise by 0.4% after a leap last month.
Unemployment Claims that disappointed last week, are predicted to go back down to 452K.
In New Zealand, both Building Consents and Trade Balance will impact the kiwi, with the latter expected to show a smaller deficit this time.
Near the end of the day, Japan will be releasing Household Spending which is expected to rise and Tokyo Core CPI which is still expected to show an annual drop in prices – 1.8%.
Friday, January 29th: European Unemployment Rate is expected to be bad once again. After reaching 10% last month, it’s predicted to rise to 10.1%.
In Switzerland, the KOF Economic Barometer will move the Swissy.
Canada releases its monthly GDP, which is expected to show a 0.3% growth, better than the previous month. Last week’s rate decision hurt the loonie. USD/CAD will shake during this time, especially with the next release.
American Advance GDP for Q4 holds high expectations: an annual growth rate of 4.6%. After exiting recession in Q3 with a 2.2% growth rate, things are expected to get better in Q4. This release will shake the markets.
Chicago PMI is predicted to post a small drop, and the Revised UoM Consumer Sentiment is expected to be revised to the upside. Both events will be overshadowed by the Advance GDP release.
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Week Ahead: Earnings Will Call the Tune for Stocks
Earnings will be a challenge for stocks in the coming week, as major bank and tech firms report, along with hundreds of other companies.
The question, though, is whether earnings news will be strong enough to keep the rally going or investors will see it as an excuse to take profits temporarily.
The latter was the case Friday, when tech giant Intel [INTC 20.80 -0.68 (-3.17%) ] fell after reporting better-than-expected profits and an improved outlook. JPMorgan Chase [JPM 43.68 -1.01 (-2.26%) ] stock also fell, and its report raised the flag on other bank stocks after loan losses and weaker-than-expected revenues outweighed a strong income number. Both stocks had moved higher ahead of their reports.
“We think the reaction is overdone. The issue for equity markets in earnings is really, about, in our view, the multiple,” said Binky Chadha, chief U.S. equities strategist at Deutsche Bank.
This earnings season is a critical turning point since it is the first quarter in 10 where there should be positive profit growth on a year-over-year basis. S&P 500 profits are expected to improve by 8 percent, excluding the financials, according to Thomson Reuters. When financials are included, that number jumps to 186 percent because of the sector’s gigantic losses a year ago.
For the most part, analysts expect the earnings news to be a catalyst for stocks in the first quarter. Some companies reporting in the week ahead include General Electric [GE 16.44 -0.26 (-1.56%) ], Citigroup [C 3.42 -0.09 (-2.56%) ], Goldman Sachs [GS 165.21 -3.32 (-1.97%) ], Bank of America [BAC 16.26 -0.56 (-3.33%)], Google [GOOG 580.00 -9.85 (-1.67%) ] and IBM [IBM 131.78 -0.53 (-0.4%) ].
“I think earnings will deliver more than expected. The news we have so far is positive, though the market is taking it badly,” he said. Chadha said other factors were worrying investors, including the concerns about Greece’s fiscal situation.
Whither Stocks
David Kotok, chairman and chief investment officer at Cumberland Advisors, said he sees earnings as a driver in the first quarter. “It’s a good earnings season. There’s no labor cost pressures,” he said. Companies are showing margin improvement as they reap the benefit of leaner work forces and reduced spending.
Kotok expects technology to do particularly well this quarter and he is overweight the sector. When Intel released profits, it also reported surprisingly strong margins of 65 percent, the best level in a decade. Margin improvement could be an important story for tech. “That could be sustainable worldwide for several years,” he said.
Banks are another story. “We won’t know sustainable trends for banks in the U.S. until 2011 or 2012,” he said, adding that at that point current prices could look extremely cheap.
Kotok said the market has had an easy run since it began moving higher in March, but the next leg up will be bumpier. “I think the second half is going to be troubled by the economy. I think the market’s going to recognize that and reprice and sell off in the late spring, early summer” he said.
Chadha disagrees, however, that markets will be troubled in the second half. “It’s clearly the consensus view that we have a good first quarter, first half and then things stagnate and get much worse. I basically don’t think that. The fundamentals are that basically corporates over contracted and they over fired, and there’s basically a very large gap between final sales and production. There’s room for them to expand. That will spark a self-sustaining recovery,” he said.
But, he said the economy is not self -sustaining yet, and that fact could make the market choppier in the first part of the year rather than the second half, if his premise is correct.
“We’re putting our money on that it will take hold and the market should do a lot better later,” he said. Currently, the market’s multiple is about 14 on 2010 earnings, and fair value would be closer to 16.5. “So that’s potential for 20 percent more upside,” he said. His year-end target is 1325 on the S&P 500.
Chadha’s year-end target is 1325 on the S&P 500. Kotok’s target for the S&P this year is 1250 to 1300.
The Dow in the past week lost 8 points or 0.08 per cent to 10,609, while the S&P 500 slid 0.8 percent to 1136. Financial shares lost 1.8 percent for the week, but the biggest losers were telecom, down nearly 4 percent and materials, off 3.2 percent. Health care was the best performer, up 1.5 percent, while consumer staples were second best, up 0.9 percent.
Credit Uncrunch
Treasuries gained in the past week, driving yields lower. The 10-year’s yield fell to 3.676 percent, and the 2-year slipped to 0.887 percent.
In the past week, the government’s auctions of $84 billion in notes and bonds were well received by the market. At the same time, the flood of corporate debt issuance continued, bringing the total of dollar denominated issuance to $56.7 billion since Jan. 1.
In the past week, spreads widened in emerging markets, as investors worried about Greece’s ability to make debt payments. But there was also widening in corporate spreads. Traders have been watching these spreads, particularly as Washington discusses a new tax for banks and some of the consumer driven data in the past week disappointed.
Kevin Ferry of Cronus Futures Management said the widening of corporate spreads is actually just a normal function of the market as it absorbs the new issuance. He and others say the heavy activity is in part being driven by corporations anxious to get deals done ahead of higher interest rates.
“What we’ve been focusing on for the past two years is very stable and in fact it’s at an all time low, but out in the real world getting this (corporate debt) stuff through the pipeline is having the usual effect,” he said. Ferry said, for example, the 12-month libor rate hit an all time low in the past week of 0.89 percent.
Dollar Dilemma
The dollar lost 0.2 percent against a basket of currencies but gained 0.3 percent against the euro to $1.4379. At the same time, commodities sold off. Oil had five days of losses, finishing Friday at $78 per barrel, a decline of 5.7 percent for the week. Gold lost $8.10 per troy ounce for the week, to $1130.10.
Boris Schlossberg of GFT Forex said the dollar and euro are trapped in a range around $1.45 per euro. “Every time we get positive data on one side of the Atlantic, its counterbalanced by bad news on the other side of the Atlantic,” he said. The market responded to comments in the past week from European Central Bank President Jean Claude Trichet about a possible negative quarter in the Eurozone, as well as worries about Greece.
One focus for the euro in the coming week will be PMI data for the Eurozone, released on Friday, Schlossberg said.
Econorama
In the U.S., the calendar for economic data is relatively light. Markets are closed Monday for the Martin Luther King holiday. Wednesday and Thursday are the big days for data. On Wednesday producer prices are reported, as are housing starts. Thursday’s data includes the Philadelphia Fed survey, leading indicators and weekly jobless claims.
The National Association of Home Builders survey is Tuesday, as is the Treasury’s international capital flow data.
In the past week, the data pointed to a still very weak consumer. Retail sales were surprisingly negative for December and consumer sentiment was weaker than expected.
“The reality setting in is this isn’t an easy recovery,” said Diane Swonk, chief economist at Mesirow Financial. Swonk said she expects unemployment to continue to rise and peak sometime this quarter at a level of 10.25 to 10.3 percent.
“We’ll still turn profits this year. We’ve still got productivity growth. This is still a good environment for profits and profit share, compared to wage share, is going to rise. That should support some additional gains in the stock market from where we were at the end of the year, but we’ve already gotten ahead of ourselves,” she said.
She said the housing starts data and PPI data this week should be important. She said PPI should be neutral and the housing numbers will be watched to see what impact there is from the first time home buyers program. “It’s really telling about how much government support is needed for this sector,” she said.
What Else to Watch
The Obama Administration’s plan to tax banks for TARP-related losses rattled investors in the past week and weighed on bank stocks when the news first trickled out. Investors have also been watching every development in Congress efforts to revamp health care.
Winterizing Your Portfolio – A CNBC Special Report
Now investors will be closely watching Massachusetts to see whether the Senate race there could be a sign that change is coming to Washington. On Tuesday, voters there will choose between Democrat Martha Coakley and Republican Scott Brown in what has become an unexpectedly close race to fill the seat of late Sen.. Ted Kennedy.
The race is being watched as a referendum on President Obama’s programs and a sign of what could happen in the mid term elections in November.
Earnings Central
Banks dominate the week, starting with Citigroup’s report Tuesday. Bank of America, Morgan Stanley, Bank of New York Mellon, State Street, US Bancorp, Wells Fargo and Northern Trust report Wednesday. Thursday’s reports include Goldman Sachs, Capital One Financial, American Express, Fifth Third, Keycorp, and PNC. Huntington Bancshares and SunTrust report Friday.
Among tech names this coming week, IBM leads the charge Tuesday. Ebay, Seagate and Xilinx report Wednesday. Google and AMD report Thursday.
Also Tuesday, reports are expected from TD Ameritrade, Forest Labs, and CSX. On Wednesday, AMR, Jefferies, Covidien, Coach, Brinker International, Starbucks, and SLM release results. Thursday’s reports include Burlington Northern Santa Fe, Continental Airlines, United Health, Union Pacific, Southwest Airlines, PPG and Xerox
Friday’s names include Air Products, Exelon, General Electric, Kimberly Clark, McDonalds and Schlumberger.
There could also be news on Cadbury in the week ahead, as Hershey reportedly weighs a bid and Kraft considers a new offer.
Banks Must Repay Taxpayers $90 Billion for Bailout: Obama
Declaring “We want our money back,” President Barack Obama wants to slap a tax on banks to recoup the money that the American public spent on bailing out large financial institutions on the brink of collapse.
The president said Thursday his goal is not to punish banks, but rather to prevent them from a behavior of excess, including new employee bonuses he called “obscene.” In brief comments at the White House, Obama took a deeply populist tone.
He said: “My commitment is to the taxpayer.” The president said big banks had shown irresponsibility, engaged in reckless risk for short-term profits, and had gotten themselves into a crisis of their own making.
Some firms would have to pay the fee even though many did not accept any taxpayer assistance.
Obama proposed that major financial firms pay the fee—expected to total $90 billion over 10 years—to protect taxpayers from up to $117 billion in losses on a bank bailout that has spurred fury at Wall Street excess.
Obama’s action comes amid mounting public anger over multi-million dollar bank bonuses while ordinary Americans struggle in the face of 10 percent unemployment.
“The fee that is put forward here is in many ways a minimum — a minimum of what is owed back for the rather significant costs that are borne in many aspects by the taxpayers,” an administration official told reporters.
The levy will recoup losses from a $700 billion taxpayer rescue of U.S. banks called the Troubled Asset Relief Program, or TARP, conceived in 2008 by Obama’s predecessor, George W. Bush, at the height of the global financial panic.
Forged after the collapse of U.S. investment bank Lehman Brothers and multi-billion dollar rescue of insurance giant American International Group
ARP helped stem the crisis by injecting public capital into the biggest U.S. banks and convincing investors no others would be allowed to fail.
The action, together with massive monetary and fiscal policy stimulus from the government and Federal Reserve, was unable to deflect the country’s worst recession since the Great Depression, which has pushed unemployment to a 26-year high.
However, that did not obstruct bumper profits on Wall Street as stock markets rebounded sharply in 2009 from crisis-lows.
This has helped many of the banks repay their TARP injections, freeing them of government rules on compensation and allowing them to now pay out major staff bonuses.
Banks that have already repaid TARP capital will not be spared the fee, and nor will firms that got no TARP money to start with, but nevertheless benefited from the stability it brought to the U.S. economy, the official said.
Full details of the fee proposal will not be laid out until Obama delivers his budget for fiscal 2011 in early February, and will then be subject to shaping by Congress. The plan will include a levy of 15 basis points, or 0.15 percentage point, on the balance sheets of big firms with assets of more than $50 billion.
The Obama administration expects to raise $90 billion over the first 10 years, and thinks this will ultimately cover all losses from TARP, although at the moment these losses are being projected at $117 billion.
“The banks that are in question were significantly responsible for an enormous degree of the reckless risk-taking that was borne throughout the entire economy,” the official said.
AIG will be subject to the fee. But mortgage lenders Fannie Mae and Freddie Mac, which are under government conservatorship, will be excluded, as will U.S. automakers who got bailout money.
Public rage at bankers, whom Obama chided in December for their “fat cat bonuses,” has taken on a deeper political dimension as Democrats who control Congress weigh sweeping financial regulatory reforms in the face of stiff industry opposition.
Wall Street chiefs were grilled Wednesday at the opening hearing of a special inquiry into the 2008 financial crisis and the resulting taxpayer bailout to save their industry.
The White House said Wednesday that an apology was the least the country expects to hear from the banks.
The heads of Goldman Sach, Morgan Stanley, JPMorgan Chase and Bank of America aced the first public hearing of the Financial Crisis Inquiry Commission.
It will convene throughout the year and is expected to issue a report by Dec. 15.
Stocks Shed Losses as Bank Stocks Gain
Stocks turned slightly positive as investors warmed to bank stocks, a day before the White House will announce its plans to charge the industry fees related to the industry’s bailout and as Congress probes the financial system’s collapse.
Major indexes faced pressure most of the morning after energy prices fell on an inventory surge and concerns persisted over global growth. But the mood turned a bit positive as Wells Fargo , Bank of America and others headed higher. BofA earlier was the biggest drag on the Dow.
Energy shares also fell after a report showed a larger than expected surge in inventories.
Oil prices dropped again, falling below $80 a barrel for the first time in 10 days even as the dollar continued to fade.
Chevron was the biggest loser on the Dow 30, which lost an early pop as the market sought to rebound from a losing day Tuesday.
Resource companies also fell, with Southern Copper dropping more than 2.5 percent.
Kraft Foods stoked some investor enthusiasm as it raised its outlook for the second time in two months. Investors even scooped up shares of Alcoa , which led the market lower yesterday after issuing disappointing earnings.
The market fell Tuesday on concerns over earnings and whether monetary tightening in China would stall the global economic recovery.
The China worries seemed to abate somewhat but remained a lingering concern.
“We don’t expect the effects of the current tinkering to be overly disruptive or derail the recovery trend,” Tinconderoga Securities analyst John Stoltzfus wrote in a morning research note that acknowledged a “steep selloff” remains possible. “Likely a look in the rearview mirror sometime down the road will tell us that China’s actions … were sensible and ultimately prudent.”
Technology continued to be a sore spot for the market, though, with chipmakers particularly weak and the Nasdaq lagging its counterparts. shares dropped for the second consecutive day as investors begin to take profits from an aggressive two-month rally in the group.
Google shares fell on news that it may pull out of China because of cyber attacks. Chinese search engine Baidu surged.
AstraZeneca was among the market’s big movers, rising after Credit Suisse upgraded the pharma leader to “neutral” from “underperform.”
Another snapshot of the economy comes at 2 pm New York time, when the Federal Reserve releases its Beige Book, the region by region assessment of economic conditions.
At the same time, the Treasury is out with the December budget statement, expected to show a deficit of $91 billion for the month, compared with a shortfall of $51.8 billion in December of 2008.
Sony gained as it postpones the launch of videogame Gran Turismo 5, citing production issues for the latest in that hot-selling videogame line.
U.S. December Job Cuts Drop to 84,000, Fewest Since March 2008
Jan. 6 (Bloomberg) — Companies in the U.S. cut an estimated 84,000 jobs in December, according to a private report based on payroll data.
The drop, the smallest since March 2008, was larger than forecast and compares with a revised 145,000 decline the prior month, data from ADP Employer Services showed today. ADP figures overstated the Labor Department’s estimate of private payroll losses by 85,000 per month on average in the six months to November after today’s revisions.
Figures from the Labor Department show firings have slowed as the world’s largest economy began to recover from the worst recession since the 1930s. Economists surveyed by Bloomberg News anticipate the government’s report Jan. 8 will indicate job losses came to an end last month after two years of declines that eliminated 7.2 million workers from payrolls.
“There is an improving trend,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “We may turn the corner in January or February. We’re probably still a month away from positive territory.”
The ADP figures were forecast to show a decline of 75,000 jobs, according to the median estimate of 31 economists surveyed by Bloomberg survey.
ADP includes only private employment and doesn’t take into account hiring by government agencies. Macroeconomic Advisers LLC in St. Louis produces the report jointly with ADP.
Fewer Announcements
Another report today showed employers last month announced the fewest job cuts since the recession began in December 2007 as the economic recovery encouraged companies to retain staff. Planned firings fell 73 percent in December to 45,094 from 166,348 during the same month the prior year, Chicago-based placement firm Challenger, Gray & Christmas Inc. said.
The Labor Department’s report in two days is also forecast to show the unemployment rate climbed to 10.1 percent in December from 10 percent the prior month, according to the survey median.
The number of jobs lost since the recession began in December 2007 is the biggest in the post-World War II era.
Today’s ADP report showed a decrease of 96,000 workers in goods-producing industries including manufacturers and construction companies. Service providers added 12,000 workers.
Employment in construction fell by 52,000, the 35th straight monthly drop, while financial firms decreased jobs by 12,000, ADP said, the 25th consecutive decline for the industry.
Companies employing more than 499 workers shrank their workforce by 34,000 jobs. Medium-sized businesses, with 50 to 499 employees, eliminated 25,000 jobs and small companies decreased payrolls by 25,000, ADP said.
The ADP report is based on data from about 360,000 businesses with about 22 million workers on payrolls. ADP began keeping records in January 2001 and started publishing its numbers in 2006.
Emerging-Market Stocks Climb; China’s Index Jumps Most in World
Dec. 24 (Bloomberg) — Emerging-market stocks rose for a third day, with China’s benchmark index posting the biggest rally worldwide, as commodity and computer-chip prices climbed on speculation government stimulus is reviving economic growth.
The MSCI Emerging Markets Index advanced 0.9 percent to 972.59 at 8:45 a.m. in London, heading for the highest closing level in a week. China’s Shanghai Composite Index jumped 2.6 percent. The extra yield investors demand to own emerging-market debt over U.S. Treasuries dropped 4 basis points to 2.86 percentage points, the lowest level since August 2008, according to JPMorgan Chase & Co.’s EMBI+ Index.
Chinese shares advanced the most this month after the 21st Century Business Herald said the government may cut taxes for small and medium-sized businesses and technology companies. South Korea’s Hynix Semiconductor Inc. led gains in chipmakers after prices for dynamic-random-access-memory chips jumped 4.2 percent yesterday to the highest level since Nov. 25. OAO GMK Norilsk Nickel climbed in Moscow as nickel and copper prices rose more than 1 percent.
“All this stimulus funding has gone into the economy and pushed the equity market higher,” Manoj Ladwa, an equity strategist at ETX Capital in London, said in an interview on Bloomberg Television. “We’re going to see a continuation in the first quarter of 2010.”
Orders for U.S. durable goods probably rose in November as improving sales prompted companies to boost stockpiles and invest, economists said before a report today. Bookings for goods meant to last several years increased 0.5 percent after declining 0.6 percent in October, according to the median estimate of 72 economists surveyed by Bloomberg News. Another report may show fewer Americans applied for jobless benefits last week.
