Monday presents several economic reports. The schedule for today is:-
• 8:30 Empire State Mfg Survey
• 9:00 International Capital Flow
• 1:00 PM NAHB Housing Market Index
Also, once again, there will several companies reporting their quarterly earnings:-
• Lowe's Companies Inc. (LOW),
• Agilent Technologies Inc. (A), and
• SINA Corp. (SINA).
It is sometimes difficult to tell fact from fiction when there are so many dramatic stories relating to the market plunges, ups-and-downs, rally’s, etc., and in many cases media related to help there circulation and/or popularity. speculation that U.S. earnings have peaked, breakup of the euro zone, “fat finger” manipulation, and the list goes on. No wonder investor’s become nervous wreaks and tend to react in a negative way.
Take the last couple of weeks where investors have had to deal with stories relating to the Greek debt, the fear of “the contagion effect” on Spain, Portugal, France pulling out of the euro, BP oil-spill, speculation that U.S. earnings have peaked, breakup of the euro zone, ”fat finger” manipulation, and the list goes on. No wonder investor’s become nervous wreaks and tend to react in a negative way.
However, if we looked at the situation with a clear and open mind it becomes obvious why the market has experienced the wall of resistance. We have had a very clear run since March, 2009, but the market became stymied by its’ 200-week moving average and when the index tried to rally it was again locked-up. This resulted from a clear case of the stocks becoming overbought in April, due to a great bull rally, and then traders were given the excuses they required, which enabled them to take profits. However, control was lost, and selling became manic which caused the correction that was expected eventually.
With the big crunch two years ago, when the market was falling apart, sales and earnings at large companies were disintegrating. Now there is an 18.6% annualized increase in sales over the last three quarters, which is proof , along with a great deal of other positive data, that the economy is definitely improving.
This recovery is led by technology companies in some ways. Real technology equipment capital expenditures in the first quarter were up 13.8% year-over-year. ISI Group reports their survey of tech company executives' optimism for near-term sales is near the highest in ten years. That's supported by the national manufacturing Purchasing Managers' Index, which is at its highest level in 16 years.
Much the same is happening in overseas markets as well. China companies' sales are still surging despite some tightening of controls. Elsewhere, Korean GDP in the first quarter was 7.8% year-over-year, while Hong Kong imports are up 38.5% annualized and German machinery orders are up 21% this year -- a fact that will be helped by the recent plunge in the euro.
Therefore, the global economy is probably healthy enough to resist much of the situation that has developed in Europe with the debt crisis and the European shake-up of what the euro zone really means!
I think that the bears will be squeezed out and the bulls will come back stronger than ever to profit from all the so-called catastrophe’s that we have experienced.
There are a few further points to the mornings trading which need to be considered:-
• The Dow Jones Industrial Average (DJIA) enters this week hovering potential support in the 10,600 area, which is home to its 20-week moving average, while resistance lies overhead in the 10,800 region, site of the Dow's 10-week trend line.
• Futures on the Dow Jones Industrial Average (DJIA) and Standard & Poor's 500 (SPX) are trading extremely well with 26 points and 4 points above fair value, respectively, which is quite different to last Monday.
• S&P 500 Index (SPX) is holding firm above the 1,120 level and its 160-day trend line.
• It seems that the foreign indexes are trading mixed this morning. In Asia, stocks have fallen, as concerns over the long-term health of the euro zone and weak U.S. earnings forecasts have put a shadow over investor’s optimism. Particularly stocks in Shanghai plunged on concerns that Beijing may implement additional tightening measures to curb rising property prices. Meanwhile, European shares have risen due to help from BP curbing some of the oil leak but there are concerns over the euro zone sovereign debt crisis as well as the plunge of the euro to a four-year low.
• The dollar has remained strong against the euro as well as the Japanese yen, which has helped send the U.S. Dollar Index is up 0.61% at 86.62 in pre-market trading.
• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,669,238 call contracts traded on Friday compared to 1,174,989 put contracts. Looking at these figures we now have a change of ratio, compared to Thursday, where the gap is closing which shows signs of nervousness with investors.
• In Asia, Japan -2.2% to 10236. Hong Kong -2.1% to 19715. China -5.1% to 2560. India -0.9% to 16836.
• In Europe, at midday, London +1.1%. Paris +0.6%. Frankfurt +1.1%.
• Futures: Dow +0.1%. S&P +0.2%. Nasdaq +0.2%. Crude +0.3% to $71.85. Gold +0.2% to $1230.50.
Also several companies have announced their quarterly reports which seem to be supporting or surprising analysts’ predictions. These are:-
• Lowe’s Companies, Inc. (LOW)
Lowe’s Companies, Inc. (NYSE:LOW) the world’s second largest home improvement retailer, today reported net earnings of $489 million for the quarter ended April 30, 2010, a 2.7 percent increase from the same period a year ago. Diluted earnings per share increased 6.3 percent to $0.34 from $0.32 in the first quarter of 2009. Analysts were looking for earnings of 31 cents per share.
Sales for the quarter increased 4.7 percent to $12.4 billion, up from $11.8 billion in the first quarter of 2009. Comparable store sales for the first quarter increased 2.4 percent. “Consumers are showing signs of reengagement in home improvement, including discretionary projects and purchases of bigger ticket products, which had taken a back seat during the worst of the economic downturn,” commented Robert A. Niblock, Lowe's chairman and CEO. “This, combined with the government stimulus programs and favorable weather in March and April, drove solid quarterly sales and earnings that exceeded our guidance.
Some Interesting news-
• Europe's debt problems underscore the need for the U.S. to keep interest rates low for an extended period, Chicago Federal Reserve Bank President Charles Evans said on Friday. Evans said the European situation "will affect global demand which will influence our net export position. I'm hopeful that our exposure will be minimal to modest." It was the most explicit public remark by a Fed official to date about the impact of the crisis on the U.S. economic recovery.
• Google (GOOG) has admitted to mistakenly collecting peoples' Wi-Fi data while collating information for products such as Google Maps. Late Friday, Alan Eustace, Google's senior vice president of engineering & research, confirmed that the company's Street View cars collected samples of data sent over unsecured wireless networks.
• Japan's Astellas Pharma agreed to buy OSI Pharmaceuticals (OSIP) for $4B in cash, after a months-long battle in which its original bid was rejected and a hostile tender offer was subsequently launched. To seal the deal, Astellas had to sweeten its offer by more than 10% to $57.50 per share, a 55% premium to OSI's closing price before Astellas made its original offer, but below OSI's recent $59.80 close.
• Thousands of labor union members are expected to march Monday in Washington in an event labeled "Showdown on K Street." They plan to march along K Street, where many lobbyists have their offices, to Bank of America Corp.'s (BAC) office next to the Treasury Department, then to the Capitol. The event is meant "to draw a direct line connecting unaccountable corporations, their lobbyists and the members of Congress who do their bidding."
• Hospital operator Universal Health Services (UHS) agreed to buy Psychiatric Solutions (PSYS) for around $2B in cash and the assumption of about $1.1B of debt. The $33.75 per share offer is a 3.4% premium to Psychiatric Solutions' Friday closing price.
• Man Group (MNGPF.PK), the world's largest publicly traded hedge fund group, agreed to buy GLG Partners (GLG), one of its biggest rivals, for $1.6B. The deal, which marks a 55% premium to GLG's Friday close, will create a hedge fund giant with $63B under management.
• The euro fell to the lowest level against the dollar in more than four years as concerns over European debt and the region's economic health continue to plague the currency. The euro's decline will likely continue through the week, as both long-term and short-term players move to offload the euro.
• Prudential (PUK) has moved forward with its $21B rights issue, releasing details of its planned sale of 13.96B new shares. The launch, which was delayed after U.K.'s regulators expressed concerns over Prudential's capital reserves, will allow the insurer to proceed with its $35.5B purchase of AIG's (AIG) Asian unit, turning Pru into a major player in the Asian market and giving AIG the ability to repay a major chunk of its government aid.
• Pactiv is subject of LBO talks. Private equity firm Apollo Global Management is said to be in talks to buy packaging maker Pactiv (PTV).
• American Express (AXP) is working with U.K. private-equity firm Permira on a joint bid for Royal Bank of Scotland's (RBS) payment processing unit.
• BP (BP) had some partial success over the weekend in stemming the flow of oil from the Gulf of Mexico leak. The company inserted a tube into the leaking pipe and is now funneling a "not measurable" quantity of oil to a tanker on the surface.
• Sovereign wealth funds invested significantly less in 2009 than they did the year before, with publicly disclosed investments falling 37% to $69B. Almost half of that sum came from Qatar Investment Authority, which invested more than $32B.
• Four more banks were closed on Friday, bringing this year's total failures to 72 so far. The closures in Georgia, Michigan, Missouri and Illinois will cost the FDIC's insurance fund an estimated $301.7M.
• The Commodity Futures Trading Commission will hold a public hearing Wednesday to examine the growing controversy surrounding a plan by two firms to offer futures contracts tied to movie box office receipts.
• Securities and Exchange Commission Chairman Mary Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler will make their second appearance in as many weeks before Congress to discuss their findings on the May 6 stock market plunge.
• A U.S. House committee has scheduled a hearing Wednesday on the massive oil spill in the Gulf of Mexico resulting from an explosion on an offshore drilling rig last month.
• A U.S. House committee will examine issues related to the Toyota safety recalls Thursday. It will examine how Toyota and federal auto-safety regulators responded to reported incidents of Toyota vehicles that accelerated beyond the driver's control.
• A landmark trial against four major German, Swiss and U.S. banks accused of fraudulently selling derivatives on a EUR1.68 billion bond is expected to resume Thursday in Milan, Italy.
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