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A late pre-mayday slump yesterday saw the US market give back earlier healthy gains as traders worried over the government's heavy-handed and ham-fisted handling of the Chrysler saga and the shift back in focus to GM. Of course, recovery at all the auto companies depends on auto sales, and here the only green shoots for April were sprouting out of unsold vehicle parking lots, for total vehicle sales are projected down to 9.7m units from 9.9m in March.

Getting away from the noise and taking a step back for the month of April, all three US indexes have posted impressive, nay, stellar gains in historical terms. The Dow gained 7.4 percent, bringing its two-month total to about 15 percent, its best two-month streak since April 1999.

The broader S&P 500 jumped 7.4 percent and recorded its best two-month streak since 1975! And the Nasdaq advanced 12 percent, its best two months performance since 2002.

Note that financials were the star of the show logging a 22% gain with AMEX (NYSE:AXP) & BoA (NYSE:BAC) leading the way up.

Today’s Market Moving Stories

  • As commented in the WSJ earlier this week, the results of the US stress tests have been delayed to sometime later next week.
  • Elsewhere, the UK Treasury committee put the blame for the crisis mostly on the irresponsible behaviour of banks in a report released overnight suggesting that the banking system had seen comprehensive failure and ‘frenzied’ risk taking. So where were the regulators then while all this was going on? Asleep at the wheel or in bed with the banks ?
  • Japanese core March CPI fell 0.1% y/y while the April Tokyo reading held unchanged. The Unemployment rate rose more than expected to 4.8% from 4.4% last month while March real household spending fell 0.4% m/m. The Nikkei closed up 1.7% with exporters such as Canon gaining on a weaker Yen.
  • The outlook for Europe today is not particularly inspiring, with Europe on holiday, Eurex & Continental bourses closed. This will likely make thin trading conditions, which are unlikely to return to normal until next Tuesday, given holidays in Japan, Ireland and the UK on Monday.
  • The normal expected reaction in such circumstances would be for market participants to square up and ‘go neutral’, particularly given the headline risk over the period (swine flu). This should make the performance of risk assets all the more noteworthy over the next couple of sessions because, if apparent demand is sustained, it will underline how underweight risk investors are and potentially drive demand even further.
  • Ultimately, I think that the bulk of the gains will prove to be about the
    market moving away from pricing in a catastrophic outcome towards pricing in a merely bad one and then it will quite simply run out of steam.

What’s happening over at AIB and Glanbia?

AIB: chairman, CEO and FD are all on their way out. Chairman, Dermot Gleeson, is to stand down from the post in July this year stepping down to be replaced by Dan O’Connor, who has been on the board since 2007.
A new post of Deputy Chairman is going to be created and filled by David Pritchard who has also been on the board since 2007. Meanwhile, current CEO Eugene Sheehy is stepping down later in the year; there is no apparent successor yet so he will continue until one is appointed. Group FD, O’Donnell is stepping down in August, again no successor has been selected to fill his post yet.

The rationale for this bloodbath at the top in AIB, has not been spelt out but it is quite likely that the govt was keen to see new management taking over at all of the banks receiving capital from the taxpayer.

It may mean more short term pain as the new management will be keen to kitchen sink any obvious losses but further down the road these moves will help give the market confidence that the balance sheets at AIB are sound. The Three Monkeys seemingly driving the Irish economy at the moment are obviously tightening their grip on the Irish banks.

Another Irish company has emerged to be in dire straits. Glanbia (OTC:GLAPF) has issued a profit warning, on foot of difficulties, in its Irish dairy processing division. The reason is simple – market returns are lower than the price paid to primary farm producers. As a result, Glanbia expects 2009 adjusted EPS to be in the 30-32c range instead of previous guidance of 36-37c. There seems to be an urgent need for rationalization in the Irish dairy industry if we are not to see this situation repeated across the board.

Equities

  • The FTSE was opening soft this morning with news that Jeff Carr, Group Finance Director, of Easyjet (EJETF.PK) has informed the Board of his intention to leave the company. Although the date of his departure has yet to be confirmed, the company stated that a search for his replacement will begin immediately.
  • Trinity Mirror have been upgraded to a buy from a sell at Citibank but United Utilities may be pressured by a sell recommendation from UBS.
  • Watch the stars. Professor Shu-Ing Liu of the Shih Hsin University in Taipei has recently published A Bayesian Analysis of Lunar Effects on Stock Returns and finds a bearish effect on markets from a full moon. Check out the paper for details. So, what could be more useful for investing than a calendar of full moons?

Data Today

UK PMI, for April is out today as well as UK mortgage approvals for March. In the US, key figures released today include the US Michigan consumer sentiment for April, and US vehicle sales for April too. US Vehicle sales will more than likely see production buffeted by unfolding events in the auto sector, but for April we see a tiny tick up to 10m units.

Earnings highlights today include Chevron Corp. (NYSE:CVX) ($0.81), Mastercard (NYSE:MA) ($2.62), Allergan (NYSE:AGN) ($0.54) and Fortune Brands (FO) ($0.22).

Disclosure: None

Source: Preview from Europe: Stocks Encounter Car Trouble