U.S. Session Wrap: Meredith Whitney Does It Again

When analyst Meredith Whitney of Oppenheimer & Co. talks, the market not only listens, it responds. Ms. Whitney, who made her bones last fall after calling for sharp declines in Citigroup (C) on mortgage write-downs (along with her call that the bank would need to slash its formally sacrosanct dividend) cut her 2008 and 2009 earnings estimate on street-leader Goldman Sachs (GS).

That was not all of the bad financial news however; JPMorgan (JPM) said it may write down an additional $1.5 billion in mortgage-related security losses while Wachovia said its fiscal Q2 loss was worse than the bank reported last month because of costs related to the settlement of a probe of auction-rate securities. Equity markets took the news rather hard, finishing the day with a fairly hefty loss even after another down day for oil. 

At the close of floor trading on the NYSE, the DOW was on 11,645.0 after falling 137.35 (1.17%), The S&P closed on 1289.91, down 15.41 (1.18%) while the NASDAQ finished trading on 2430.61 with a decrease of 9.34 (0.38%). Treasuries were sharply higher as traders moved away from equities. The two-year note yield fell 11.1 basis points to 2.431%. The benchmark 10-year note lost 8.7 basis points to yield 3.907%. The dollar was mixed during N.Y. trading, losing to the euro (0.09%) and yen (0.67%) while trading higher against the pound (0.72%).

Crude oil for September delivery fell $1.38 (1.2%) to $113.07 a barrel as traders continued to speculate that the dollar will gain on the euro after European Central Bank Executive Board member Lorenzo Bini Smaghi said in an interview that growth in the European economy is slowing down faster than forecast.

Gold futures for December delivery fell $13.70 (1.7%) to $814.60 after Minneapolis Federal Reserve President Gary Stern (voter) said the outlook on core and headline inflation has improved. It was the eighth straight session of declines for the precious metal, the longest slide since 2001.

In other news, according to a Philadelphia Federal Reserve survey released on Tuesday, U.S. economic growth in coming months is expected to slow by a greater degree than previously forecast as employers continue to reduce staff into 2009. The bank's economists lowered their forecasts for Q3 GDP to an anemic 1.2% annual rate after a previous projection indicated growth would be 1.7%. "A weaker near term outlook for the labor market accompanies the outlook for slower output growth," the bank said on its website.

U.S. non-farm payrolls are forecast to shrink by an average 46,500 a month in the third quarter, above the previous forecast loss of 4,800 a month. In the fourth quarter, payrolls are expected to shrink a monthly average of 45,400, versus the previous forecast for a monthly gain of 26,500.

Currency Pair Overview

Dollar consolidates on financials as oil declines

Overall: The fundamental that seems to matter most to market participants is the inverse correlation between the dollar and the price of oil, but equities markets play into the picture as well. An example of this was seen after the trade deficit which will not only add to Q2 GDP, but figures to improve with oil's decline. Crude consolidated off the overnight low on $112.50 per barrel, and the dollar's rally stalled when the Dow and S&P went into negative territory on bad news regarding the financials. Wednesday brings reports on US retail sales along with weekly oil and gas inventories.  Volatility is expected to remain high this week on thin summer trading, but the market is still likely expecting the dollar/oil connection to remain strong for the time being.

The euro (Euro/Usd) consolidated its recent declines against the dollar and traded virtually flat on the day, but remained solidly under 1.50. In the only economic news, France's HICP index was an unrevised 4.0% in the year to July. France's current account deficit widened to EUR 4.4B in June up from EUR 2.8B in May. Industrial production numbers for July will be reported at 05:00 EDT on August 13.

The cable (Gbp/Usd) continued its recent decline against the dollar albeit at a slightly slower pace after further bad news for the U.K. economy was released. RICS reported that surveyors reporting falling house prices improved to -83.9% points in July compared with -86.9% points in June, but that the number of completed property sales slumped 40 to just 14.4, the weakest since the RICS survey began in 1978. The ratio of completed sales to inventory fell to 17.0, the lowest since October 1995, from 18.2 in June. The BRC reported that same-store retail sales fell 0.9% in the year to July compared to a 0.4% decline in June. The BRC said it looks like the worst summer since 2005 with only food and drink showing real sales growth. On the inflation front the ONS reported that consumer prices in July were unchanged from June but rose 4.4% for the year, the highest annual rate since the series began in 1997. Employment figures will be released at 04:30 EDT on August 13.

The aussie (Aud/Usd) declined strongly in the overnight session, and then rose off its lows during Tuesday's N.Y. session. The NAB reported their business conditions index fell 5 points to -5 in July, the lowest reading since October 2001. Early on Monday, the RBA released its quarterly policy statement and indicated it may cut borrowing costs soon after saying "on the assumption that the subdued demand conditions are likely to continue, scope to move to a less restrictive monetary policy stance in the period ahead is increasing." The bank also expects "significant reduction in inflation over time." The aussie has declined 10% against the dollar since hitting a 25-year high on 98.49 cents on July 16. The RBA believes "demand pressures in the economy now appear to be easing" and said it expects a "significant period" of slower economic growth.

The cad (Usd/Cad) rose after declining for 15 straight trading sessions. Statistics Canada said that Canada's trade surplus expanded as energy exports to the United States increased, although prices increased 4.5% and volumes declined 1.4%. Overall, export prices have been on the rise for the past eight months, while volumes have been trending downward. Imports rose 2% but movements in volume have not shown a clear trend. The decline in export volumes point to continued weakening demand, and are a further indication that the BoC may reduce borrowing costs at its September 3rd meeting as GDP figures to come in at around 0.5% during the second quarter.

The swissy (Usd/Chf) rose even as U.S. equity markets declined and treasuries advanced, although it looks to finish about 45 pips below the daily high. USD/CHF maintained a break above daily trend line resistance drawn from June 15, August 16 and September 3 2007.

The yen (Usd/Jpy) traded within a very narrow 60 pip range, retracing about 10% of yesterday's move as U.S. equity markets traded lower. In Japan, prices for domestic goods rose 7.1% in the year to July following a revised 5.7% gain in June. The increase was the fastest pace of growth since January 1981 and far above the 5.8% forecast. The Cabinet Office's consumer confidence index fell to 31.4, a new record low for the series. Industrial production was revised down to -2.2% in June from a preliminary -2.0%, a number that points to the possibility of seeing a negative GDP in Q2; preliminary Q2 GDP will be announced on August 12 at 19:30 EDT.

Disclosure: No position.

Comments

[MarkMedayski:]

How somebody comment on everything,FX,Oil,Gold if one doesn't have any position in derivatives he writes about.
I am a trader and watch markets every day and have a feeling for it as my account goes up and down in regard to the market movements.
All the commodities bulls become bears suddenly,it proves again nobody have an idea what is happening.
From traders perspective,for short term I can see that Crude Oil have strong support at 113$ as rising price have good volume while declines are made by pikers.I am positioning for rebound in Crude Oil and Nat Gas (I don't trade metals and don't have an opinion on that) as big balls guys are accumulating now and the ood thing is that this kind of biggest Oil/Gas traders don't buy it to make a buck,they must see the market to the future as liquidating big position in energies is not economic,with big selling volume prices will crash.They can sell only when prices go up 5-10% or more as then pikers already get bullish news and buy so big funds are nicely selling some of their positions.
Look what happened when the main traders started to sell Crude Oil from 145$ it took prices more than 30$ down,I think more than is accepted by their valuations.So I think their selling will come at 135$ at least as accumulation happened to build at around 125-115$ level.
Even if Oil may decline more in the future,first the Mafia will make their money from your shorts.
Don't listen to any analyst/expert who writes about things he don't knows about and don't trades.If would not advise a driver how to drive if would not have a driving license.
Good trading day everybody,follow your killer insticts.

2008 Aug 13 06:13 AM

[Matt from Q...:]

I think you are missing the point here--the LFB seems to be supplying a lot of economic info and they also made an important point.

Everyone is consumed with the dollar's connection to oil, but they;ve pointed out that the dollar was able to decline even after oil fell because the financial sector weighed on the overall indexes.

Much of there info seems to be taken right from the source, and they break it down in a way that paints a total picture of the market. I think it's a very handy resource.

2008 Aug 13 11:04 AM