“Say not always what you know, but always know what you say.”
Wall Street Java
May 20, 2010
News Affecting the Market
According to a Mortgage Bankers Association report, the delinquency rate for mortgage loans on residential properties increased to a seasonally adjusted rate of 10.06% of all loans outstanding in the first quarter of 2010. The delinquency rate includes those behind at least one payment, but does not include those in foreclosure. That combined number has actually dropped slightly, suggesting that banks and mortgage-holders are working a little longer at a solution.
The sellers may have finally worn themselves out, at least for now. The Dow bottomed out at mid-day yesterday and worked its way slowly higher; paring some of its losses, but finishing down 66 points. This morning, futures have been moving slowly to the upside.
Yesterday, word of Germany’s unilateral move to ban naked short selling sent ripples through the stock markets. By the end of the day, however, both equities and the Euro began to recover. It appears, at the very least, that the European debt crisis will depress the Euro to the target we set months ago of 1.15 on the Dollar. Some analysts are calling for a target as low as $1.10. Purchasing power parity, which is a measure of the relative cost of goods, indicates the Euro remains almost 10% overvalued against the Dollar. The interesting fact is, however, that this will actually help European exports in the long run. A steady decline on the Euro, therefore, could add support to the European economy as EU member nations face strong budget cuts in the year ahead.
Stocks are rising on the European exchanges this morning. With modest gains on the major indexes as a whole, bank shares have led the way with an upside of 2% or more. Resource stocks have been oversold lately and also look like they are beginning to recover.
Disappointing economic data in Japan contributed to a decline in stocks in Asia last night. Japan’s economy great at an annual rate of 4.9% in the first quarter, but analysts had forecasted an increase of 5.5%. Exports were strong, but consumer spending remains weak in the world’s second largest economy. China’s stock indexes erased early gains to finish slightly lower on the day. Investors in China have been concerned about domestic issues, such as government measures to cool off a booming property market, but the situation in Europe has also stoked concerns over lower demand for Chinese goods.
Commodities have just begun to turn a corner and are now on the upswing. Oil leveled off in the early hours and has now turned positive by a few cents at $70. Copper has jumped by more than 1.5% this morning, suggesting some optimism toward global growth. Gold process have fallen considerably since their recent highs; giving back another $5 this morning to $1185. It appears that gold process may stabilize near the present level, but otherwise the floor could be closer to $1150 in the near term. The Dollar’s trend remains in place with gains on the Euro and Pound and further losses against the Yen.
Modest optimism in the futures pit is based on expectations that today’s Initial Jobless Claims number will show some improvement. Last week’s numbers came in lower, but the prior week was revised upward. Leading Economic Indicators are also released today. On the earnings calendar, we will hear from Aeropostale, Dell, Gap, Intuit, MF Global, Perry Ellis, Staples, and several others.
Washington and Public Finance Update
A cloture vote to end debate and move ahead with financial reform failed in the Senate yesterday. A slew of amendments to the bill have kept the debate alive and made passing the broader reform bill a complicated matter.
One proposal, that would have allowed all 50 states to impose individual interest rate caps on out-of-state lenders, was defeated. Currently, card issuers can set a blanket rate based on the state in which they are based. Some states, like Delaware, have no interest rate cap, which has drawn many issuers to charter in Delaware.
In response to the 1000 point “flash crash” on the Dow two weeks ago, the Securities and Exchange Commission plans to test new “Circuit Breaker” rules beginning in June. Trading would pause in certain stocks if the price moved 10% or more in a five minute period. The SEC plans a six month trial period of the new rule.
Ahead of strategic talks between China and the U.S. next week, Chinese officials have said that major reserve-currency nations should keep their exchange rates stable during the European sovereign debt crisis. US officials have pressured China to allow its currency to appreciate faster. Chinese officials have also expressed concern for growing US budget deficits as the largest holder of US debt in the world. It is highly likely that this will be a topic of discussion as well. Despite publicly expressing concern for its massive holdings of US debt, China has remained a buyer. According to a report released Monday by the U.S. Treasury, China net-bought U.S. bonds worth $17.7 Billion in March, bringing its total holdings to $895.2 Billion. The assembled information disseminated in the Wall Street Java is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. All assembled information within Wall Street Java is subject to change without notice. The assembled information within Wall Street Java is based on information believed to be reliable as of the date of the report but no representation, expressed or implied, is made as to its accuracy, completeness or correctness. Forward Looking Statements:
Information in Wall Street Java will contain "forward looking statements" as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. All readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance or portfolio performance is no guarantee of future price appreciation or performance.
The assembled information disseminated in the Wall Street Java is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. All assembled information within Wall Street Java is subject to change without notice. The assembled information within Wall Street Java is based on information believed to be reliable as of the date of the report but no representation, expressed or implied, is made as to its accuracy, completeness or correctness.
Forward Looking Statements:
Disclosure: No Positions