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U.S. Market Update
Dow +100 S&P +12.5 NASDAQ +16.3
- Investors around the world are continuing to exhibit a better appetite for
risk this morning. As was the case last week, equity markets are pushing
modestly higher while the flight- to-quality bid is eroding from government
bond markets. The Bund future is near session lows down 65 ticks while the US curve has seen continued flattening led
by weakness in the two-year note that has pushed its cash yield up to 1.96%.
European bourses are higher by more than 0.5% across the board on hopes that
last week's UBS announcement could be a watershed event that supports equities.
Confirming this sentiment, Merrill Lynch has raised European banks to neutral
on reduced uncertainty.
- US financials seem to be echoing the better
sentiment after reports that Washington Mutual +18% will be getting a $5B
investment from TPG to shore up its balance sheet. The XLF is trading up more
than 1.3% at session highs. Interestingly pre-market upgrades in KLAC +5% and
NVLS +3% have pushed the Philly Sox index up another 1%, testing its 90-day
moving average for the first time since last October. May crude is making new
session highs up 2.8% above $109. A pre-market upgrade in Schlumberger +1.7%
has the OSX trading near its best levels of 2008. There has been some profit
taking in several of the solar names with JASO STP LDK and SPWR all trading in
the red after strong openings. June gold is up $20 above $933 and front month
silver has added 3%.
- YHOO has rejected MSFT's latest overture, saying that the offer is not in the
best interests of shareholders. Microsoft again threatened to tender an offer
with shareholders. However, in a new development, Yahoo company signaled that
it â€śwas not opposedâ€ť to some sort of transaction with Redmond. â€śOur position is simply that any
transaction must be at a value that fully reflects the value of [the company],â€ť
the board wrote in their response.
- MOT and long-time antagonist Carl Icahn seemed to have reached a compromise
this morning. Motorola has agreed to appoint to its board Keith Meister, a
managing director of Icahn investment funds. In return, Icahn has promised not
to seek proxies at MOT's annual meeting and to dismiss his pending litigation
against the company.
- Carry-related pairs were off their best levels seen during the European
morning as a degree of optimism returned to the global financial sector.
Initial exuberance was sparked by MER's positive comments on the European
banking sector. The JPY and CHF were softer as global appetite for risk was on
the mend. USD/JPY up 80 pips at 102.40, EUR/JPY briefly tested above the 161
handle and EUR/CHF firmer by 90 pips at 1.59. The USD's firm tone against the
European pairs eroded as the US morning wore on. EUR/USD at 1.5690,
GBP/USD at 1.9870 and USD/CHF at 1.0140 area.
- The underlying theme of the upcoming G7 summit in Washington seems to be centering on volatility,
given that numerous central banks officials have noted over the last two weeks
that excessive currency volatility is an undesirable feature for global growth.
French Finance Minister Lagarde stated that he was seeking a comprehensive plan
to tackle market stability and currencies at the G7; EU President Bayuk
reiterated that view. The G7 will note that excessive moves in Forex are
undesirable and that market forces should dictate currency values, although it
appears that there may even be some refinement to this portion of the
- The USD's slow decent from its Asian session highs were attributed to
comments from the German Finance Ministry experts who have allegedly warned
against any FX intervention to support USD. In addition, German gov't advisor
Ruerup noted that any Forex intervention was not the right measure. The Bank of
America amended its European rate forecasts for ECB and SNB central banks as it
sees a delay in any potential rate cut at their respective policy meetings to
September from a prior view of a June rate cut.
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