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U.S. Market Update
Dow -113 S&P-12.8 NASDAQ
- A second straight day of market declines is adding fuel to concerns of
whether the stock market can preserve last week's gains in the face of
continued Dollar weakness and surging commodity prices. This morning is
providing investors with unsettling earnings reports and lowered guidance from
consumer, industrial and healthcare segments, MCD gapped lower on the open
despite beating EPS and revenue guidance; softer March same-store sales and
April SSS guidance weighed on the name initially but the stock has recovered a
good portion of today's losses. LMT was trading off after guiding earnings
below expectations. JBLU was down 5% despite a smaller than expected earnings
loss and higher revenue. UAUA is off more than 30% after a big earnings miss
and rumors that the airline could near a breach of certain debt covenants.
Management did note on the earnings conference call that the Co. remained well above their current two
covenants. UNH missed earnings estimates slightly and cut its full-year
guidance by 10% pressuring the entire space. Shares of CIT plunged in morning
trading after the firm offered share equal to nearly 50% of its outstanding
stock, and said it sees further loss provisioning likely and that adverse results
may limit ability to pay dividends. In the first IPO seen since Visa's
impressive debut, Intrepid Mining placed 30M shares at $32/share only to open
on the NYSE above $42. The strong performance is mostly attributed to claims
the Co. is the largest US-based potash producer.
LVS and WYNN also traded sharply higher after reports came out this morning
that Macau would not issue new gaming licenses or
provide land for new casinos until at least 2009. Treasury markets are fairly
quiet as expectations of a less aggressive find linger. The May fed fund future
contract prices less than 90% odds of a 25 bp cut, while the summer month
contracts have nearly fully priced out a fed funds rate falling below 2%.
- Indices have made fresh session lows heading towards the halfway point of
today's session as June Crude has gone above $118 for the first time. Front
month gasoline is at session highs as well above $3. Metals are posting modest
gains led by copper up more than 2% at $3.96. Soybeans and Corn futures have rallied
3% on the session as well. Not surprisingly the strength in commodities has
again coincided with fresh Dollar lows. The EUR/USD garnered enough momentum
this morning to make fresh all-time highs above the 1.6000 level, but option
barrier chatter and concerns over verbal intervention kept the 1. 60 barrier
intact initially. The euro's momentum was aided by several factors including an
ECB ‚Äúsource,‚ÄĚ who noted that the central bank is considering tightening unless
inflation slows. Thus the next rate move could be a hike. These comments were
in line with post-G7 ECB peak, but dealers were seen using the comment as an
excuse to test 1.60 area, a level cited previously by German officials as a
pain threshold for the European economy. A top German finance official rejected
any potential change in the ECB's mandate of maintaining price stability.
Dollar sentiment was also weighed on by comments from Fed officials: the Fed's
Fisher noted that US growth has become anemic, while the
Fed's Stern noted that US economic growth will be subdued for
several quarters. On the bright side, Stern said that he continues to expect
inflation to moderate.
- The Bank of Canada lowered its overnight rates by 50bps to 3.00%, as
expected. However, the dovish tone from the Bank of Canada has contributed to
broad-based CAD selling throughout the US morning. The BoC also lowered its 2008
GDP forecast to 1.4% from 1.8% prior, and cut its 2009 GDP outlook to 2.4%.
Lastly, the BoC forecasted a more protracted US recession. The CAD managed to continue
to consolidating in its 1.00-1.03 range as higher commodity prices offsetting
negative sentiment from the BoC post rate cut decision.
- In European fixed-income futures, the June Bunds are lower by 31 ticks at
113.75, while June Gilts are off 27 ticks at 108.29. Europe is near session lows as higher oil
prices impact sentiment. Euro-Stoxx 50 -1% at 3,731; FTSE 100 Index -0.5% at
6,026; CAC 40 index -0.9% at 4,866 and DAX -1% at 6,718.
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