Stock Market Indices Fall on Profit Taking

By: PaddyPowerTrader

Indices fell yesterday due to profit-taking and a further reminder of the weak economy with weak US retail sales figures. The bulls took a breather from their recent run, but they were due a rest. The Dow Jones fell 1.71%, which is nothing really when compared to the 21.98% surge over the previous five weeks. What happens today is crucial. An up day with the bulls returning could signal that there are plenty of legs left in this rally. However, another fall will see the positive momentum halted even more and may see a return to risk aversion as traders don’t want to be caught on the long side as they go through earnings season.

Today’s Market Moving Stories

• In the UK, the RICS monthly property survey reported that its seasonally adjusted house price balance rose to -73.1 in March from -78.1 in February. This was positive against an expected -77. Fast-rising new buyer interest translated into a modest increase in sales.
• Eric Rosengren, president of the Federal Reserve Bank of Boston, believes the current financial crisis highlights the need for a systemic risk regulator. His Dallas counterpart, Richard Fisher, had earler said that “the economic data in the US is quite grim and I expect a contraction at an equally dazzling rate in the first quarter.”
• In a broad speech explaining all of his Administration’s expensive actions on the economy, President Barack Obama said that he had to confront the economy “on all fronts” to repair and stave off what could have been a “vicious economic downturn.”
• The Obama administration has decided to reveal some sensitive details of the “stress tests” of the 19 biggest banks in the country. All of the banks are expected to pass the tests but some are expected to be graded more highly than others.
• British retailers blamed the poor weather over the Easter weekend for a 5% drop in overall footfall as the downturn in the housing market continued to hit furniture and electrical goods sales.

Could Gold Go To 2,000?
Well first thing to note is that the precious commodity is trading below 1,000 this morning, at 890, so 2,000 is a long way off. But a big move is possible because for the first time in over 20 years, big name successful investors are buying gold. Time to drop a few names. David Einhorn, the hedge fund manager who predicted the downfall of Lehman Brothers, recently bought gold for the first time. And then there is John Paulson, the guy who made billions of dollars by correctly anticipating the housing bust and credit crisis. Paulson just plunked down $1.3 billion for an 11% stake in AngloGold. He’s also got a big position in Kinross Gold.

Why the change? Peter Munk, the 82-year-old chairman and founder of Barrick Gold, “you no longer have to be a gold bug to think gold will rise in price. In fact, this buying by some of the world’s greatest investors may be the leading indicator for a quick 116% climb - to $2,000 per ounce or higher. Give gold the cold stare of a professional handicapper and the odds look very good, indeed.”

Equities

• Rio Tinto’s iron ore production in Q1 2009 fell 15% to 37.4M tonnes and aluminium production dropped 6% to 1M tonnes. As a result, their shares were down 4.2% in early European trading. Fellow miner Fresnillo have seen their shares open down over 2% despite the silver miner reporting that their silver production rose 9% to 9.2M ounces in the first three months of 2009.
• Swiss bank UBS said that it expects to report a net loss of almost $1.8bn in Q1 2009. They also stepped up cost cutting measures and will cut its workforce by 8,700 from the current level.
• European clothing chain H&M’s March comparable-store sales fell 3%, while overall sales rose 6%.
• Microsoft’s next version of its Office desktop programs will reach consumers next year, though not likely in conjunction with the Windows 7 operating system. Office 2010 will probably be ready to send to manufacturers in the first half of next year.
• Italian telecoms provider Tiscali are in a spot of bother after auditing firm Ernst & Young refused to sign off their 2008 accounts and added that they were uncertain that Tiscali’s business could continue and that the company must renegotiate its debt.
• Fiat’s CEO said he was ready to abandon plans to form a partnership with Chrysler if the US car maker’s unions refused to accept substantial cost cuts.
• Following the collapse of talks that would have sold Skype back to its founders, eBay is planning to spin it off in an IPO in 2010. eBay bought Skype for a total of $3.1bn in 2005 but the acquisition never properly worked with eBay writing off about half of the investment in 2007. They have finally acknowledged that the web telephone service does not fit with the rest of the company. Nevertheless, initial estimates say that they could get more than $2.5bn if the IPO goes smoothly.
• AstraZeneca CEO David Brennan said the drug maker isn’t interested in a mega-merger deal but is sizing up potential purchases of smaller drug makers.
• HSBC plans to put up for sale office buildings in New York and Paris as well as its London HQ, a move that could raise billions for the troubled bank.

Data And Earnings Today
At 13.30 US CPI (0.1% expected) for March and April’s Empire State Manufacturing Survey (-36 expected) are released. 45 minutes later at 14.15, US Capacity Utilisation (69.6% expected) and US Industrial Production (-0.9% expected) are both due. These four releases should lead to a good bit of Dow Jones action in the lead up to US open at 14.30. The US Dollar should also be volatile.

The Fed’s Beige Book is out later at 19.00. This reports on the current US economic situation through interviews with key business contacts, economists and other “experts”. Expect gloomy reading.

On the earnings front, we have Abbott (expected EPS $0.70, previous EPS $0.63), Infosys Technologies (expected EPS $0.54, previous EPS $0.54) and Peabody Energy (expected EPS $0.97, previous EPS $0.26).

And Finally… “Prisoner’s Dilemma” Illustrated

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

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