Another Damp Squib Day For Stocks

By: PaddyPowerTrader

Yesterday was one of those hard to write about, rudderless days with pathetic volume. The only notable trend was the continued move into Healthcare, as Senator Kennedy’s health care reform bill looks dead in the water, and Utilities, as a more cautious tone prevailed. Economic news was decidedly mixed, with the Philly Fed Index and Leading Indicators providing upside surprises but the Weekly Jobless and Continuing Claims Jobs numbers continued to be worrisomely high. After the bell, BlackBerry maker Research in Motion report some underwhelming numbers which may pressure the Nasdaq and Dax at the open.

Today’s Market Moving Stories

• Today sees “quadruple witching” day i.e. the simultaneous expiry of options and futures contracts in equity markets. As signs of the rally running out seem to have created more uncertainty in equity markets, it cannot be ruled out that today’s trading will be volatile, with markets deciding what direction to move.
• The WSJ highlights that the biggest of the US financial firms will be set aside in a special category and subjected to additional requirements. They will need to provide greater detail on all its activities and subsidiaries. Most are easy to identify - they are already being looked at very carefully by the government, but a number of other firms such as GE Capital and other insurers could be included.
• More interestingly and significant is the warning from the Swiss National Bank’s (SNB) Hildebrand, following the release of the SNB Financial Stability Review, that the Bank is considering introducing “direct and indirect measures to limit the size” of large international banks. They would do so, or try to (we have yet to see if the proposal gains political support), if international regulators fail to set up a framework that deals with the failure of banks running cross-border operations. That follows the warning from BoE’s King early this week on the dangers of the too-big-to-fail status and President Obama’s proposal of a new US financial supervision and regulation.
• BoE governor King provided an interview with the UK’s Southern Daily Echo, in which he said the rate of decline in the UK economy appeared to be slowing. However, he warned that didn’t mean the country was suddenly heading for a big recovery as confidence hasn’t regained that quickly. In fact, he said the recovery process will likely take longer than the descent.
• This is an interesting guest article in the Economist by Christina Romer, chief of President Obama’s Council of Economic Advisers. She takes a look at 1937, when the post-depression recovery was rudely interrupted, and when unemployment rose back to 19%. She says this is a cautionary tale – the result of the US taking back monetary and fiscal accommodation too rapidly. The remarks are important in the sense that they tell us about the thinking the White House and probably at the Fed as well. The US will probably make new mistakes and possibly bigger mistakes as it did in 1937, but it will not be the same mistake.
• Commercial retail rents on the UK high street are bound to fall some 20% by the end of 2010 according to property consultant Collier CRE.
• The past Paul Krugman leaves off the old CV. Ludwig von Mises Institute is claiming that Krugman did cause the housing bubble.
• They haven’t installed one of these in the Dundrum centre, yet. Gold sold like chocolate from German vending machines.

New Intern Starting?

Try a little prank to see how they cope.

China Watch
Industrial metals have led the increase in commodity prices since March as expectations of economic growth have been revised upwards. Recently, many commentators have suggested that the increase in inventories that has accompanied the rise in prices suggests that the rally is about to run out of steam. I remain firmly in this camp. Expectations of global economic recovery, upon which the renewed accumulation of commodity stockpiles is based, are likely to be disappointed.

One important driver of the recent increase in commodity prices has been stockpiling in China. Aluminium imports for April and May were up over 400% yoy in volume terms, while copper imports have also risen by around 100% yoy. In both cases, inventory levels in the country have risen sharply in recent months. But this inventory build-up will not go on forever. Higher prices in themselves will make strategic stockpiling by the government less attractive. Meanwhile, the rebuilding of reserves by Chinese firms could soon come to an end, particularly if growth in Chinese final demand disappoints in the months ahead. Sales of key investment inputs, such as construction equipment, are still very weak and domestic steel prices are lower than at the start of the year.

Equities

• Dana Petroleum, a peer of Tullow Oil, closed up over 6% yesterday on speculation it may be the subject of takeover interest. At one stage it rose as much as 18%. There are reported rumours of a proposed bid at 1800p and there has been lots of recent speculation of corporate activity in the sector. Last week, Heritage Oil, Tullow’s partner in Uganda, announced a merger with Turkish company Genel Energy.
• UK builder Taylor Wimpey’s AGM statement today indicates that there has been ongoing stability in the UK and US housing markets, giving the group “cause for cautious optimism”. At group level, Taylor Wimpey suggests that “the severe downside scenarios for which we have been planning now appear less likely to materialise”. According to Taylor Wimpey, there has been continued stability in the UK housing market since the start of May. The stock is up 8% so far today.
• Other shares in the news today include BSkyB who is the subject of an upgrade from UBS to a “buy”. Porsche may be under pressure after reporting that nine month sales were down 15% while BHP Billiton, Lomin and Xstrata are managing to eek out some gains.

Washington And Wall Street Remain Joined At The Hip
Some things never change.

And Finally… The Bailout That Goes Where None Has Before

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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