Stock Market Holds Up Well Despite The Newsflow

By: PaddyPowerTrader

Yesterday was strange with bad news coming thick and fast, but yet again stocks proved remarkably resilient closing with only a mild red hue. Crude oil dropped below $64 barrel (after a jump in inventories) which should have pressured producers more. Investors frowned upon the terms Yahoo finally managed to extract from Microsoft.

The auction of the 5 year U.S. government Treasury bonds was sloppy >and poorly received (with a big tail). Durable goods orders disappointed with a big miss. And then there was the news from China regarding banks pulling away from new lending. After all this, the Dow finished down a mere 26 points. So what caused this gravity defying performance? The Fed’s Beige book made for happier reading with most of the 12 regional Fed member districts detecting a slower pace of decline in the last two months. Maybe it was Prof Moriarty again in the form of some Goldman programme buying if you believe the conspiracy theorists.

Today’s Market Moving Stories

• After Wednesday’s dramatic falls, Asian markets are struggling for a foothold. Japanese stocks have been buoyed by corporate earnings and better industrial output data while Chinese stocks are again selling off despite an official statement from the PBoC that says that monetary policy will remain accommodative. That said, with A-share prices almost doubling this year, some profit-taking is probably justified.
• We are now half way through the U.S. earning season and thus far, 74% of the companies have reported upside earnings “surprises”. Fire all those expert analysts who were so easily duped I say.
• Following the weak US consumer confidence report on Tuesday, the focus has now turned to China, where unreasonable lending is raising more questions about the sustainability of the domestic recovery. Fears on those two themes (US consumers and China) certainly have the potential to keep V-shape supporters awake at night. Of course, global manufacturing news continues to point towards a very mild recovery in Q3 (ex-transportation orders yesterday reported a 1.1% rise for June), but without strength in the two areas above, the recovery there will soon be questioned.
• Focus will remain on China, following yesterday’s news that two key state banks are seemingly limited in the amount of funds available for the rest of the year. The Chinese central bank has tried to clarify the situation, with soothing words suggesting the market misinterpreted their guidance and that they will maintain a loose monetary policy, while using market tools, if required, to adjust the situation. Nevertheless, one instinctively feels the stock market understood the real situation as the authorities have a long record of running a flag up the pole to see who salutes for acting officially.
• The latest Nationwide UK house price survey shows prices rose for the third successive month in July. The average price now stands at £158,871, a 1.3% increase for the month. The figure represents a 6.2% YoY decline, a strong improvement on June’s figure of a 9.3% YoY decline. So far in 2009 prices have increased by 1.3%, which suggests a positive year for house prices. The data also points to just 100,000 new homes built in the UK for 2009, a historic low.
• The Fed’s Beige Book was almost identical in content and tone to the FOMC’s post June meeting statement and the minutes that accompanied that gathering. To that extent then the document did not indicate that the Fed will be removing any policy assistance soon, and indeed if anything may actually yet add to its offerings. The Beige Book noted that upward price pressures were minimal and that wage pressures were either steady or falling in most districts. It said lending activity was stable to weak while bank credit standards remained tight. The Beige Book recognised that commercial real estate markets had weakened further and that residential real estate remained soft. ‘Sluggish retail sales’ and ‘very soft employment trends’ are spoiling the party.
• In the UK, consumer credit numbers and data from the BSA indicated that not only is lending limited but consumers are turning to savings to help themselves out. The Wall Street Journal picks up on these features with the headline ‘Europe’s banks still lending shy’. The UK’s Daily Telegraph meanwhile takes a slightly different tack, but it is still down the same lines – that quantitative easing isn’t working and that the BoE has left itself with a £125bn pile of Gilts it doesn’t want and without much (anything) to show for its efforts.
• According to data from Insidercow.com, U.S. insider selling of equities remains at record highs while insider buying of stock is at record lows. The ratio is actually 30:1. This despite a 50% rally in stock since the March 9th low and the endless daily stream of “better than expected” earnings.
• So much for Obama’s salary cap for bankers. Citigroup is considering paying a $100 million bonus to one guy.
• This is the next big boulder coming down the incline towards recovery according to the naysayers.
• If you get a chance, please take three minutes to fill out paddypowertrader’s content survey.

First Draft Of NAMA Legislation
The long awaited draft legislation for the creation of the National Asset Management Agency, NAMA, is expected to be released on the Department of Finance website this evening at 5pm. There are likely to be numerous amendments to the document before it is finally voted on in September. There are a few snippets from the proposed legislation in the papers this morning. As has become clear over the last number of days, there is unlikely to be any significant information on the valuation methodology in the legislation. However, it is likely to lay out the necessary powers for NAMA for it to acquire loans from the banks and to set the valuation criteria, along with a wider range of powers considered necessary to get the agency set up and then to maximise the value of loans purchased for the taxpayer. Reports also suggest that each bank will have one opportunity to appeal the value put on loans acquired from it by NAMA once all the loans have been transferred, with final say on any valuation challenge resting with the Minister for Finance.

Equities

• Nothing but the same old story this morning with news of company after company leaping over the lowly set bar of earnings estimates. Automakers Honda and Nissan starred overnight while this morning BT and Alcatel-Lucent are up after easily hurdling expectations. The only dark clouds are coming from the heavier industrial sector where Siemens had the temerity to miss estimates and BASF put out a profit warning.
• Ryanair continues to grow in Spain with the announcement yesterday 39 new routes to (and from) the Canary Islands for the winter period (starting October). The new routes are between the Canary Islands and the UK (mainly), Spain, Germany, Ireland, Belgium and Portugal and the airline indicates that this will bring two million new passengers to the region. Following on from its recent emphasis on the high airport charges and travel taxes in the UK and Ireland, Ryanair pointed to the “zero” tourist taxes and 100% discount on airport charges this winter. It indicates that the extension of the airport charges discounts will determine whether or not these routes are continued post March 2010.
• United Drug will issue an interim management statement for its third quarter tomorrow. And while they may have benefited from favourable currency tailwinds the current pharmacy climate in Ireland (with 700 outlets plan to withdraw services to medical card holders from Aug 1) and the severe pressure that healthcare budgets are under in both Ireland and the UK represent significant unknowns and challenges.

Earnings
Earnings toady from AstraZeneca, ExxonMobil, Colgate-Palmolive, Eastman Kodak, Kellogg, MasterCard, Motorola, Disney, MetLife.

And Finally… Ben, This Note Is For You

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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