Intraday Market Update
S&P 500 futures were once again volatile in the overnight session trading in a 17 point range between 1,052 and 1,069. The markets seemed to get a boost on data from China as a senior government official stated that China's May exports would be up +50% over last year's levels, compared to estimates of about +32%. This data strengthens the bulls argument that the sell off over the last several days has been overdone. The S&P 500 gapped higher by about +7 points and has tacked on a total of +13 points since yesterday's close to 1,075. There is formidable resistance in the 1,078 to 1,082 area which is the line in the sand for bears to defend. All of the indexes are up +1% or higher in early afternoon trading but are off morning highs.
The impressive China data released overnight has drawn immediate political responses from US Senators Schumer (D-NY) and Stabenow (D-MI). Schumer commented that the Treasury's failure to cite China as a currency manipulator was disappointing and that the Senate would vote to censure China for its currency policies in two weeks. Stabenow stated that there would be enough votes in Senate to bring a China currency bill to the floor for ultimate approval.
Mixed messages are pouring out of our leaders at the Federal Reserve, including the Chairman, on the timing of interest rates increases and the state of our economy. It seems everyday we hear something different. Ben Bernanke just stated yesterday in an interview with ABC news that he does not expect a double dip recession to hit the US economy. However when testifying before the House Budget Committee Bernanke warned that significant restraints remain on the pace of the US recovery and also noted that a "double dip can never be ruled out," adding that the economic recovery is modest and not as fast as desired, but we averted economic collapse. This should make for an interesting FOMC meeting the week of June 21st. Unfortunately we won't get the minutes until a couple of weeks later.
In economic news, the MBA Purchase Applications index continued its descent after the government stimulus ended in on April 30th. Purchase applications were down -5.7% last week which is a -35% decline from just four weeks ago. Refinance applications also eased back last week by -14.3%.The decrease in refinance activity warns that many homeowners who have yet to refinance may not be able to so if they have negative equity in their homes or have uncertain job situations or damaged credit. Mortgage rates were little changed with 30 year rates averaging 4.81%. Higher interest rates in the long term will also continue to lessen demand in the housing market as homeowners who have refinanced at 5% will be less willing to sell their house and buy a new one at an 8% or 9% rate, for example.
Wholesale inventories continue to build rising +0.4% in April. This was a solid increase on top of a +0.7% build in March, which was revised up from +0.4%, and a +0.6% build in February. But the build in inventories continues to lag sales which rose +0.7% in April to pull the wholesale stock to sales ratio down -0.1% to a record low 1.13.
In equities, Caterpillar (CAT) raised its dividend 5% to $0.44 from $0.42 and shares are up +2.6%. Texas Instruments narrowed its Q2 guidance and stated that orders look strong and are still rising. They also noted that the company has not seen any change in European demand. Shares of TXI are up +1.5%. Applied Materials CEO said the semiconductor market is recovering thanks to demand for tablet computers and warned there may not be enough capacity in the industry to meet this wave of demand. Shares of AMAT are up about +1%. Heavy truck manufacturer Navistar reported strong earnings and reaffirmed its 2010 guidance. Executives said that their engine business has started to recover and margins are improving on higher order levels. Shares of NAV are about breakeven. In a merger deal electronic medical records firm Eclipsys is merging with Allscripts in an all-stock deal worth around $1.1B. ECLP is up +4% while MDRX is off by about -8%.
Commodities are mixed with crude oil and copper surging while the precious metals and natural gas are moving lower.
The Asia-Pacific markets were mixed with China (+2.78%) and Hong Kong (+0.69%) gaining and Japan (-1.04%) declining. All major European markets were higher including Spain (+2.29%), Germany (+1.98%), France (+1.98%), and London (+1.15%).
Core Sector List:
Overall reading: 14 sectors advancing, 2 sectors declining.
Strongest Sectors: Oil Services, Retail, Semiconductors
Weakest Sectors: Gold Miners, Oil
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