Intraday Market Update
China's comments overnight sprinkled the markets with confidence this morning despite a worse than expected GDP revision and jobless claims report. All major markets throughout the world continued marching higher on the heels of those comments. All US equity markets gapped open about +2% higher and are chopping around near their highs of the day. The S&P 500 is finding resistance at 1,094, but appears on the verge of breaking out and possibly filling a gap down from last Wednesday to Thursday that is near the 1,110 level. Commodities are also surging higher on a weak dollar, with the exception of gold which is about breakeven.
Chinese officials denied a report in the Financial Times yesterday that it was reviewing its holdings of European debt, which seemed to spark the afternoon decline on Wednesday. However, in several official comments from China overnight they reiterated that there has been no change in the country's process of FX reserve diversification and that Europe remains a major investment market for China. In the reports I read I didn't hear any complicit denials from Chinese officials that they may in fact sell European debt, only that there was no change in their process of diversification. Taking China's word on their policies has not been very reliable as they have not been the most upfront country. I would not be surprised to see changes in China's policies at some point in the near future. But for now the markets like the comments so the path of least resistance seems to be higher.
Nonetheless, China's comments have helped investors ignore worse than expected economic reports this morning. Jobless claims are moving in the wrong direction for the second week in a row. Prior week claims were revised +3,000 higher. Initial claims were down -14,000 to 460,000 but estimates were calling for new claims to dip to 450,000. This report should support expectations for a moderate improvement in the monthly employment report, but the results do not support the kind of improvement needed to keep pace with economic growth.
Today's revision to Q1 GDP also disappointed as the new estimate was bumped down instead of up. GDP in Q1 was revised down to an annualized pace of 3.0% from the initial estimate of 3.2%. This fell short consensus estimates of 3.5%. The overall downward revision was the result of many small changes and was not a result of large revisions to any single component. The largest downward revision was to growth in non-residential fixed investment. Non residential and residential structures declined 15.3% and 10.7%, respectively.
In equities, shares of Citi are up +3.6% after the US Treasury confirmed after the close yesterday that it sold 20% of its stake in Citigroup. Meanwhile, the Administration reiterated that it is not interested requiring banks to spin off their proprietary trading desks, which is currently in the Financial Regulation Bill. This is giving a boost to leading US Banks. Their were some cautious comments on Goldman Sachs overnight. The New York Times reported that Goldman Sachs' ongoing troubles are making some of their wealthy clients more open to diversifying business dealings with the firm. And the Financial Times also offered cautious comments about the firms sale of $1.25 billion in 10-year notes yesterday. The 280 bps spread over US Treasuries was much higher than the 175 bps spread they were required to pay two months ago. Shares of GS are up about +3%.
Discount retailer names Costco and Big Lots reported earnings. Costco was more or less in line with expectations on very strong comps while Big Lots was also in line. COST up +4.5% while BIG is up +1% after being down -3% earlier in the session. Shares of Tiffany are up +5.5% after the firm beat expectations and raised its 2010 outlook.
Front-month crude is up $2.70 to $74.00 per barrel (+3.7%). Gold is breakeven, while silver is higher by +0.76%. Natural gas has gained +2.60% and copper is higher by +2.35%.
Every major equity market throughout the world was higher on Tuesday. Notable winners in the Asia-Pacific region include Hong Kong (+1.23%), Australia (+1.67%), China (+1.15%), and Japan (+1.23%).
European markets were sharply higher including London (+3.12%), Germany (+3.11%), France (+3.42%), and Spain (+3.23%).
Core Sector List:
Overall reading: 16 sectors advancing, 0 sectors declining.
Strongest Sectors: Semiconductors, Insurance, Software
Weakest Sectors: None
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