schaeffersresearch.com
-----------------------------------------------------------------
Friday's Opening View
Although it's still too soon to start calling a second-half economic
recovery into question, a couple of recent earnings reports may be doing
just that. IBM (IBM: sentiment, chart, options) satisfied earnings
expectations, but offered up little hope of an economic rebound after
describing a "challenging economic environment." Nokia (NOK: sentiment,
chart, options) pretty well scraped its third quarter and is still paying
for it today. Those two reports weighed well on yesterday's market. All is
not lost, however, thanks to Microsoft (MSFT: sentiment, chart, options) .
The company missed the headline earnings number, coming in at 23 cents
from operations versus a Street consensus for 24 cents. But MSFT's net
rose 26 percent on an 11-percent increase in sales. Revenue improved to
$8.07 billion from $7.25 billion. The company also raised its 2004
forecast to a range between $34.2-34.9 billion on current consensus for
$33.9 billion. (There's nothing here about a "difficult environment" going
forward.)
Economic data released yesterday was not all that bad (it was even
positive), which may have helped boost the U.S. dollar (more on that
below). A mixed read (between the numbers and the rationale) in the weekly
initial jobless claims took some sheen off of that data. Initial jobless
claims decreased by 29,000 to 412,000 for the week ending July 12, marking
the lowest level since the week of June 21. The four-week average
(designed to smooth out the weekly variances) declined by 3,500 to 424,
000. Continuing claims declined by 117,000 to a two-and-one-half month low
of 3,654,000.
Now here comes the caveat, a Labor Department spokesman said the numbers
should be viewed with caution because claims data tend to be volatile in
July (I guess more than normal). This is more a reflection of seasonal
adjustment difficulties than anything else. (That's a key phrase which
impacts all of these weekly reports, as the government attempts to
"normalize" the data.) Initial claims historically have risen sharply in
July, partly because automobile plants shut down for retooling. Without
seasonal adjustments, claims rose by 66,182 last week. Now here is an
estimate that we never hear of, but should, a Labor Department
statistician said they expected a 22-percent increase in claims, partly
related to the automobile industry. The actual increase was 14 percent
(still better than even the bureau's own estimates.)
Like the Energizer Bunny, housing starts keep going and going, rising by a
larger-than-expected 3.7 percent to a seasonally-adjusted 1.803 million
annualized rate. This figure comes upon the heels of a revised increase of
6.8 percent in May to a 1.738 million rate (May starts were initially
reported as rising by 6.1 percent to a 1.732 million annualized rate).
"Pipeline" activity looks good as the June report showed that building
permits rose for a third consecutive month, increasing by 0.8 percent to a
1.817 million annualized rate.
Finally, the Federal Reserve Bank of Philadelphia said its general
business conditions index moved to 8.3 in July. This figure compares
favorably with the 4.0 in June, the minus 4.8 in May and expectations for
a 7.0 reading. Recall that positive readings indicate expansion, while
negative ones point to contracting activity in the index or its respective
components. Looking at some of the key components, New Orders jumped to
10.4 from minus 0.5 reported in June. The Employment component got into
the green at 0.8 versus June's minus 12.9. The Prices Paid Index, however,
slumped to its lowest level in 19 months at minus 6.5 versus June's 5.8.
Whether this can be viewed as dis-inflationary or if a trend develops
remains to be seen.
Equity option activity on the CBOE yesterday had 559,684 put contracts
trade compared to 684,346 call contracts. The resulting 0.818 single
session put/call ratio has moved the 21-day moving average up to 0.649.
The CBOE Market Volatility Index (VIX – 22.82) added 2.38 percent and the
Nasdaq-100 Trust Volatility Index (QQV – 27.78) dropped by 4.83 percent,
setting a new yearly intraday low of 22.36. The CBOE Nasdaq Market
Volatility Index (VXN – 35.47) jumped by 4.35 percent.
p> Yesterday's internals continue to be lackluster. Volume on the NYSE
came in at a "strong" 1.65 billion shares. The advance/decline ratio came
in at a pathetic 0.31 (757 advancing issues to 2,477 declining issues).
The 45 new annual highs outpaced the 23 new annual lows. Volume on the
Nasdaq came in at a "strong" 1.25 billion shares. The advance/decline
ratio slumped to 0.26 (648 advancing issues to 2,491 declining ones). New
annual highs came in at 115 while new annual lows made it to nine.
I've had numerous inquiries as to what constitutes strong or substantial
volume. In the future, I'll use the 10-day and 20-day moving averages as
the area of demarcation. Above both trendlines = "strong," within these
trendlines = "average," and beneath both trendlines = "anemic." (This
little snippet will remain in this space ad infinitum as a reminder).
As for today, look for a brief respite from the flood of earnings reports
(next week picks right back up) and just one agenda item on the economic
calendar. At 9:45 a.m. the Preliminary (mid-month) July University of
Michigan Consumer Sentiment is due out. Those in the know expect the
reading to tick up to 90.5 from the 89.7 seen at the end of June. The
readings have been snaking higher from March's 77.6. April hit 86.0, while
May came in at 92.1.
In futures trading, the December contracts on the SPX (981.73, minus 1.24
percent), DJIA (9050.82, minus 0.48 percent) and the NDX (1255.94, minus
2.79 percent) are currently trading at to above their respective fair
value numbers indicating a flat to higher open. The ND/U3 contract looks a
little sluggish in early trade (flat open). At this point in time session
lows and highs: SP/U3 (977.70/984.50), DJ/U3 (9016.00/9064.00), and ND/U3
(1251.50/1263.00).
As for overseas markets, some technical difficulties are preventing me
from giving you all the information today. I won't go into any details,
since my physician tells me that stress is not good. What I do know is
that the Nikkei added 28.9 points overnight which was not good enough to
prevent a 1.12 percent decline on the week. A period of consolidation
appears to be setting up above the 9,500 level. This could be thought of
as a constructive technical formation to digest the explosive gains
experienced since the April low of 7603.80. The June producer price index
in Germany came in lower by 0.1 percent on the month and 1.3 percent
higher on a year-over-year basis. Most of the drive higher was attributed
to higher energy cost. Pulling energy out of the equation, Europe's larges
economy is showing just a 0.4 percent rise on a year-over-year basis.
The U.S. Dollar Index (DX/Y – 96.82) added 14 cents yesterday. With just
one session left in the week, the index stands a good chance to close out
this week above its 20-week moving average. Now this trendline has
permitted moves above it but not a close since the week ending October 25,
2002. The U.S. dollar advanced versus all of our benchmark currencies
except the peso and franc. The index is higher by 19 cents in early trade
this morning.
The August future contract on gold (GC/Q3 – 344.30) settled higher by
$1.10 per ounce on the regular trading session yesterday, booking a third
consecutive daily gain. The contract is lower by 80 cents in early trade
this morning to $343.50. London spot was quoted at 343.20/344.20.
The September future contract on the 30-year bond (US/U3 – 112'14) seems
to be making an attempt to stabilize from its recent stretch of declines.
Closes over the past three sessions have been within 1/32 of each other
with yesterday flat on the day. The yields on the 2-year and 10-year notes
stood at 1.435 percent and 3.927 percent respectively, dropping as the
notes rose. The 2-30-year yield spread stood at 346 basis points. It seems
that Richmond Federal Reserve Bank President Alfred Broaddus made a
valiant but failed attempt at stimulating (lowering the yields) the fixed
incomes. In his comments yesterday, he expressed "disappointment" that the
U.S. economy has not exhibited more vigor since the end of the Iraq war
and said a more accommodative monetary policy will be needed if inflation
falls further. Looking at early trade in London those comments fell on
deaf ears.
2-year note was at 99-12/32 down 1/32 to yield 1.45 percent
5-year note was at 99-6/32 down 6/32 to yield 2.81 percent
10-year note was at 97-9/32 down 11/32 to yield 3.96 percent
30-year bond was at 106-29/32 down 14/32 to yield 4.92 percent
The yield curve, as measured by the 2-30-year yield spread, stood at 347
basis points.
The August contract on sweet crude oil (CL/Q3 – 30.72) added 31 cents
yesterday on the heels of a crude inventory decline, reported on
Wednesday. Trade was said to be volatile with the contract hitting an
intraday high of 31.60. Crude had to recover from a "products" led decline
on Wednesday (due to a rise in gasoline and distillate inventories, they
pulled down the crude contract which actually suffered a draw down).
Adding to the volatility, options on this August contract expired
yesterday. Early trade this morning has the contract lower by 14 cents.
Today's Economic Calendar :
9:45 a.m.: Preliminary July University of Michigan Consumer Sentiment
(seen at 90.5, last 89.7).
Earnings expected today with current estimates :
AK Steel (AKS) 2Q -0.43
Arch Coal (ACI) 2Q -0.06
Arkansas Best (ABFS) 2Q 0.43
Cascade Natural Gas (CGC) 3Q -0.08
Equitable Resources (EQT) 2Q 0.52
FPL Group (FPL) 2Q 1.36
KeyCorp (KEY) 2Q 0.52
LaBranche & Co. (LAB) 2Q 0.18
Lincoln Electric (LECO) 2Q 0.37
Mattel Inc. (MAT) 2Q 0.07
SCS Transportation (SCST) 2Q 0.25
Second Bancorp (SECD) 2Q 0.52
Syntel Inc. (SYNT) 2Q 0.2
Timberland (TBL) 2Q 0.16
UST Inc. (UST) 2Q 0.77
United Bankshares (UBSI) 2Q 0.54
Ventana Med Sys (VMSI) 2Q 0.13
Visteon (VC) 2Q -0.02
Wilmington Trust (WL) 2Q 0.47
- Al Schwartz (aschwartz@sir-inc.com) |
