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You Are Here: Home > Articles > Commentary > U.S. Morning Call for Monday, August 11, 2008

U.S. Morning Call for Monday, August 11, 2008
Aug 11, 2008

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Larry Swing

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  • The European DJ Stoxx 50 this morning up +0.90%. European exporters are seeing support after last week's sharp decline in the euro versus the dollar. BMW, for example, is up +3.4% this morning and Michelin is up +2.4%. UBS is up +3.6% this morning after UBS reaffirmed its earnings guidance even after its announcement that it will buy back up to $18.6 billion in auction-rate securities and take a $900 million charge. Asia-Pacific stocks today closed higher except for China and Hong Kong: Japan +1.99%, Hong Kong -0.12%, China -5.20%, Taiwan +1.62%, Australia +0.80%, Singapore +0.64%, South Korea +0.83%, Bombay +2.22%. Chinese stocks fell sharply today on inflation concerns with the stronger-than-expected producer price report (+10% y/y) and on Goldman Sachs' forecast for slower short-term Chinese GDP growth due to the Olympic Games and pollution and transportation restrictions.

  • Focus factors - Market attention this week will focus on (1) the stock market as the S&P 500 index last Friday posted a new 1-1/2 month high on the recent plunge in oil prices and the resilience seen thus far in the US economy and in non-financial corporate earnings, (2) T-note prices which rallied last week as the decline in oil and commodities prices has caused inflation fears to fade and has reduced the pressure on the Fed to raise interest rates, (3) the dollar which has rallied very sharply in the past 2 months and soared last Friday as ECB President Trichet admitted Euro-Zone economic weakness and as the likelihood substantially abated for another ECB rate hike by year-end, (4) crude oil prices which fell by $9.90 per barrel last week to post a 3-1/2 month low, bringing the overall sell-off from the record high of $147.20 to $32.00 per barrel (22%).

  • US economic schedule - Tuesday brings the June US trade deficit report (expected wider at -$61.5 bln vs -$59.8 bln in May) and the June Treasury statement ($82.7 bln deficit expected). Wednesday brings the June import price report (expected +1.0% m/m and +20.9% y/y), July retail sales (expected +0.1% overall and +0.5% ex-autos), and June business inventories (expected +0.5%). Thursday brings weekly initial unemployment claims (expected 10,000), and the July CPI (expected +0.4% m/m overall and +0.2% m/m core). Friday brings the August NY Empire manufacturing index (expected +0.5 to 4.4), July industrial production (expected unchanged), and the preliminary-Aug US consumer confidence index from the University of Michigan (expected +0.8 to 62.0).

  • Fed policy - Market expectations last week for Fed tightening over the next year abated by a few basis points as oil prices continued to decline (thus helping the inflation picture) and as the banking problems continued to emerge. The market is currently discounting the chances for a 25 bp rate hike at the next FOMC meeting on September 16 at only 18%. The market is fully discounting a 25 bp rate hike by February 2009, a 50 bp rate hike by June 2009, a 300 bp rate hike by August 2009, and a 100 bp rate hike by November 2009.

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    ...thanks for the trust you've shown in me and my business.

    by     Larry Swing
    larry@mrswing.com
    May the swing be with you...

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