Monday, June 13, 2005
Monday Watch
Weekend Headlines
Bloomberg:
- Deutsche Telekom's T-Mobile USA said it has more than 450,000 users of its wireless fidelity Internet service, a sign of rising demand for more flexible ways to access the Web.
- China said it will limit annual export growth of 10 textile products to the European Union to between 8% and 12.5% through 2007.
- Fidelity Investments raised its stake in Google by 46% in April and May as shares of the Internet search engine soared.
- Saudi Arabia, OPEC's largest oil producer, supports a proposal to boost the exporter group's production ceiling to meet global demand and lower crude prices.
- The Group of Eight industrial nations said "vigorous action" is needed to insulate a weakening world economy from high oil prices and imbalances in growth and trade.
- Wal-Mart Stores said June sales at its US stores open at least a year are rising within its forecast range as general merchandise led the week's gains.
- Washington State's wine boom is boosting small producers and the state's economy.
- The Fed will probably continue to increase interest rates "at a measured pace" to keep rising inflation risks in check, the Fed's Santomero said.
- US Treasury Snow said a shrinking budget deficit proves the US is "doing its part" to spur the world economy and asked Europe and Asia step up efforts to boost growth and narrow international imbalances.
- Currency traders, investors and strategists are more bearish on the euro than they've been in more than two years, according to a Bloomberg News survey.
- A US Treasury bond rally that sent benchmark 10-year note yields to the lowest in more than a year may get an added boost as the dollar's 11% surge against the euro this year attracts foreign investors.
- Crude oil futures fell in NY after Tropical Storm Arlene passed through the Gulf of Mexico without damaging rigs, refineries or pipelines.
- Nokia Oyj may beat its second-quarter profit forecast as increased demand for phones with music players and cameras allows the company to spend less on marketing, an analyst survey showed.
- Japan unexpectedly cut its first quarter economic growth estimate after sluggish overseas demand prompted manufacturers to keep inventories in check.
- Global ocean freight charges have plunged by nearly 25% in the past six weeks because of a slowdown in shipping of iron ore, grain, coal and other commoditities.
New York Times:
- Floridians are spending millions of dollars on safety products to protect their homes from the damaging affects of hurricanes after storms did more than $20 billion in property damage last year.
- Apple Computer's decision to use Intel chips in its computers will boost Apple's share of the home entertainment market by giving its customers access to Window's based software and games.
- Airlines, including Delta Air Lines and Continental Airlines, could offset higher costs and break even if they raised revenue an average of five or six percent.
Washington Post:
- US Chamber of Commerce President Thomas Donohue said business groups are prepared to cut off campaign donations to House lawmakers who oppose the Central American Free Trade Agreement.
- The 1.8 million-member Service Employees International Union took a step toward breaking from the AFL-CIO, the country's biggest labor federation, and four other unions may do the same.
Financial Times:
- The UK's Financial Services Authority may allow hedge funds to sell their products directly to consumers for the first time.
Guardian:
- Finance ministers from the world's richest countries agreed to wipe out as much as $55 billion in debt owed by the world's poorest nations.
London-based Sunday Times:
- PartyGaming Plc, a gambling Web site, may lose online business with US customers paying by bank and credit cards under proposed legislation.
Der Spiegel:
- European Central Bank Chief Economist Otmar Issing said members of the single European currency can't legally be prevented from pulling out.
- European Central Bank Chief Economist Otmar Issing said "weaker" economic growth is curbing risks to the bank's inflation outlook.
- More Germans would vote to reject the European Union constitution than endorse it.
The Tehran Times:
- China National Petroleum won a contract to carry out petroleum exploration and development in Iran.
Gulf News:
- Saudis plan to withdraw investments from France and sell their shares in local banks after French authorities froze assets of 23 non-resident Saudis for failing to abide by French tax laws.
Nihon Keizai:
- Japanese Finance Minister Sadakazu Tanigaki and US Treasury Secretary Snow agreed on the need for China to reform its currency peg soon.
Xinhua News Agency:
- China's banks should draw lessons from Japanese lenders by stepping up supervision of credit risks, said Liu Mingkang, chairman of China's banking regulator.
Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on VLO, ANF, SMH, ISIL, PNRA, WTW, CRI, UNA, GTN, DJ, TIVO, VZ, HAR, mixed on BBBY, TRB and negative on DPZ, NYT, ELX.
Forbes on Fox:
- Had guests that were positive on IWM and mixed on YHOO, IBM, NILE, MSFT, ENDP.
Cashin' In:
- Had guests that were positive on GE, EOC and mixed on AAPL, BHP, MSFT, AG.
Cavuto on Business:
- Had guests that were positive on AIG, SYMC, ANF, HOTT and mixed on IBM.
Barron's:
- Had positive comments on NKE, TRB, FON, DUK and KRI.
Goldman Sachs:
- Reiterated Outperform on ARO.
- Reiterated Underperform on LSI.
Night Trading
Asian indices are -.25% to +.25% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.13%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/Estimate
QSII/.32
Splits
UTX 2-for-1
Economic Releases
None of note
Bloomberg:
- Deutsche Telekom's T-Mobile USA said it has more than 450,000 users of its wireless fidelity Internet service, a sign of rising demand for more flexible ways to access the Web.
- China said it will limit annual export growth of 10 textile products to the European Union to between 8% and 12.5% through 2007.
- Fidelity Investments raised its stake in Google by 46% in April and May as shares of the Internet search engine soared.
- Saudi Arabia, OPEC's largest oil producer, supports a proposal to boost the exporter group's production ceiling to meet global demand and lower crude prices.
- The Group of Eight industrial nations said "vigorous action" is needed to insulate a weakening world economy from high oil prices and imbalances in growth and trade.
- Wal-Mart Stores said June sales at its US stores open at least a year are rising within its forecast range as general merchandise led the week's gains.
- Washington State's wine boom is boosting small producers and the state's economy.
- The Fed will probably continue to increase interest rates "at a measured pace" to keep rising inflation risks in check, the Fed's Santomero said.
- US Treasury Snow said a shrinking budget deficit proves the US is "doing its part" to spur the world economy and asked Europe and Asia step up efforts to boost growth and narrow international imbalances.
- Currency traders, investors and strategists are more bearish on the euro than they've been in more than two years, according to a Bloomberg News survey.
- A US Treasury bond rally that sent benchmark 10-year note yields to the lowest in more than a year may get an added boost as the dollar's 11% surge against the euro this year attracts foreign investors.
- Crude oil futures fell in NY after Tropical Storm Arlene passed through the Gulf of Mexico without damaging rigs, refineries or pipelines.
- Nokia Oyj may beat its second-quarter profit forecast as increased demand for phones with music players and cameras allows the company to spend less on marketing, an analyst survey showed.
- Japan unexpectedly cut its first quarter economic growth estimate after sluggish overseas demand prompted manufacturers to keep inventories in check.
- Global ocean freight charges have plunged by nearly 25% in the past six weeks because of a slowdown in shipping of iron ore, grain, coal and other commoditities.
New York Times:
- Floridians are spending millions of dollars on safety products to protect their homes from the damaging affects of hurricanes after storms did more than $20 billion in property damage last year.
- Apple Computer's decision to use Intel chips in its computers will boost Apple's share of the home entertainment market by giving its customers access to Window's based software and games.
- Airlines, including Delta Air Lines and Continental Airlines, could offset higher costs and break even if they raised revenue an average of five or six percent.
Washington Post:
- US Chamber of Commerce President Thomas Donohue said business groups are prepared to cut off campaign donations to House lawmakers who oppose the Central American Free Trade Agreement.
- The 1.8 million-member Service Employees International Union took a step toward breaking from the AFL-CIO, the country's biggest labor federation, and four other unions may do the same.
Financial Times:
- The UK's Financial Services Authority may allow hedge funds to sell their products directly to consumers for the first time.
Guardian:
- Finance ministers from the world's richest countries agreed to wipe out as much as $55 billion in debt owed by the world's poorest nations.
London-based Sunday Times:
- PartyGaming Plc, a gambling Web site, may lose online business with US customers paying by bank and credit cards under proposed legislation.
Der Spiegel:
- European Central Bank Chief Economist Otmar Issing said members of the single European currency can't legally be prevented from pulling out.
- European Central Bank Chief Economist Otmar Issing said "weaker" economic growth is curbing risks to the bank's inflation outlook.
- More Germans would vote to reject the European Union constitution than endorse it.
The Tehran Times:
- China National Petroleum won a contract to carry out petroleum exploration and development in Iran.
Gulf News:
- Saudis plan to withdraw investments from France and sell their shares in local banks after French authorities froze assets of 23 non-resident Saudis for failing to abide by French tax laws.
Nihon Keizai:
- Japanese Finance Minister Sadakazu Tanigaki and US Treasury Secretary Snow agreed on the need for China to reform its currency peg soon.
Xinhua News Agency:
- China's banks should draw lessons from Japanese lenders by stepping up supervision of credit risks, said Liu Mingkang, chairman of China's banking regulator.
Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on VLO, ANF, SMH, ISIL, PNRA, WTW, CRI, UNA, GTN, DJ, TIVO, VZ, HAR, mixed on BBBY, TRB and negative on DPZ, NYT, ELX.
Forbes on Fox:
- Had guests that were positive on IWM and mixed on YHOO, IBM, NILE, MSFT, ENDP.
Cashin' In:
- Had guests that were positive on GE, EOC and mixed on AAPL, BHP, MSFT, AG.
Cavuto on Business:
- Had guests that were positive on AIG, SYMC, ANF, HOTT and mixed on IBM.
Barron's:
- Had positive comments on NKE, TRB, FON, DUK and KRI.
Goldman Sachs:
- Reiterated Outperform on ARO.
- Reiterated Underperform on LSI.
Night Trading
Asian indices are -.25% to +.25% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.13%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/Estimate
QSII/.32
Splits
UTX 2-for-1
Economic Releases
None of note
BOTTOM LINE: Asian Indices are mostly higher on strength in exporters in the region after the US dollar rallied further. I expect US stocks to open modestly higher on a decline in energy prices and comments by the Fed's Santomero that inflation is "well contained and US growth will remain modest." The Portfolio is 75% net long heading into the week.
Sunday, June 12, 2005
Weekly Outlook
There are a number of important economic reports and a few significant corporate earnings reports scheduled for release this week.
Economic reports for the week include:
Mon. - None of note
Tues. - Produce Price Index, Advance Retail Sales
Wed. - Consumer Price Index, Business Inventories, Empire Manufacturing, Net Foreign Security Purchases, Industrial Production, Capacity Utilization, NAHB Housing Market Index, Fed's Beige Book
Thur. - Housing Starts, Initial Jobless Claims, Philadelphia Fed.
Fri. - Current Account Balance, Univ. of Mich. Consumer Confidence
Some of the more noteworthy companies that release quarterly earnings this week are:
Mon. - None of note
Tues. - BearingPoint(BE), Best Buy(BBY), Krispy Kreme(KKD), Lehman Brothers(LEH), Pier 1 Imports(PIR)
Wed. - Bear Stearns(BSC)
Thur. - Adobe Systems(ADBE), Carnival Corp.(CCL), Goldman Sachs(GS), KB Home(KBH)
Fri. - Circuit City(CC)
Other events that have market-moving potential this week include:
Mon. - Thomas Weisel Growth Conference, Morgan Stanley Small-cap Conference, Goldman Sachs Healthcare Conference, CSFB Retail, Apparel and Restaurants Conference
Tue. - Goldman Sachs Healthcare Conference, Morgan Stanley Small-cap Conference, Thomas Weisel Growth Conference, Deutsche Bank Electric Power Conference, Fed's Bies Speaks, Fed's Lacker speaks, Fed's Poole speaks
Wed. - Goldman Sachs Healthcare Conference, Deutsche Bank Electric Power Conference, Fed's Minehan speaks, Morgan Stanley Small-cap Conference, Merrill Lynch Paper & Packaging Conference, Thomas Weisel Growth Conference
Thur. - Deutsche Bank Electric Power Conference, Goldman Sachs Health Care Conference, Piper Jaffray Global Internet Summit, Merrill Lynch Paper & Packaging Conference, Semi Book-to-Bill, Fed's Hoenig speaks, Fed's Minehan speaks
Fri. - None of note
Economic reports for the week include:
Mon. - None of note
Tues. - Produce Price Index, Advance Retail Sales
Wed. - Consumer Price Index, Business Inventories, Empire Manufacturing, Net Foreign Security Purchases, Industrial Production, Capacity Utilization, NAHB Housing Market Index, Fed's Beige Book
Thur. - Housing Starts, Initial Jobless Claims, Philadelphia Fed.
Fri. - Current Account Balance, Univ. of Mich. Consumer Confidence
Some of the more noteworthy companies that release quarterly earnings this week are:
Mon. - None of note
Tues. - BearingPoint(BE), Best Buy(BBY), Krispy Kreme(KKD), Lehman Brothers(LEH), Pier 1 Imports(PIR)
Wed. - Bear Stearns(BSC)
Thur. - Adobe Systems(ADBE), Carnival Corp.(CCL), Goldman Sachs(GS), KB Home(KBH)
Fri. - Circuit City(CC)
Other events that have market-moving potential this week include:
Mon. - Thomas Weisel Growth Conference, Morgan Stanley Small-cap Conference, Goldman Sachs Healthcare Conference, CSFB Retail, Apparel and Restaurants Conference
Tue. - Goldman Sachs Healthcare Conference, Morgan Stanley Small-cap Conference, Thomas Weisel Growth Conference, Deutsche Bank Electric Power Conference, Fed's Bies Speaks, Fed's Lacker speaks, Fed's Poole speaks
Wed. - Goldman Sachs Healthcare Conference, Deutsche Bank Electric Power Conference, Fed's Minehan speaks, Morgan Stanley Small-cap Conference, Merrill Lynch Paper & Packaging Conference, Thomas Weisel Growth Conference
Thur. - Deutsche Bank Electric Power Conference, Goldman Sachs Health Care Conference, Piper Jaffray Global Internet Summit, Merrill Lynch Paper & Packaging Conference, Semi Book-to-Bill, Fed's Hoenig speaks, Fed's Minehan speaks
Fri. - None of note
BOTTOM LINE: I expect US stocks to finish the week mixed as lower inflation readings and declining commodity prices offset less optimism for a Fed "pause." The PPI/CPI and Fed comments will be the main focus of traders this week. A further rise in the US dollar may lead to a continuation of recent small-cap outperformance. I expect tech stocks to underperform again this week on further consolidation after recent gains. My trading indicators are still giving bullish signals and the Portfolio is 75% net long heading into the week.
Economic Week in Review
ECRI Weekly Leading Index 132.90 +.68%
Consumer Credit for April fell to $1.3B versus estimates of $7.4B and an upwardly revised $6.9B in March. Borrowing by US consumers grew in April at the slowest pace in five months. Credit-card borrowing fell for a second straight month, Bloomberg reported. "This slowdown in consumer credit outstanding fits the soft-patch economy story hand-in-glove," said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi. The average annual credit-card interest rate rose from 13.2% in 2004 to 14.1% in the first quarter, according to the Fed. The total US credit card delinquency rate is now 3.71%, down 26.0% since 2001 and at its lowest level since early 1995.
Wholesale Inventories for April rose .8% versus estimates of a .4% increase and an upwardly revised .6% increase in March. Stockpiles at US wholesalers rose more than forecast in April, led by machinery and other business equipment. However, sales increased by the most in a year and twice as much as inventories. The inventory-to-sales ratio declined to 1.18 months from 1.19 months in March, the lowest since January, which suggests factories may not need to continue trimming production. Sales of machinery jumped 6.5% in April and were up 17% from the year-earlier month, Bloomberg reported. "Wholesalers in general are experiencing fairly lean inventory levels," said Michael Englund, chief economist at Action Economics.
Initial Jobless Claims for last week fell to 330K versus estimates 333K and 351K the prior week. Continuing Claims fell to 2588K versus estimates of 2591K and 2592K prior. Jobless filings jumped in the prior week because of temporary layoffs in the automobile industry, the government said. The four-week average of jobless claims dropped to 331,750 from 334,500, Bloomberg reported. The claims figures are consistent with much stronger hiring than the unexpectedly small 78,000 gain in May payrolls reported by the Labor Department last week, economists said. The four-week moving average of continuing claims declined to 2.587 million from 2.589 million. Finally, the uninsured unemployment rate, which corresponds with the US unemployment rate, held at 2.0%.
The Trade Deficit for April widened to -$57.0B versus estimates of -$58.0B and a narrower-than-expected -$53.6B in March. The US trade deficit widened as Americans paid more for oil and bought more goods from China. However, US exports hit an all-time record. The number showing March’s deficit was narrower than first reported suggests first-quarter economic growth will be revised higher. "The US trade deficit may finally be stabilizing," said Peter Kretzmer, a senior economist at Banc of America.
The Import Price Index for May fell 1.3% versus estimates of a .4% decline and an upwardly revised 1.2% increase in April. Prices of goods imported into the US declined in May for the first time this year, reflecting a drop in the costs of petroleum, building materials and automobiles. Excluding petroleum, the import price index declined .3%, the largest drop since August 2003. The price of imported building materials fell 3.9% in May after falling 2.0% a month earlier. Steel imports rose 30% during the first quarter versus a year earlier. This is one of the main reasons for the roughly 30% decline in prices for the metal since August of last year. "With these prices under control it reduces the pricing power of domestic manufacturers," said Anthony Chan, senior economist at JP Morgan Asset Managemnent.
The Budget Deficit for May narrowed to -$35.3B versus estimates of -$45.0B and -$62.5B in April. The U.S. budget deficit narrowed to $35.3 billion in May from a year earlier, a larger improvement than expected, as tax revenue soared. This was the smallest May budget shortfall since 2001. The Treasury said that overall tax receipts rose 32% to $152.7 billion during May compared with a year earlier. Moreover, tax receipts from individuals were up 88% from May 2004, the biggest jump since the height of the stock market bubble in 2000. "This reflects the continued growth in the economy and growing profitability," said Patrick Fearon, an economist at AG Edwards. US employers have added almost 2 million jobs in the last 12 months, helping increase tax revenue.
Consumer Credit for April fell to $1.3B versus estimates of $7.4B and an upwardly revised $6.9B in March. Borrowing by US consumers grew in April at the slowest pace in five months. Credit-card borrowing fell for a second straight month, Bloomberg reported. "This slowdown in consumer credit outstanding fits the soft-patch economy story hand-in-glove," said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi. The average annual credit-card interest rate rose from 13.2% in 2004 to 14.1% in the first quarter, according to the Fed. The total US credit card delinquency rate is now 3.71%, down 26.0% since 2001 and at its lowest level since early 1995.
Wholesale Inventories for April rose .8% versus estimates of a .4% increase and an upwardly revised .6% increase in March. Stockpiles at US wholesalers rose more than forecast in April, led by machinery and other business equipment. However, sales increased by the most in a year and twice as much as inventories. The inventory-to-sales ratio declined to 1.18 months from 1.19 months in March, the lowest since January, which suggests factories may not need to continue trimming production. Sales of machinery jumped 6.5% in April and were up 17% from the year-earlier month, Bloomberg reported. "Wholesalers in general are experiencing fairly lean inventory levels," said Michael Englund, chief economist at Action Economics.
Initial Jobless Claims for last week fell to 330K versus estimates 333K and 351K the prior week. Continuing Claims fell to 2588K versus estimates of 2591K and 2592K prior. Jobless filings jumped in the prior week because of temporary layoffs in the automobile industry, the government said. The four-week average of jobless claims dropped to 331,750 from 334,500, Bloomberg reported. The claims figures are consistent with much stronger hiring than the unexpectedly small 78,000 gain in May payrolls reported by the Labor Department last week, economists said. The four-week moving average of continuing claims declined to 2.587 million from 2.589 million. Finally, the uninsured unemployment rate, which corresponds with the US unemployment rate, held at 2.0%.
The Trade Deficit for April widened to -$57.0B versus estimates of -$58.0B and a narrower-than-expected -$53.6B in March. The US trade deficit widened as Americans paid more for oil and bought more goods from China. However, US exports hit an all-time record. The number showing March’s deficit was narrower than first reported suggests first-quarter economic growth will be revised higher. "The US trade deficit may finally be stabilizing," said Peter Kretzmer, a senior economist at Banc of America.
The Import Price Index for May fell 1.3% versus estimates of a .4% decline and an upwardly revised 1.2% increase in April. Prices of goods imported into the US declined in May for the first time this year, reflecting a drop in the costs of petroleum, building materials and automobiles. Excluding petroleum, the import price index declined .3%, the largest drop since August 2003. The price of imported building materials fell 3.9% in May after falling 2.0% a month earlier. Steel imports rose 30% during the first quarter versus a year earlier. This is one of the main reasons for the roughly 30% decline in prices for the metal since August of last year. "With these prices under control it reduces the pricing power of domestic manufacturers," said Anthony Chan, senior economist at JP Morgan Asset Managemnent.
The Budget Deficit for May narrowed to -$35.3B versus estimates of -$45.0B and -$62.5B in April. The U.S. budget deficit narrowed to $35.3 billion in May from a year earlier, a larger improvement than expected, as tax revenue soared. This was the smallest May budget shortfall since 2001. The Treasury said that overall tax receipts rose 32% to $152.7 billion during May compared with a year earlier. Moreover, tax receipts from individuals were up 88% from May 2004, the biggest jump since the height of the stock market bubble in 2000. "This reflects the continued growth in the economy and growing profitability," said Patrick Fearon, an economist at AG Edwards. US employers have added almost 2 million jobs in the last 12 months, helping increase tax revenue.
BOTTOM LINE: Overall, last week's economic data were positive. The decline in consumer credit is welcome and has not had a noticeable impact on retail sales so far. The fall in long-term rates since April should boost consumer credit in subsequent months. The decline in the Wholesale Inventory/Sales ratio is a big positive and suggests a stabilization of manufacturing activity. However, cutbacks in US auto production will continue to dampen factory readings for several more months. The decline in jobless claims bodes well for a modestly better employment report for June. I continue to believe the labor market is cooling from more vigorous levels, which should result in a deceleration in unit labor costs over the coming months. This is likely the Fed's main area of concern as most other measures of inflation are already decelerating. The US trade deficit is stabilizing and should improve modestly through year-end. However, any significant improvement is unlikely as the US economy remains much stronger than that of most other industrialized nations. Import prices should continue to moderate through year-end which will help keep inflation in check, but result in less pricing power for US corporations. Rising incomes, low unemployment, a booming housing market and healthy consumer spending should continue to boost Treasury receipts. I expect the 2004 U.S. budget deficit to come in substantially better than the $427 billion forecast by the White House. Long-term interests rates may move a bit higher in the short-run, but yields continue to look lower longer-term as global investors increase US asset exposure, global growth slows, inflation decelerates, the US dollar continues to firm and US deficits improve. Finally, the ECRI Weekly Leading Index rose .68% to 132.90 and is forecasting moderating, but healthy levels of economic activity.
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