Distillate Inventories Rise Less-Than-Expected

- Summary of Weekly Petroleum Data for the Week Ending June 17, 2005.
- The EIA reported crude oil inventories fell 1.58M barrels versus estimates of a 2.0M barrel decline. Gasoline inventories rose 197K barrels versus estimates of a 50K barrel rise. Distillate inventories rose 1.37M barrels versus estimates of a 2.0M barrel build.

BOTTOM LINE: I would expect crude to head modestly lower later in the day on this mostly “at-expectations” report.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Japan's export growth slowed more than expected in May and the trade surplus shrank for a second month, signaling overseas demand won't support a recovery in the world's second-biggest economy.
- Investment in financial products linked to commodities surged tenfold to $50 billion since 1999 as China's economic growth drove oil, copper and coal prices to records, Barclays Capital said.
- South Korea and North Korea began formal sessions of bilateral discussions today, vowing to make the talks successful, amid increasing international pressure on North Korea to abandon its nuclear weapons program.

Wall Street Journal:
- Swiss Bank UBS AG is negotiating to buy a stake for as much as $1 billion in the Bank of China prior to the Chinese bank's listing in Hong Kong next year.

Financial Express:
- Proctor & Gamble's local unit in India may start selling Crest toothpaste in the country.

China Daily:
- A Chinese mobile-phone standard for high-speed data transmissions performed poorly in a test held by the government.

Late Buy/Sell Recommendations
Goldman Sachs:
- None of note

Night Trading
Asian Indices are -.50% to +1.0% on average.
S&P 500 indicated +.01%.
NASDAQ 100 indicated -.03%.

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Earnings of Note
Company/EPS Estimate
BBBY/.32
GTK/.41
MWD/.92

Upcoming Splits
None of note

Economic Releases
None of note

BOTTOM LINE: Asian indices are mostly higher on gains in exporting shares after oil fell from a record. I expect US equities to open modestly higher on strength in Asia. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed as Oil Declines and Rates Fall

Indices
S&P 500 1,213.61 -.20%
DJIA 10,599.67 -.09%
NASDAQ 2,091.07 +.14%
Russell 2000 641.04 -.12%
DJ Wilshire 5000 12,034.96 -.20%
S&P Barra Growth 580.84 -.30%
S&P Barra Value 628.52 -.11%
Morgan Stanley Consumer 584.14 -.07%
Morgan Stanley Cyclical 740.34 -.07%
Morgan Stanley Technology 485.52 +.54%
Transports 3,568.40 -.10%
Utilities 378.86 +.03%
Put/Call .96 unch.
NYSE Arms 1.18 +42.32%
Volatility(VIX) 11.08 -3.40%
ISE Sentiment 158.00 +8.97%
US Dollar 88.24 +.14%
CRB 311.03 -.87%

Futures Spot Prices
Crude Oil 58.88 -.27%
Unleaded Gasoline 162.04 -.43%
Natural Gas 7.47 unch.
Heating Oil 162.70 -.17%
Gold 440.60 +.02%
Base Metals 125.96 -1.08%
Copper 155.70 -.54%
10-year US Treasury Yield 4.04% -1.64%

Leading Sectors
Airlines +1.81%
Internet +.80%
Semis +.71%

Lagging Sectors
Energy -2.00%
Oil Service -2.05%
Oil Tankers -2.86%

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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on SSP and KR.

Afternoon/Evening Headlines
Bloomberg:
- The yen rose against the dollar and all major currencies on speculation China is closer to a decision to allow its currency to trade more freely.
- Winn-Dixie Stores, owner of 913 supermarkets in nine states and the Bahamas, will cut 22,000 positions and close about 326 stores as the company shrinks following its bankruptcy filing in February.
- European Aeronautic, Defense & Space, the parent of Airbus SAS, selected a site near Mobile, Alabama to build an engineering facility that may be expanded to build aerial refueling tankers for the US Air Force.
- Copper prices may fall 26% by the end of the year as new supplies arrive and economic growth slows from last year, said James Gutman, a metals analyst at the Goldman Sachs commodities research team in London.
- Ford Motor cut its 2005 earnings forecast for the second time this year and said it will eliminate about 1,700 more jobs because of weak sales in North America.
- US 10-year T-notes rose the most in three weeks, following gains in European bonds, after Sweden’s central bank cut its benchmark lending rate more than economists forecast.
- Crude oil was little changed in late trading after falling on speculation a report tomorrow will show US inventories of diesel and heating oil rose last week.

Financial Times:
- PartyGaming Plc’s IPO may be held next week after fund managers placed sufficient orders for shares in the online poker company within the indicated price range.

Oriental Morning Post:
- South Africa started an anti-dumping investigation into stainless-steel tube and pipe imports from China.

BOTTOM LINE: The Portfolio finished higher on gains in my Computer/Internet longs and Oil Tanker/Steel shorts. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline finished a bit higher, sector performance was mostly positive and volume was below-average. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was neutral. The six-month change in the OECD Leading Global Indicators recently turned negative. It has gone from 7.59% growth to -.5%. This is the largest decline in this measure since the decline that began in 1999 and bottomed in 2001. This is one reason global bond yields continue to fall.

Stocks Modestly Higher Mid-day, Led by Tech

Indices
S&P 500 1,216.10 unch.
DJIA 10,613.31 +.04%
NASDAQ 2,093.70 +.27%
Russell 2000 641.72 -.02%
DJ Wilshire 5000 12,056.53 -.02%
S&P Barra Growth 581.89 -.12%
S&P Barra Value 629.98 +.12%
Morgan Stanley Consumer 584.30 -.03%
Morgan Stanley Cyclical 742.03 +.16%
Morgan Stanley Technology 486.38 +.72%
Transports 3,568.49 -.10%
Utilities 380.00 +.33%
Put/Call .96 unch.
NYSE Arms .96 +16.47%
Volatility(VIX) 11.03 -3.84%
ISE Sentiment 158.00 +8.97%
US Dollar 88.27 -.26%
CRB 311.25 -.75%

Futures Spot Prices
Crude Oil 59.35 -.03%
Unleaded Gasoline 163.70 -.52%
Natural Gas 7.54 -1.69%
Heating Oil 164.60 -.95%
Gold 440.50 +.11%
Base Metals 125.96 -1.08%
Copper 156.65 +.71%
10-year US Treasury Yield 4.05% -1.27%

Leading Sectors
Internet +1.20%
Networking +.97%
Software +.86%

Lagging Sectors
Oil Service -1.45%
Steel -1.53%
Oil Tankers -2.37%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet/Computer longs and Steel/Oil Tanker shorts. I exited my QQQQ short and added to my BRCM long this morning, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, most sectors are higher and volume is above average. Measures of investor anxiety are mostly lower. Today’s overall market action is neutral, considering a decline in energy prices and interest rates. The Johnson Redbook Same-store-sales Index (year over year) rose 3.7% last week vs. a 3.5% rise the prior week. This is also up from a 1.5% gain in late April and the seventh week in a row the index has exceeded 3.0%. I expect US stocks to trade modestly higher into the close on short-covering and lower energy prices.