U.S. Market Update

Dow +25 S&P +4.3 NASDAQ +13.4

Soaring oil prices continued to dominate markets and headlines this morning, although unlike the previous two sessions indices have been gaining ground since the open. Traders appear to be using the heavy losses of the last two days as a buying opportunity, with confidence further bolstered by the better than expected weekly jobless claims data out before the open. Front-month oil hit a new high of $135.09 a barrel before pulling back to trade at $133.05 this morning; OPEC Secretary General Badri responded by calling the oil market "crazy." Ford opened in the red after dropping its standing goal of returning to profitability in 2009 and slashing production for 2008 "to respond to the rapidly changing business environment." Tech name BCSI is down 26% after missing earnings estimates and declining to offer specific guidance for the coming quarter besides saying that results would be "flat." Retailers were reporting a gloomy picture of the US consumer this morning: DKS-16.6% after missing revenue estimates and cutting its earnings and SSS outlook, ANN-4% after guiding SSS "slightly negative" for the year, BONT-5% after a mixed quarterly report and cuts to guidance, and GME-9.4% even after beating estimates and raising guidance. Two retailers managed to buck the trend, with LDG+9.7% after reaffirming its positive outlook and ZLC+10.3% on improving revenues and positive SSS. ESLR was a big winner, opening up more than 20% after reporting two new contracts worth approximately $1B. CPN gained nearly 9% after the company confirmed an unsolicited merger offer from NRG Energy that would create the largest power company in the US. In other M&A news BCE is sliding 14% after a Quebec court upheld an appeal by debt holders who claimed the buyout LBO offer as is it currently constituted is unfair.

Treasury markets are losing some ground, sending the 10-year yield back above 4.90% bringing it back within reach of the 2008 high. There has been some flattening in the benchmark yield curve with the spread dipping below 140 basis points helped by the two-year yield climbing back above 2.50%. The Oct fed fund future has seen the odds of a 25 basis point hike by later this year rise above 25%.

The USD rebounded from its earlier lows against the majors aided by better weekly jobless claims data and cautious comments from European officials on the 2008 growth outlook. The EUR/USD was retesting the 1.57 level after hitting 1.5814 in early European trading. The Italian Business Group noted that a strong euro was harming exports, adding that the ECB must not underestimate the slowdown in GDP. The EU's Juncker stated that he did not expect the euro to develop "extremely favorably" over the coming months, noting that there will not be a recession in Euro Zone while lowing estimates for 2008 GDP to 1.4% "at best" vs the 1.7% EU forecast provided back on April 28. The dollar was also aided by oil retracing from its latest all-time high. The JPY was broadly softer following the downgrading of the Japanese export and housing sector in a report issued by the government. EUR/JPY up 90 pips at 163.50, USD/JPY above 104 and GBP/JPY firmer by 300 pips at 206. The GBP rose to a three-week high of 1.9768 on the back of the smaller-than-expected 0.2% decline in UK April retail sales and an upward revision to UK March retail sales. EUR/GBP was lower by 75 pips to 0.7930 level.

June Bud -28 ticks at 112.69 and June Gilts -75 ticks at 106.18. European equities recovered from earlier losses to move into positive territory ahead of the close. Euro Stoxx 50 flat at 3,795, FTSE unch at 6,200, CAC 40 +0.1% at 5,030 and DAX +0.3% at 7,061

Trade The News Staff
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Posted in: Economy,Finance and Investment,Forex