MarketView for April 15

 

 

 

Summary 

 

The equity markets posted their sixth straight day of gains on Thursday as an encouraging profit forecast from United Parcel Service managed to offset some of the concerns regarding the rise in weekly jobless claims. UPS chalked up first-quarter earnings that were sharply above consensus and raised its profit outlook going forward, becoming the latest bellwether to exceed expectations. UPS ended the day up 5.3 percent to $68.89 while FedEx closed up 1.7 percent at $95.62.

 

Financial stocks weighed on the S&P 500 as they gave back some gains after Wednesday's strong rally. At the same time, new jobless claims rose unexpectedly ast week due to applications delayed by the Easter holiday.

 

Google fell 4.6 percent to $568 in extended trading after reporting its first-quarter results. The stock rose 1.1 percent in anticipation of the results to close at $595.30 and is up about 5 percent this week. Advanced Micro Devices also reported first-quarter revenue that beat expectations after the close of regular trading, sending its shares up 0.9 percent to $10.25 in after-hours trading.

 

During the day the S&P 500 managed to reach an intraday high of 1,213.92, its highest in 19 months. The Dow also reached a 19-month intraday high at 11,154.55 during the morning trading activity.

 

Citigroup was the most actively traded name on the Big Board, losing 2.4 percent to $4.81. Nearly 1.5 billion shares of Citigroup, or 25 percent of the overall 5.995 billion shares that traded on the Big Board on Thursday. Citigroup is set to report quarterly results on Monday.

 

Concerns over whether Greece is ready to use an emergency bailout package weighed on sentiment earlier in the day, but the S&P 500 remained well above the key 1,200 mark and the Dow above 11,000. The recent break above those levels was the first time since September 2008.

 

Other data released on Thursday included the Philadelphia Federal Reserve Bank's business activity index, which rose slightly more than expected in April, while the New York Federal Reserve's "Empire State" manufacturing index reached a six-month high.

 

Economic Data Sirs Some Uneasiness

 

The number of workers filing new claims for unemployment insurance rose sharply last week as the backlog from the Easter holiday was processed, adding to worries about the economic recovery, while U.S. industrial output rose less than expected in March.

 

Initial claims for state unemployment benefits rose 24,000 -- the largest increase in two months -- to a seasonally adjusted 484,000, the Labor Department said on Thursday. Markets had expected a dip to 440,000.

 

In Thursday's data, the number of people still receiving benefits after an initial week of aid rose 73,000 to 4.64 million in the week ended April 3, the Labor Department said. The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, rose to 3.6 percent in the week ended April 3, from 3.5 percent in the prior period.

 

A Labor Department official said the increase in claims last week was mainly due to administrative factors rather than economic ones. The four-week moving average of new claims, which irons out week-to-week volatility, rose 7,500 to 457,750. The surge in claims last week is unlikely to derail the nascent jobs recovery, analysts said.

 

A sign of the improving labor market tone was also evident in the New York Fed survey. The employment index rose to 20.25 in April, the highest since March 2006, and up from 12.35 last month. New orders rose to a six-month high of 29.49 in April and up from 25.43 last month.

 

The labor market has lagged the U.S. economic recovery, but growing evidence of firming domestic demand could ease some doubts about the durability of the economic bounce and encourage companies to step up hiring.

 

In a separate report, industrial production rose 0.1 percent in March. Some on the Street were looking for a considerably higher number. At the same time, another report indicated that expansion in New York state manufacturing rose to a six-month high. The New York Federal Reserve's "Empire State" general business conditions index rose to 31.86 in April, the highest since October and up from 22.86 in March.

 

Factory activity in the Mid-Atlantic region, meanwhile, grew in April, to its highest since December 2009. The Philadelphia Federal Reserve Bank said its business activity index rose to 20.2 in April from the March reading of 18.9.

 

Treasury debt prices were steady to slightly lower. The dollar was up versus the euro and yen.

 

Industrial production was held back by a drop in the output from utilities as heating demand fell, the Federal Reserve data showed. Capacity utilization, a closely watched measure of slack in the economy, rose to 73.2 percent from 73.0, although that was still 7.4 percentage points below the 1972-2009 average.

 

Retail sales were up sharply in March according to data published on Wednesday and businesses have started rebuilding inventories. The recovery from the worst downturn in 70 years has been largely powered government stimulus and a surge in manufacturing as businesses start to replenish inventories.

 

We Need To Talk Says Greece

 

Greece asked on Thursday for official talks with European authorities and the International Monetary Fund, a step that could lead to Athens obtaining billions of euros in emergency loans. In a letter to the European Union, the European Central Bank and the IMF, Finance Minister George Papaconstantinou asked to start discussions on "a multi-year program of economic policies."

 

Papaconstantinou stopped short of saying Greece, struggling to finance a national debt greater than its annual economic output, would apply to activate an emergency aid mechanism announced by euro zone governments last Sunday.

 

Under that scheme, the governments would lend Greece up to 30 billion euros while the IMF would provide an additional amount, perhaps 10 billion euros or more, in what could be the biggest international bailout ever attempted.

 

Papaconstantinou said in his letter that Greece's economic program "could be supported with financial assistance from the euro-area member states and the IMF, if the Greek authorities were to decide to request such assistance."

 

The IMF said it would send a team to Athens on Monday, which a Greek government official said would be accompanied by teams from the European Commission and the ECB.

 

Greece, which is being forced to pay sky-high borrowing rates in the markets and will need to refinance 8.5 billion euros of bonds maturing in May, appeared to be inching toward seeking emergency aid.

 

Greek bank stocks jumped more than 4 percent and the spread of the 10-year Greek government bond yield over German Bunds fell back to 4.07 percentage points, flat on the day, from an earlier level of 4.35 points. It was still not far from the record high during the crisis of 4.63 points, hit last week.

 

Euro zone governments have said three-year emergency loans would be extended at a rate of about 5.0 percent, cheaper than the current yield of 7.0 percent on Greek three-year bonds. Strict conditions would be attached to the loans. However,  any decision to extend the aid would have to be made unanimously by all 16 governments in the euro zone, and markets worry that Germany, where public opinion is strongly against helping Greece, might block or delay the loans.

 

Euro zone finance ministers were due on Friday to start two days of meetings in Madrid that would discuss Greece's economic plight, as well as ways to improve coordination of economic policies in the zone and reduce the wide economic imbalances that contributed to the Greek crisis.

 

Fed’s Fisher Says Fed Will Not Monetize Debt

 

The Federal Reserve has made clear it will not monetize federal budget deficits by printing money, Dallas Federal Reserve Bank President Richard Fisher said on Thursday.

 

"We have politely made clear in all our speeches ... that we will not monetize the deficits," Dallas Federal Reserve Bank President Richard Fisher said on a panel at the Johns Hopkins University's School of Advanced International Studies.

 

The Fed is finished with its job of providing liquidity to markets during the financial crisis and is debating how best to withdraw reserves from the financial system, he said.

 

"Our balance sheet is way too large. We have assets on our balance sheet which will create problems unless we figure out how to manage them," he said.

 

Some Fed officials regret the U.S. central bank's decision to purchase $300 billion in longer-term Treasury securities during the crisis because it suggested the Fed was prepared to fund the U.S. fiscal shortfall, Fisher said. The Dallas Fed chief is not a voter on the Fed's interest-rate setting panel this year.

 

Euro Down – Dollar Up – Crude Down

 

The euro fell sharply on Thursday as concerns over Greece resurfaced while continuing strength in the dollar kept commodity prices from rising too much, while global stocks edged higher. Further signs of economic expansion underpinned equity markets, but 11.9 percent growth in China renewed calls for tighter policies to prevent its economy from overheating, sending copper prices lower. Surging growth in Chinese gross domestic product, at the fastest pace since 2007, buoyed oil prices earlier but the stronger dollar tempered the rally and crude hovered below $86 a barrel.

 

The euro was on track for its largest one-day fall in three weeks against the dollar as the spread between Greek and German government bond yields widened to near record levels hit before euro zone members agreed on a standby aid package for Greece. The 10-year Greek-German government bond yield spread widened to as much as 435 basis points, the most since last Thursday.