MarketView for July 9

 

 

Summary 

 

Wall Street managed to chalk up some positive numbers, albeit weak ones, by the end of the day as bottom feeders took advantage of some beaten-down technology and commodity shares. At the same time some positive comments on Goldman Sachs helped out the financial sector. Nonetheless, trading was mixed with light volume for most of the day as caution still remained the watchword of the day ahead of upcoming corporate earnings reports over the next few weeks.

 

Goldman rose 3.4 percent to $143.21 after Banc of America Securities-Merrill Lynch upgraded its rating to "buy" and raised its earnings estimates, saying the firm's earnings power and book value were increasing rapidly again.

 

Energy shares were higher as crude oil futures edged up. Chevron was up 0.5 percent to $63.08. Within the tech sector, KLA Tencor rose 4.9 percent to $26.36 after Barclays upgraded the chipmaker to "overweight."

 

Alcoa set a positive tone when it kicked off the earnings season with a smaller-than-expected loss after the bell on Wednesday. Shares of healthcare and consumer staples companies weighed o the market as Merck ended the day down 3.7 percent to close at $27.01 on speculation its Zetia cholesterol drug fared poorly in a clinical trial comparing it to a drug from Abbott Laboratories. At the same time, sentiment remained cautious ahead of the release of upcoming corporate earnings, said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia.

 

A Treasury bond auction of 30-year debt showed signs of strength, providing some cheer over the growing mountain of government debt. Shares rose to session highs not long after the auction.

 

The number of workers filing new claims for jobless benefits fell to the lowest level since January, but the seasonally adjusted data was distorted by an unusual pattern of layoffs in the automotive industry.

 

Crude Ends Six Day Decline

 

Crude oil futures rose slightly on Thursday as talk of refinery shutdowns resulted in gasoline supply concerns, ending a six-day slide. Domestic sweet crude futures for August delivery settled up 27 cents per barrel at $60.The price per barrel had fallen from $71 in the previous six sessions. London Brent crude settled up 67 cents per barrel at $61.10.

 

Meanwhile, Royal Dutch Shell Plc said it is conducting a strategic review of its Montreal East refinery in Canada, which may lead to a closure or sale as the industry struggles with weak profit margins. 

 

The summer gasoline season typically peaks during the July 4 Independence Day holiday; although weekly inventory data released on Wednesday showed a steeper-than-expected build in gasoline stocks. The gains helped push gasoline down 5.74 percent on Wednesday.

 

Global oil demand has been battered by the recession, leading to fuel inventory build that have weighed on markets. Inventories of distillates, which include diesel fuel used for transporting goods, hit a near 25-year high last week due to low demand, according to government statistics.

 

Fuel stocks held by the two top oil firms in China also rose moderately in June for the second month in a row due to high refinery runs and tepid consumption.

 

Saudi Arabia was expected to maintain supply levels to customers in August, although two big refiners would receive significantly less crude, trade sources. The Saudis have tcut back on crude shipments as part of a series of production cutback agreed by OPEC last year to help support oil prices.

 

Economic Data Mediocre

 

The number of workers filing new claims for jobless benefits fell to the lowest level since January, but the seasonally adjusted data was distorted by an unusual pattern of layoffs in the automotive industry. However, the bankruptcies with the automobile manufacturing business have distorted the normal pattern of plant closings.

 

A separate report on Thursday showed wholesale inventories declined again in May, but at a slower pace than in the previous month, keeping alive hopes for a rebound in stock-building that could aid growth in the remainder of 2009. Large inventory liquidations will reduce economic growth in the second quarter, but lay the foundation for a recovery as firms replenish depleted stocks in anticipation that sales will pick up.

 

However, weak June retail sales reports from a number of big stores on Thursday signaled that shoppers remain cautious. The state of the jobs market will be a crucial factor in determining what happens to consumer demand.

 

The Labor Department said that initial claims for state unemployment insurance fell 52,000, the largest drop since December, to a much lower-than-expected seasonally adjusted 565,000 in the week ended July 4, from 617,000 the prior week. It was the lowest reading since January.

 

However, in a sign of ongoing employment weakness, continued claims of people still on jobless aid after an initial week of benefits rose by 159,000 to a record 6.88 million in the week ending June 27, the latest for which data is available. In addition, the new claims data appears to have been significantly distorted by seasonal factors.

 

A Labor Department official said there had been far fewer automotive and other manufacturing layoffs last week than anticipated on the basis of past experience in July, when many plants are commonly idled.

 

The "seasonal factors" the department uses to adjust the data to provide a better sense of the underlying trend had expected a large increase in claims last week. Actual claims in fact rose by a much smaller amount, which when seasonally adjusted, generated a large fall.

 

A number of states said that auto sector layoffs apparently had already happened, reflecting closures in the battered automotive industry, while other states said they did not get the layoffs they had anticipated.

 

The new claims 4-week moving average declined by 10,000 to 606,000 claims, the lowest reading since February. This measure is closely watched because it irons out weekly volatility, and it has now declined in four out of the last five weeks.

 

The news from the retail sector was gloomy, with many U.S. apparel retailers and warehouse club stores reporting that sales fell in June including Costco Wholesale Corp, which saw a 6 percent drop in sales at stores open a year.

 

A separate report from the Commerce Department showed wholesale inventories shrank for the ninth month in a row in May to $402.24 billion, the lowest level since August 2007. The 0.8 percent drop was smaller than expected.

 

Sales at wholesalers rose 0.2 percent, beating analysts' expectations that they would be unchanged and pushing the inventory-to-sales ratio, a measure of how long it would take to deplete stocks at the current sales pace, down to 1.29 months' worth from April's 1.31 months.

 

That was the lowest since a matching ratio in November and economists think that this trend will be reversed in the coming months as merchants rebuild stocks. This will give production a boost, although there will only be a lasting addition to growth when employment picks up and consumers feel confident enough to resume spending.

 

General Motors Moving Ahead With Sale

 

A District Court judge on Thursday denied a request by a committee of asbestos personal injury claimants to delay the sale of General Motors Corp pending its appeal. Judge Lewis Kaplan said in court documents that the stay of the sale would likely lead to the liquidation of GM, which is trying to sell its best assets into a "New GM" funded by the government ahead of a July 10 financing deadline.

 

The automaker filed for bankruptcy last month after sales of its cars and trucks fell sharply amid the economic downturn. Bankruptcy Court had already denied a request to fast- track the appeal and said the sale could go forward after noon Thursday.

 

GM was pushing ahead with final work on the assets sale to a new company funded by the U.S. Treasury and could close that deal by Friday. That would complete GM's bankruptcy process in just over a month, a faster timetable than even the aggressive target set by the Obama administration.

 

The GM sale may face other appeals as well. Plaintiffs in a death liability case being heard in Arizona said in bankruptcy court documents that they plan to file an appeal of the sale of General Motors’ assets in district court. The plaintiffs, who are pursuing a death claim related to a Chevy Malibu product liability claim.