MarketView for June 9

 

 

Summary   

 

Well it was a good day for the Nasdaq on Tuesday, after an improved outlook from Texas Instruments lifted technology stocks. However, news that 10 big banks will repay TARP funds failed to stir investor enthusiasm. As a result, shares of Texas Instruments rose 6.3 percent to $21.02 after the company raised its quarterly earnings and revenue targets, signaling improving demand in the chip market.

 

Although share prices had initially moved higher after the Treasury Department said 10 big banks will pay back $68 billion received under the Troubled Asset Relief Program, or TARP, the markets quickly fell back on concerns that the money could be put to better use by making loans to businesses and consumers, which would boost the economy.

 

Energy stocks also moved higher as U.S. crude oil futures ended above $70 a barrel for the first time in seven months, on a weaker dollar and a government forecast of higher demand in 2009.

 

Tuesday’s auction of three-year Treasury notes in the early afternoon was met with solid demand, easing concerns that an oversupply of government debt could push interest rates still higher and increase the cost of borrowing to consumers and businesses. However, those worries may resurface with the auction of 10-year notes and 30-year bonds later in the week.

 

General Electric indicated that aircraft engine orders this year could decline by 50 percent, knocking down the share prices of Boeing and supplier United Technologies, another manufacturer of aircraft engines. Boeing ended the day down 0.9 percent to $52.35, while United Technologies was off 1.7 percent to close at $55.52. In contrast, shares of GE inched up just 1 penny, or 0.07 percent, to $13.57.

 

Supreme Court Clears Chrysler Sale

 

The Supreme Court on Tuesday cleared the way for Chrysler LLC's sale to Fiat, turning down a last-ditch bid by opponents that included consumer groups and three Indiana pension plans. The court rejected a plea to block the sale of most of Chrysler's assets to the Italian automaker.

 

Chrysler, Fiat and the Obama administration had warned that the high court's intervention could have scuttled the sale. A federal appeals court in New York had earlier approved the sale, but gave opponents until Monday afternoon to try to get the Supreme Court to intervene.

 

Justice Ruth Bader Ginsburg ordered a temporary delay just before a 4 p.m. deadline on Monday. A little more than 24 hours later, the court freed the automakers to complete their deal.

The opponents include a trio of Indiana pension plans, consumer groups and individuals with product-related lawsuits.

 

The court issued a brief, unsigned opinion explaining its action. To obtain a delay, or stay, someone must show that at least four of the nine justices find that the issue raised is serious enough to warrant hearing a full appeal and that a majority of the court will conclude the lower court decision was wrong.

 

"The applicants have not carried that burden," the court said.

 

Chrysler has been working to complete the sale of its assets to Fiat before a June 15 deadline, a key element in its restructuring plans.

 

The pension plans seized on comments from Fiat officials that they would not walk away from the deal even if June 15 were to pass without completing the sale. The plans tried to persuade the justices that there was no reason to rush to meet that deadline.

 

But Chrysler, Fiat and the Obama administration stressed in response that Chrysler was losing $100 million a day and that the deal automatically terminates in less than a week, with no guarantee that a new agreement would be reached.

 

The court did not consider the merits of the opponents' arguments, only whether to hear their full-blown appeal.

 

Earlier Tuesday, Chrysler returned to bankruptcy court to get approval to terminate 789 dealer franchises. That approval was also forthcoming on Tuesday. The company said the move was a necessary part of its plan to cut costs and quickly emerge from Chapter 11 bankruptcy.

 

Many of the dealers were selling the last cars on their lots and preparing to shut their doors for good at the end of the day, while others planned to sell used cars or other brands after severing ties with Chrysler.

 

Crude At 7-Month High

 

The price of crude oil rose 3 percent on Tuesday to hit a fresh seven-month high of more than $70 per barrel on Tuesday on data from the American Petroleum Institute indicating a steep 6-million-barrel draw in inventories for the week to June 5 as imports slowed. Refined product stocks were up slightly.

 

 The API report pushed the price of crude up $2.35 to $70.44 a barrel, a seven-month high, in late post-settlement trade. Earlier, crude had settled up $1.92 at $70.01 a barrel, the highest settlement since November 4. London Brent crude gained $1.74 to settle at $69.62 a barrel.

 

Add in a report released on Tuesday by the government indicating revised global demand expectations higher and the bulls were off and running. As a result, crude gained earlier after the Energy Information Administration raised its forecast for 2009 world demand by 10,000 barrels per day from its May report, the first hike since September, amid signs of an economic recovery.

The agency also increased its estimate of demand for domestic consumption of crude oil.

 

Defense Spending Will Continue To Grow

 

As the economic crisis squeezes government budgets and priorities shift beyond defense, the world's top defense contractors will likely turn to acquisitions to ensure they can keep growing.

They will not be looking for blockbuster deals but takeovers for less than $1 billion in niche areas that have been identified by governments as high priorities.

 

In the United States, defense companies are placing bets on technologies that will be in demand as President Barack Obama channels more funds to counter cyber threats and to increase military intelligence and equipment to better fight insurgents in places like Afghanistan.

 

Last week, General Dynamics announced an agreement to buy Axsys Technologies Inc for $643 million, or $54 a share. Axsys provides high-end optics for manned and unmanned military vehicles and satellites. Axsys, which had put itself up for sale earlier this year, had apparently attracted "significant interest" from other leading contractors according to the word on the Street..

 

The U.S. defense budget request for fiscal 2010 year that begins on October 1, seeks to increase base spending by 4 percent, down from the 7.5 percent rise for the prior year's budget, and is capping production of Lockheed Martin 's  F-22 fighter jet. Yet, the federal defense budget, which must be approved by Congress, still dwarfs any other military budget -- the next biggest is the United Kingdom.

 

However, there are major concerns that growth will wane in subsequent years as the Obama administration struggles with a massive budget deficit caused by the economic crisis and bailouts of banks and other companies.

 

Foreign firms like BAE Systems are also expected to push for more U.S. business. Investment firm Goldman Sachs said in a June 5 research note that United Kingdom-based BAE will need to make acquisitions to offset earnings headwinds.

 

Goldman Sachs became more cautious on defense stocks in recent weeks, citing effects of expected spending cuts in Europe and the United States. The firms raised its ratings on Boeing, EADS and Goodrich, companies that all serve the commercial aerospace industry, but downgraded Northrop Grumman and BAE Systems.

 

Nonetheless, some analysts reject the bearish call on defense, saying there will still be plenty of money to be made in the United States for companies that can aid troops fighting insurgencies and make government networks safer, even if defense spending is curtailed.