MarketView for June 10

 

 

Summary  

 

The volatility remained but this time it was on a positive note as the major stock indexes turned in a positive performance on Thursday in response to signs of health in the euro debt market, while the proverbial bottom feeders had a field day buying up beaten down energy shares. As a result, the energy sector led a broad advance with all but four stocks in the S&P 500 finishing the day higher.

 

As the S&P energy sector gained, so did the shares of, which ended the day up 12.3 percent to close at $32.78, a day after posting a near 16 percent decline. Baker Hughes rose10.6 percent to $42.42 after JPMorgan upgraded the shares.

 

Spain sold 3.9 billion euros of a 3-year benchmark bond seeing strong demand, a positive sign for those concerned over a possible loss of appetite for the debt that is and will be issued by the struggling European nations. The euro rose 1.2 percent against the U.S. dollar, trading above $1.21.

 

China confirmed reports that its exports were up nearly 50 percent in May from a year ago, indicating the world’s concerns regarding the impact of the European crisis on global growth could be construed as being overblown.

 

The S&P 500 was also given to a bullish technical alert as its daily moving average convergence-divergence, or MACD, a widely followed momentum indicator, generated a "buy" signal. The S&P and the Dow closed above their 14-day moving average, another short-term bullish sign.

 

Adding to the interest in energy shares was the fact that crude futures settled up 1.5 percent, or $1.10 per barrel to close at $75.48. Futures took a cue from both the Chinese export data and an increase by the International Energy Administration that raised its estimate for growth in oil demand in 2010.

 

Housing stocks were also higher after Senate Majority Leader Harry Reid proposed an extension to a part of a homebuyer tax credit.

 

Radian Group closed up 10.3 percent at $8.98, while Lennar’s shares chalked up a gain of 8 percent to $15.58. the Morgan Stanley housing index .HGX rose 4.7 percent.

 

On the downside, Goldman Sachs Group Inc (GS.N) fell 2.2 percent to $133.77 and was the S&P 500's top percentage decliner. A source familiar with the situation said the Securities and Exchange Commission, which charged Goldman with fraud in April, is investigating another mortgage-linked deal once pitched by the Wall Street firm.

Before the opening bell, the U.S. government reported that the number of new filings for unemployment benefits fell less than expected last week, while the international trade deficit widened slightly in April, pointing to a moderate economic recovery.

 

Crude Closes at Four Week High

 

The price of crude oil closed up 1.48 percent on Thursday to end at a four-week high above $75 a barrel as Chinese export data confirmed an increase of 48.5 percent in May, as compared to a year earlier. That number exceeded forecasts of a 32 percent gain. Both the dollar and gold fell after the Chinese data helped ease worries about a slowdown in Europe and revived investors' risk appetite.

 

Sweet domestic crude for July delivery settled up $1.10 per barrel, an increase of 1.48 percent, at $75.48 per barrel, the third straight increase and highest settlement price since ending at $75.65 on May 12. ICE Brent settled up $1.02, or 1.37 percent, at $75.29 per barrel, its fourth consecutive higher close.

 

The Paris-based IEA revised up its estimate of 2010 global oil demand growth this year due to increased fuel use in the United States and on higher Chinese consumption. The new forecast for 2010 is an increase of 70,000 barrels per day to 1.68 million bpd, stating that oil demand this year would hit 86.44 million bpd, up from 84.76 million bpd in 2009.

 

David Fyfe, head of the IEA's Oil Industry and Markets Division, said the upward revision was a response to further signs of a recovery in economic activity. "The demand revision was quite a minor one, but it was based on stronger demand for middle distillates in the United States," Fyfe said.

 

Earlier this week, the Energy Information Administration and OPEC lowered their 2010 demand growth forecasts slightly. OPEC also is expected to keep exporting at healthy levels. Seaborne oil exports by OPEC, excluding Angola and Ecuador, will rise by 90,000 bpd in the four weeks to June 26.

 

Oil inventories at the Cushing, Oklahoma, crude oil hub and delivery point for benchmark U.S. crude rose 111,186 barrels in the week to June 8, to a record 40 million barrels. The EIA pegged Cushing stocks down 500,000 barrels to 37.4 million barrels in the week to June 4. Weaker front-month crude futures prices versus months further out have been an incentive to buy crude and store it to sell later at higher prices.

 

Call the Recent Flash Crash on Wall Street a Confluence of Events

 

It was most likely a confluence of events that caused the unprecedented stock market "flash crash" in early May, SEC Chairwoman Mary Schapiro said on Thursday.

 

"I suspect what we will find was it was a confluence of a number of events. But we have got to keep plowing through the data so we can be sure," Schapiro said. For a month, regulators have been trying to determine what caused the Dow Jones industrial average to plunge some 700 points in minutes on May 6 before sharply rebounding.

 

Earlier on Thursday, the SEC approved a mechanism to temporarily pause trading in single stocks when markets are plunging uncontrollably. The stock-specific circuit breakers, being adopted this month, will halt trading for five minutes in any S&P 500 share if it falls more than 10 percent in five minutes.

 

Schapiro said she was anxious to expand the stock-specific mechanism to other stocks and to a number of exchange-traded funds, which were hit harder than ordinary stocks in the brief market freefall.

 

Schapiro said she hopes to update the current market-wide circuit breaker before the end of the year. It was not triggered May 6.

 

Schapiro's comments come at a time when Congress is beginning the last leg of creating the final legislation to revamp financial regulation. Congress will have to make decisions on a slew of controversial proposals designed to avoid a repeat of the 2008 credit crisis that wreaked havoc around the world and shattered investor confidence.

 

Among the proposals is one designed to get rid of some of the conflicts of interests at credit rating agencies like Standard & Poor's, which is paid by the issuer whose debt it rates. The Senate proposal would create a credit rating agency board so that a third party could choose which rating agency would rate an issuer's debt.

 

The credit rating agencies "performed abysmally," Schapiro said. The SEC has been trying to increase competition in the industry dominated by Standard & Poor's, Moody's Corp and Fitch Ratings.

 

The SEC has adopted a number of rules to improve disclosures and prevent issuers from shopping for the most favorable rating. But it has not been able to find a solution for the conflicts of interests inherent in the issuer-paid model.

 

"We have tried to do lots of things to try to get at conflicts of interest, but we still have in many ways a fundamentally flawed business model," Schapiro said. "I appreciate the effort to try and break that tie."

 

Another controversial plan being considered by Congress is one that would force banks to choose between their lucrative over-the-counter derivatives desks and access to federal protections.

 

Schapiro did not take a position on the Senate proposal and said it did not matter whether the swaps desks were in or out of the banks as long as regulators had the tools to fully and comprehensively regulate the swaps desks.

 

Schapiro also said she hoped to soon adopt rules to make it easier and cheaper for shareholders to nominate corporate board directors.