MarketView for September 9

 

 

Summary   

 

 

The major equity indexes closed higher for a fourth straight day on Wednesday, sending the Standard & Poor's 500 index to its best finish so far this year as industrial and technology companies gained from a weak dollar. A declining dollar helped to make U.S. products more competitive in overseas markets. Industrials, such as Caterpillar rose 3.07 percent to $48.41. Tech stocks were among the top performers, with Google up 1.2 percent at $463.97.

 

However, Nasdaq's advance was limited by Apple, which fell 1 percent to $171.14. CEO Steve Jobs appeared at a company event after recovering from a liver transplant, and yet there was some conversation on the Street as to how thin he looked.

 

The dollar's decline sent oil up, allowing crude futures to settle at $71.31 a barrel and helping gold to trade near $1,000 an ounce.

 

The top performer among the companies making up the Dow Jones industrial average was Boeing , up 2.1 percent to $50.53 after a senior executive said the company expects global air cargo traffic to return to growth next year.

 

Goldman Sachs upgraded Illinois Tool Works to "conviction buy" and lifted its price target on General Electric, United Technologies and 3M. GE gained 2.6 percent to $14.87 while Illinois Tool was up 5 percent to $43.93.

 

Ebay rose 3.9 percent to close at $22.98 after Sanford C. Bernstein upgraded the company, citing the turnaround in its core businesses and in used-auto sales.

 

The Federal Reserve's Beige Book survey showed half of Federal Reserve districts saw evidence that the economy had improved by the end of August, but labor markets remained weak and retail sales were flat overall.

 

After the closing bell, Texas Instruments rose 1.4 percent to $25.50 after the company updated its third-quarter outlook.

 

Fed Sees Signs of Improvement

 

 Half of the Federal Reserve's 12 districts saw evidence the economy had improved by the end of August, although labor markets remained weak and retail sales were flat, a Fed report said on Wednesday. Dallas, Boston, Cleveland, Philadelphia, Richmond and San Francisco noted gains. Other areas reported the economy was stable or showing signs of stabilization while St. Louis said the pace of economic decline appeared to be moderating.

 

"Most districts noted that the outlook for economic activity among their business contacts remained cautiously positive," the Fed's Beige Book survey said.

 

The modestly upbeat report said most regions reported some improvement in hard-hit residential real estate markets and an uptick in manufacturing.

 

Despite improvements in housing markets, most districts reported downward pressure on house prices, the Fed said. Tempering the brighter spots, Fed contacts reported that demand for commercial property remained weak and that businesspeople in some areas believed recently higher vehicle sales levels were likely not sustainable after the government's "cash for clunkers" incentive program lapses. Overall consumer sales were flat, the Fed said. Also, loan demand was weak and credit standards remained tight, the Fed said.

 

But even some of the gloomiest segments of the economy held glimmers of hope, said the survey by the Fed, the U.S. central bank. "Labor market conditions remained weak across all districts, but several also noted an uptick in temporary hiring and a decline in the pace of layoffs," the report said. Wage pressures were low, the Fed said.

 

The Fed at its last policy-setting meeting held its benchmark short-term interest rate steady near zero and said it would likely hold it there for an extended period to guide the way to recovery. Fed officials have said recently they expect a sluggish recovery with persistently high unemployment. The jobless rate hit a 26-year high of 9.7 percent in August. The Fed's next policy-setting meeting is September 22-23.

 

Crude Up in Price a Bit

 

Crude oil futures moved higher in price on Wednesday, as optimism surrounding economic recovery and a weaker U.S. dollar prompted investors to buy crude to hedge against inflation. Oil prices settled higher even as OPEC ministers signaled no plans to cut oil production, and the Energy Information Administration cut its oil demand forecast this year and next.

 

Sweet domestic crude futures for October delivery settled up 21 cents, or 0.3 percent, per barrel at $71.31. London Brent rose 41 cents, or 0.6 percent, to $69.83.

 

OPEC appeared ready to keep oil production targets unchanged at its Vienna meeting scheduled for 3:30 p.m. EDT Wednesday. So far, none of the 12 OPEC members has stated any need to cut production beyond the 4.2 million barrels per day slashed since last autumn, as higher prices and signs of a strengthening world economy shift the focus away from sluggish fuel demand.

 

"With the price ranging between $68 and $73, what else do you want? The price, everybody likes, consumers and producers," Saudi Arabian Oil Minister Ali al-Naimi told reporters when asked if OPEC needed to change its output policy.

 

The Energy Information Administration on Wednesday cuts its global oil demand forecast for 2009 and 2010 and upped its projections for OPEC production. Soft demand has forced refiners such as Valero to cut hundreds of workers and idle several major processing units.

 

The Energy Information Administration will release its data on Thursday at 11 a.m.

 

Crude Supplies Greater Than Demand

 

Global oil demand through next year will be weaker than previously forecast while petroleum supplies will be higher, the government said in a revised outlook on Wednesday. The latest forecast from the Energy Information Administration could put downward pressure on oil prices, which have more than doubled since February on hopes for an economic recovery.

 

The EIA cut its forecast for world oil demand growth in 2010 by 30,000 barrels per day to daily demand of 84.58 million bpd. But it boosted its forecast of global oil production growth by 150,000 bpd to average output of 84.65 million bpd. The EIA's new monthly short-term energy forecast would mean a daily world oil supply surplus of 70,000 barrels.

 

The EIA said while the current outlook assumes the world economy "begins to recover at the end of this year," projected strong oil demand growth in developing countries will be partially offset by weaker oil use in industrialized nations, contributing to the supply surplus.

 

For the fourth quarter of 2009, the agency lowered its forecast for OPEC crude oil production to 29.26 million bpd from its prior estimate of 29.31 million bpd.

 

"The combination of higher prices and OPEC's historical tendency for weaker compliance with production targets over time ... suggests that OPEC crude oil production could (still) rise over the remainder of the year, unless prices fall sharply from current levels," the EIA said.

 

The EIA raised its forecast of OPEC oil output during 2010 to an average 28.89 million bpd from 28.82 million bpd.

 

EIA's forecast came as OPEC ministers were meeting in Vienna, where they were expected to not change their oil output targets. "As long as oil prices remain in their current range, EIA expects OPEC to maintain its existing production targets," the agency said.

 

Separately, the EIA lowered its projection for oil output from non-OPEC countries next year to 50.19 million bpd from its previous projection of 50.22 million bpd.

 

"Over the forecast period, higher output from Brazil, the United States, Azerbaijan, Kazakhstan and Canada offsets falling production in Mexico and the North Sea," the EIA said. Crude output is forecast to average 5.24 million bpd this year and then rise to 5.30 million bpd in 2010.

 

"Crude oil production from the new Thunder Horse, Tahiti, Shenzi and Atlantis federal offshore fields accounts for about 14 percent of Lower-48 crude oil production in the fourth quarter of 2010," the agency said.

 

U.S. petroleum demand next year will still be higher than in 2009, but the EIA cut the overall increase in fuel use next year by 20,000 bpd. "The modest economic recovery projected for 2010 contributes to a 260,000 bpd (1.4 percent) increase in total liquid fuels consumption," the agency said.