Mel's Blog

July 09 Market News #12

July 27th, 2009 5:39 PM by Mel Samick

Business dispatched is business well-done, but business hurried is business ill-done." On the dispatch front, the housing sector seems to have weathered the storm and appears to be making headway toward smoother seas. In June, existing home sales rose 3.6 percent to an annual rate of 4.89 million units. This signals a rise of three months consecutively. Even though inventory remains high, at 9.4 months of supply, other indicators reflect stabilization in the housing market. For example, in the month of May, even though home values fell 5.6 percent versus last year, the decline was the smallest drop in the last 10 months. It appears that a combination of low interest rates coupled with incentives, have boosted demand.

In order to curb "ill-done" business, the Treasury department has authored a white paper on financial regulatory reform. As per the paper, the Fed will arm itself with powers to supervise firms, even if they are not banks, should mismanagement potentially pose a threat to future overall financial stability.

In news that should help the mortgage market, the Fed Chairman indicated in a Senate/House hearing earlier this week that the Fed would continue to support the agency-backed MBS (Mortgage Backed Securities) market. This is not anything new -- it is just a reiteration on the part of Mr. Bernanke of the Fed policy to purchase $1.25 Trillion in MBS by the end of this year. Still, it is comforting reassurance.

On Wall Street, there was a significant uptick with the S&P 500 flirting with the 1,000 level. With the earnings releases of over a 100 companies sending the indices surging, the Dow gained 4 percent for the week, the NASDAQ, 4.2 percent and the S&P 500, 4.1 percent. While many companies beat expectations, it is significant that earnings were primarily driven higher as a result of cost-trimming measures, rather than top-line revenue growth. Even if the appetite for risk may be reviving, given the buoyancy in the stock markets, companies need to come up with ways of boosting sales in this tough economic environment. The good news in this context is that last week's consumer sentiment index indicated that consumer confidence is stable, despite falling back from June's peak. That ought to provide confidence to corporations which in turn can start rehiring in anticipation of greater sales, leading to lower unemployment and a positive feedback cycle in general.

On the commodities front, the price of oil spurted (no pun intended) to $68 a barrel on hopes of a global economic revival but the resistance level of $70 per barrel is proving difficult to break. Hence, there is a sideways movement in the range of $60-70 per barrel. Any higher price movement will certainly negatively impact the overall global recovery. Gold is still trading below the $1,000 per ounce mark. Other commodities such as copper, aluminum, steel etc., are also trending at lower levels and since the energy input is driven by oil, commodity prices are closely tracking oil price movements.

With swine flu swirling around threatening one and all, health is wealth, both for you as well as your organization. While individuals have to deal with medical bills, companies are currently worrying about the impact that the proposed health care reform would have on insurance cost in terms of providing employees health coverage. Political leaders are unable to agree on whether the proposed reform outlined by President Obama would save the nation money or increase the deficit of the federal government even more. So while they spend countless hours (not to mention countless cups of coffee) trying to resolve this issue, let us take charge of our health and get fit. On that note, we may soon have an option to buy chocolates made with camel's milk, which some regard as a healthier alternative to the familiar cow's milk variety. While it may be costlier than the regular variety, who knows, it may save on medical bills.

The focus of the Street in the coming week will be on a barrage of earnings releases as well as on economic reports such as new home sales, the Case-Shiller index, Treasury bill/notes auction and settlement, consumer confidence, jobless claims and the Fed Balance Sheet report.

 

                                Mel

Information Provided Amtust Bank Capital Markets

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Posted by Mel Samick on July 27th, 2009 5:39 PM

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