Friday, April 17, 2009

Weekly Market Update (4/17/09)‏


There are signs of a modest improvement in the latest US economic data. However, it is still premature to call a bottom for the US recession which began in December 2007. more...

US Treasury yields barely moved this week. With the Fed continuing their buyback program and no Treasury supply on the agenda, investors remained on the sidelines. more...

Large-Cap Equities
The stock market rallied for the week spurred by better-than-expected first quarter earnings from some of the largest S&P 500 firms. more...

Corporate Bonds
Investment grade primary activity slowed to a crawl as a number of issuers reported earnings. There is a chance that General Electric’s and Citibank’s better-than-expected earnings at the end of this week might catapult us through the avalanche of earnings over the next several weeks. more...
Mortgage-Backed Securities
Agency mortgages weathered a pickup in originations to outperform Treasuries in a sideways market. more...

Municipal Bonds
Build American Bonds (BABs) captured the market’s attention this week. Speculation is that BABs will substitute for regular tax-exempt issuance and thus keep municipal bond market supply more limited than otherwise. more...

The high yield market started the first half of April at a torrid pace, with broad indices up over 5% since the end of March 2009. more...

Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were banks (+14.9%) and financial services (+10.7%). more...

Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.6% this week, while the Russian stock index RTS went up by +2.9%. more...

Global Bonds and Currencies
Major non-US sovereign bond markets spent the past week trading within well-established ranges. After making modest progress over most of the week, European and UK sovereign bond markets finished flat to slightly weaker, after a late sell-off on Friday afternoon. more...

Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. A combination of better-than-expected earnings announcements from US banks and marginal improvement in US economic data helped continue the positive tone in risk markets. more...

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GE results

General Electric's GE earnings for the first quarter were largely in line with our expectation, excluding the tax benefits flowing through GE Capital. For the past few quarters, the company has been riding the back of energy infrastructure, and this quarter's results showed much of the same. Surprisingly, aviation increased revenue and profit 12% and 39%, respectively. Given the weakness in the economy and project delays at Boeing BA and Airbus, we expected weaker numbers in this group. As impressive as energy and aviation were, the rest of the segme nts were equally unimpressive. Consumer and industrial and NBC Universal continued to take the brunt of the recession with a combined profit drop of 50%. These two segments are highly dependent on a strong consumer, so we expect the weakness here to persist until employment picks up and people begin buying houses again. While it is true that GE Capital earned $1.1 billion in profit for the quarter, all of the profit came from a tax benefit of $1.2 billion. Pretax, preprovision income was down 45% to $2.2 billion from $3.9 billion last year, reflecting the shrinking size of GE Capital's balance sheet and fewer financing transactions in the broader market. The results for the quarter were not stellar, but do show that GE's portfolio of businesses has held up far better than others thus far. We are comfortable with our fair value estimate and assumptions.
Daniel Holland

CITI‏ results April 2009

Iknow everybody is in love with the citi results, but I thought it would be worth noting that $2.5B of "earnings" came from marks on their own debt and also as a result of recent cave in by FASB on fair value accounting, Citi was able to have $631MM pretax lower impairment charges recorded in net revenue in the quarter.

Market Reflections 4/16/2009

Strong results at JP Morgan, benefiting like other financial firms from changes to mark-to-market accounting, drove the stock market higher with the S&P 500 ending 1.6 percent higher at 865.27. Google after the close also beat estimates.

Economic news was mostly downbeat led by a big fall in housing starts which have yet to reflect the improvement underway in home sales. The Philadelphia's Fed manufacturing report showed another month of steep contraction but a little less severe contraction than in prior months. Many fewer individuals applied for first-time jobless claims though the data were skewed by the shortened Easter/Passover week. Continuing claims in the prior week continued to rise and are now over 6 million.

Gold dropped suddenly at mid-morning raising talk of sales by the International Monetary Fund which may be raising cash for G-20 stimulus efforts. Gold fell about $25 to end near $875. Oil remains hypnotized ending little changed just under $50. The effect of very heavy supply in oil is being offset by investment demand. The dollar ended little changed at $1.3178 against the euro. Treasuries were mixed though the yield on the 3-month bill continues to fall, down 1 basis point on the day to 13 basis points and signaling continuing doubts over the banking system.

Wednesday, April 15, 2009

Market Reflections 4/15/2009

The Fed's Beige Book added to the run of good news on the economy, showing weak conditions but also signs that the pace of contraction is easing. April's housing market index offers similar indications, showing a rare jump tied to home affordability and government stimulus efforts. The Treasury International Capital report is another reason for optimism showing improving foreign interest in U.S. financial assets especially out of China and Japan.

But not all of Wednesday's news was good. The Fed's industrial production showed sharp declines that were much worse than expected and that point to sizable drop for first quarter GDP. Also not good was talk that the government's stress tests in the banking sector, to be released early next month, may show trouble, possible trouble that is helping to keep gold steady near $900 despite the extended climb in the stock market. Capital One is definitely showing some stress with the credit card issuer reporting rising charge-offs in line with rising unemployment.

The biggest surprise in the markets came from oil which showed no reaction to a huge jump in U.S. crude inventories. Oil's strength is raising talk that market players, through ETFs and hedge funds, appear to consider oil as a safe-haven financial asset. But demand for oil has yet to improve and the dollar has yet to erode due to inflation, which are apparently the two central reasons behind oil's curious stability. Oil ended little changed at just under $49.50.

Other financial markets showed limited reaction to all the news with the S&P 500 up 1.3% at just over 850. The dollar firmed about 3/4 of a cent to $1.3200 against the euro. Treasury yields edged 1 to 2 basis points lower across the curve with the 3-month yield, at 0.14 percent, betraying a significant lack of confidence in the banking system.

Market Reflections 4/14/2009

A big fall in retail sales together with soft producer price data pushed back the outlook for economic improvement. The retail sales drop more than wiped out the gains in February and suggest that job losses, which are continuing without letup based on weekly jobless claims, may very well be hurting this month's retail sales as well. Fed Chairman Ben Bernanke eased some of the sting, saying that the economy is indeed on the mend.

Money moved out of stocks and the dollar and into the safety of Treasuries. The S&P 500 fell 2% to end at 841.65 while the dollar fell about 1 cent to $1.3276 against the euro. Treasury yields fell nearly 10 basis points for long rates and about 2 basis points for short rates, including a 1.6 point drop for the 3-month bill which, at a very tight yield of 0.15 percent, reflects still unrelenting demand for safety.

The weak data pushed down many commodities including oil, which dipped about 50 cents to just under $49.50. But gold was steady ending little changed just under $890.

Tuesday, April 14, 2009

Market Reflections 4/13/2009

Reports of a pending bankruptcy at GM and extending gains in bank stocks, in lingering reaction to last week's shockingly strong profits at Wells Fargo, headed an otherwise quiet session ahead of earnings. The S&P 500 ended fractionally higher at 858.72.

News of strong car sales out of China raised demand for platinum, up 3% at $1,237, while news of new stimulus out of China raised demand for industrial metals including copper which rose 2% on the day to end at $2.0934/lb. Gold ended just above $890 while oil ended right at $50.

Money moved into the Treasury market where the Fed, as part of its effort to lower lending rates, bought $4.4 billion of 2- to 3-year Treasuries. The Fed will buy 4- to 7-year paper on Tuesday. The Fed has so far bought back $36.5 billion of Treasuries under a $300 billion program announced last month. The dollar eased in the session, ending at $1.3376 against the euro.

Monday, April 13, 2009

U.S. Treasury tells GM to prepare for bankruptcy

General Motors was instructed by the U.S. Treasury to be ready to file for bankruptcy protection no later than June 1, The New York Times reported, quoting unnamed sources who are familiar with the matter. The government wants to see GM go through the bankruptcy process as quickly as possible to minimize the likely damage to the company's sales and to its image among car buyers, according to the newspaper. The New York Times Bondholders reportedly readying to fight GM bankruptcy.
Investors who own General Motors bonds are working on legal arguments against a potential bankruptcy filing by the troubled automaker, The Wall Street Journal reported, quoting sources acquainted with the matter. The bondholders fear that having GM in bankruptcy would force them to accept huge losses on their investments, according to the newspaper. Reuters.
This is unbelievable. who would have thought that a bankruptcy would force one to accept losses?