David Moenning's Daily State of the Markets 08/08
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Fed Day XVIII
Good morning. Monday�s action, or more appropriately, the lack thereof, had little to do with the headlines in Lebanon or the news that a large chunk of America�s crude supply is going off line. No, in reality, traders basically spent the day waiting to hear what Mr. Bernanke has to say � again.
Normally, a session that waffles back and forth in a tight range has little news to work with. However, that was not the case yesterday. The bulls tried mightily to take credit for being resilient in the face of oil climbing $2.22 to close at $76.98, which is within spitting distance of the all-time high set on July 14th. Crude surged on the news that BP will shut down the Prudhoe Bay oil field for an indefinite period of time due to extreme corrosion in the pipeline that feeds crude directly to refineries. This is no small matter as the field accounts for 8% of this country�s daily supply of crude oil.
Although the news could be construed as yet another straw that has been added to the inflation camel�s back, investors seemed to ignore the whole situation and instead focused once again on Mr. Bernanke and company. Perhaps traders decided that the SPR will be able to cover any crude shortfall for the time being. Or maybe traders figured that the situation is only temporary. But in any event, the near-record finish for crude oil had little impact on the session as traders preferred to go into waiting mode.
Turning to the Fed decision, at this point, the consensus believes that the Fed will skip the rate hike this time around and move the game into pause mode today. However, with all of the nagging little inflation issues that we�ve seen lately, the idea of no rate hike today is far from a slam dunk.
There is also a great deal of hope is that the FOMC will provide some guidance as to what its plans are for the future. But those secretly hoping to get a future game plan out of the Fed today will likely go home disappointed as we are probably going to hear more talk about risks being equal and the FOMC being �data dependent� going forward.
Let�s also remember that Mr. Bernanke has been talking about a pause, and not about an end to the rate hike campaign. So you can count on the fact that the market will begin discounting the chances of further rate hikes the very moment the announcement of today�s decision is released.
Turning to this morning, the last economic report we will see before hearing from the Fed came in a little hotter than expected. The preliminary report shows that Non-farm Productivity increased by 1.1% in the second quarter, which was better than the 0.8% expectation. However, Unit Labor Costs, which is a measure of inflation, also was hotter than consensus at +4.2% vs. expectations for +3.6%. While this may not change the Fed�s plans for today, the stats on Labor Costs are not going to go unnoticed.
Running through the rest of the pre-game indicators, the major overseas markets are higher across the board this morning. Gold futures are moving lower at the moment and are currently exchanging hands at $653.80. With no change in either the Middle East or the pipeline situation, oil is moving down a little and is trading off $0.31 to $76.67 right now. Interest rates are a little higher after the Productivity Report with the 2-year currently quoted at 4.97% while the 10-yr is trading with a yield slightly below 4.93% right now. And finally, with about an hour before the bell, stock futures in the U.S. are waffling around breakeven. The Dow futures are currently up by 3, the S&Ps are ahead by a fraction, and the NASDAQ is sporting a gain of about 3 points.
Stocks �In Play� This Morning:
Tesoro (TSO) � Upgraded at Deutsche Bank
Prudential (PRU) � Upgraded at Merrill Lynch
Google (GOOG) � News Corp selects GOOG for MySpace search
Aleris Intl (ARS) � To be purchased by Texas Pacific Group
Caremark Rx (CMX) � Reported $0.57 vs. $0.55, Guides higher
Invitrogen (IVGN) � Upgraded at BofA
Hershey (HSY) � Mentioned positively at JP Morgan
Apple Computer (AAPL) � Mentioned cautiously at Lehman
Aon Corp (AOC) � Upgraded at Merrill Lynch
Digital Realty (DLR) � Upgraded at RBC Capital
Telefonos de Mexico (TMX) � Downgraded at UBS
America Movil (AMX) � Price target raised at UBS
Principal Financial (PFG) � Upgraded at UBS
Mylan Labs (MYL) � Downgraded at Wachovia
Circuit City (CC) � Upgraded at Morgan Stanley
Franklin Resources (BEN) � Added to Focus List at AG Edwards
Long positions in stocks mentioned: MER, CMX
** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning�s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM�s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
Good morning. Monday�s action, or more appropriately, the lack thereof, had little to do with the headlines in Lebanon or the news that a large chunk of America�s crude supply is going off line. No, in reality, traders basically spent the day waiting to hear what Mr. Bernanke has to say � again.
Normally, a session that waffles back and forth in a tight range has little news to work with. However, that was not the case yesterday. The bulls tried mightily to take credit for being resilient in the face of oil climbing $2.22 to close at $76.98, which is within spitting distance of the all-time high set on July 14th. Crude surged on the news that BP will shut down the Prudhoe Bay oil field for an indefinite period of time due to extreme corrosion in the pipeline that feeds crude directly to refineries. This is no small matter as the field accounts for 8% of this country�s daily supply of crude oil.
Although the news could be construed as yet another straw that has been added to the inflation camel�s back, investors seemed to ignore the whole situation and instead focused once again on Mr. Bernanke and company. Perhaps traders decided that the SPR will be able to cover any crude shortfall for the time being. Or maybe traders figured that the situation is only temporary. But in any event, the near-record finish for crude oil had little impact on the session as traders preferred to go into waiting mode.
Turning to the Fed decision, at this point, the consensus believes that the Fed will skip the rate hike this time around and move the game into pause mode today. However, with all of the nagging little inflation issues that we�ve seen lately, the idea of no rate hike today is far from a slam dunk.
There is also a great deal of hope is that the FOMC will provide some guidance as to what its plans are for the future. But those secretly hoping to get a future game plan out of the Fed today will likely go home disappointed as we are probably going to hear more talk about risks being equal and the FOMC being �data dependent� going forward.
Let�s also remember that Mr. Bernanke has been talking about a pause, and not about an end to the rate hike campaign. So you can count on the fact that the market will begin discounting the chances of further rate hikes the very moment the announcement of today�s decision is released.
Turning to this morning, the last economic report we will see before hearing from the Fed came in a little hotter than expected. The preliminary report shows that Non-farm Productivity increased by 1.1% in the second quarter, which was better than the 0.8% expectation. However, Unit Labor Costs, which is a measure of inflation, also was hotter than consensus at +4.2% vs. expectations for +3.6%. While this may not change the Fed�s plans for today, the stats on Labor Costs are not going to go unnoticed.
Running through the rest of the pre-game indicators, the major overseas markets are higher across the board this morning. Gold futures are moving lower at the moment and are currently exchanging hands at $653.80. With no change in either the Middle East or the pipeline situation, oil is moving down a little and is trading off $0.31 to $76.67 right now. Interest rates are a little higher after the Productivity Report with the 2-year currently quoted at 4.97% while the 10-yr is trading with a yield slightly below 4.93% right now. And finally, with about an hour before the bell, stock futures in the U.S. are waffling around breakeven. The Dow futures are currently up by 3, the S&Ps are ahead by a fraction, and the NASDAQ is sporting a gain of about 3 points.
Stocks �In Play� This Morning:
Tesoro (TSO) � Upgraded at Deutsche Bank
Prudential (PRU) � Upgraded at Merrill Lynch
Google (GOOG) � News Corp selects GOOG for MySpace search
Aleris Intl (ARS) � To be purchased by Texas Pacific Group
Caremark Rx (CMX) � Reported $0.57 vs. $0.55, Guides higher
Invitrogen (IVGN) � Upgraded at BofA
Hershey (HSY) � Mentioned positively at JP Morgan
Apple Computer (AAPL) � Mentioned cautiously at Lehman
Aon Corp (AOC) � Upgraded at Merrill Lynch
Digital Realty (DLR) � Upgraded at RBC Capital
Telefonos de Mexico (TMX) � Downgraded at UBS
America Movil (AMX) � Price target raised at UBS
Principal Financial (PFG) � Upgraded at UBS
Mylan Labs (MYL) � Downgraded at Wachovia
Circuit City (CC) � Upgraded at Morgan Stanley
Franklin Resources (BEN) � Added to Focus List at AG Edwards
Long positions in stocks mentioned: MER, CMX
** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning�s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM�s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
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