David Moenning�s Daily State of the Markets: 04/18
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Hitting an Oil Slick
Stocks headed higher in the early going yesterday but slipped and fell on the oil slick left by crude moving above $70 per barrel. Worries that the nuclear situation in Iran may lead to a decrease in the supply of oil pushed crude up $1.08 to a close of $70.40.
But actually, it was comments by Chicago Fed President Michael Moscow that first caused traders to rethink their bullish mood yesterday. Speaking in De Moines, Moscow said that inflation is near the upper-end of the Fed�s comfort zone, that underlying productivity trends are quite solid, and that core inflation remains contained. While these comments were pretty much a restatement of the obvious, the key phrase that caught the market�s attention was that the Fed needs to �remain vigilant� with regard to monetary policy and inflation.
Mr. Moscow�s hawkish comments, when coupled with yesterday�s surge in commodity prices, obviously renewed concerns about inflation. And given that the Fed has little control over the price of oil, the worry is that the combination of rising energy prices and rising interest rates would most certainly have a negative impact on the economy.
The key to the move in the oil pits is the heightened fear of military action against Iran. The rhetoric out of Iran has intensified lately as the country�s ex-President says it will go ahead with its plans to enrich uranium, regardless of what the West has to say about it. And while the seemingly inevitable showdown is worrisome, it isn�t the only issue causing crude to rise. Reports yesterday showed that fully 26% of Nigeria�s crude production is currently shut in due to the violence and political unrest.
While stock traders have managed to shrug off the political posturing with Iran, the oil markets are taking Iran�s threats seriously. It doesn�t take much imagination to see that an interruption in the supply of crude oil from the world�s number two producer is a distinct possibility. And the uncertainty surrounding this issue isn�t confined to the oil pits as commodities in general surged yesterday. Gold bugs were seen dancing in the streets as the yellow metal jumped $18.70 to close at $618.80.
Stocks did not respond positively to all the talk of supply interruption and inflation, and the Dow wound up losing 64 points on the day. Breadth wasn�t too bad but volume, while light, did pick up a bit on the session. But for now at least, the uptrend in the major averages remains intact, so the bulls will hold out hope for a quick resumption of the move higher.
Turning to today�s session, so far at least, it�s been a busy morning. Crude oil hit a new all-time high overnight at $70.88, there are loads of earnings to sift through, and we�ve got some economic data to peruse. In addition, this afternoon, we�ll get a peek at the minutes from the 3/28 Fed meeting and there are a couple of FOMC members in front of audiences.
On the economic front, the March PPI report came in a bit hotter on the headline number and a bit cooler at the Core. The PPI for March rose by +0.5%, which was higher than the consensus expectations for an increase of +0.4% but the Core Rate (ex. food and energy) rose a less-than-expected 0.1%. On a year-over-year basis, the Core rate continues to remain contained and shows an increase of +1.7%.
The other numbers out this morning showed that the housing market continues to weaken. Housing Starts fell by -7.8% which was more than expected and Permits also came in below expectations.
Stocks and bonds have both improved on the news and it looks like the bulls will attempt to convince traders to focus on a future without Fed rate hikes at every turn.
Running through the rest of the pre-game indicators, Asian markets were higher on mining and commodities shares while European markets are mixed at the moment. Oil futures are currently trading up $0.34 to $70.74 and are sure to be a focal point today. Natural Gas is following suit and is trading higher by $0.27 to $7.85. Bond yields are down so far this morning with the 2-yr yield at 4.87% and the 10-yr is currently trading below 5% at 4.98%. And finally, stock futures in the U.S. are pointing to a higher open with the Dow futures sporting a gain of +21 points, the S&Ps are up by 3.10, and the NASDAQ futures are gaining 3 points
Stocks �In Play� This Morning:
Merrill Lynch (MER) � Reported $0.44 vs. $0.35, Revenues $8.0B vs. $7.40B
UnitedHealth (UNH) � Reported $0.68 vs. $0.65, Revenues $17.59B vs. $17.03, Raises guidance
Target (TGT) � Ups April Sales guidance
Activision (ATVI) � Upgraded at Bear Stearns
Micron Technology (MU) � Upgraded at JP Morgan
SAP (SAP) � Downgraded at Thomas Weisel
Computer Associates (CA) � Downgraded at Credit Suisse
DR Horton (DHI) � Reported $1.11 vs. $1.12, Revenues $3.60B vs. $3.42B
Pepsi Bottling Group (PBG) � Reported $0.14 vs. $0.11, Revenues $2.4B vs. $2.29B
Manpower (MAN) � Reported $0.48 vs. $0.38, Revenues $3.93B vs. $3.87B
Dow Jones (DJ) � Reported $0.14 vs. $0..16
US Bancorp (USB) � Reported $0.63 vs. $0.62
Anheuser Busch (BUD) � Bear Stearns cautious
Johnson and Johnson (JNJ) � Reported $0.99 vs. $0.98, Revenue $12.99B vs. $13.19B
Freeport McMoran (FCX) � Reported $1.23 vs. $0.88, Revenue $1.09B vs. $939M
Disclosure: Long positions in stocks mentioned: MER, BSC, JNJ
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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.
Stocks headed higher in the early going yesterday but slipped and fell on the oil slick left by crude moving above $70 per barrel. Worries that the nuclear situation in Iran may lead to a decrease in the supply of oil pushed crude up $1.08 to a close of $70.40.
But actually, it was comments by Chicago Fed President Michael Moscow that first caused traders to rethink their bullish mood yesterday. Speaking in De Moines, Moscow said that inflation is near the upper-end of the Fed�s comfort zone, that underlying productivity trends are quite solid, and that core inflation remains contained. While these comments were pretty much a restatement of the obvious, the key phrase that caught the market�s attention was that the Fed needs to �remain vigilant� with regard to monetary policy and inflation.
Mr. Moscow�s hawkish comments, when coupled with yesterday�s surge in commodity prices, obviously renewed concerns about inflation. And given that the Fed has little control over the price of oil, the worry is that the combination of rising energy prices and rising interest rates would most certainly have a negative impact on the economy.
The key to the move in the oil pits is the heightened fear of military action against Iran. The rhetoric out of Iran has intensified lately as the country�s ex-President says it will go ahead with its plans to enrich uranium, regardless of what the West has to say about it. And while the seemingly inevitable showdown is worrisome, it isn�t the only issue causing crude to rise. Reports yesterday showed that fully 26% of Nigeria�s crude production is currently shut in due to the violence and political unrest.
While stock traders have managed to shrug off the political posturing with Iran, the oil markets are taking Iran�s threats seriously. It doesn�t take much imagination to see that an interruption in the supply of crude oil from the world�s number two producer is a distinct possibility. And the uncertainty surrounding this issue isn�t confined to the oil pits as commodities in general surged yesterday. Gold bugs were seen dancing in the streets as the yellow metal jumped $18.70 to close at $618.80.
Stocks did not respond positively to all the talk of supply interruption and inflation, and the Dow wound up losing 64 points on the day. Breadth wasn�t too bad but volume, while light, did pick up a bit on the session. But for now at least, the uptrend in the major averages remains intact, so the bulls will hold out hope for a quick resumption of the move higher.
Turning to today�s session, so far at least, it�s been a busy morning. Crude oil hit a new all-time high overnight at $70.88, there are loads of earnings to sift through, and we�ve got some economic data to peruse. In addition, this afternoon, we�ll get a peek at the minutes from the 3/28 Fed meeting and there are a couple of FOMC members in front of audiences.
On the economic front, the March PPI report came in a bit hotter on the headline number and a bit cooler at the Core. The PPI for March rose by +0.5%, which was higher than the consensus expectations for an increase of +0.4% but the Core Rate (ex. food and energy) rose a less-than-expected 0.1%. On a year-over-year basis, the Core rate continues to remain contained and shows an increase of +1.7%.
The other numbers out this morning showed that the housing market continues to weaken. Housing Starts fell by -7.8% which was more than expected and Permits also came in below expectations.
Stocks and bonds have both improved on the news and it looks like the bulls will attempt to convince traders to focus on a future without Fed rate hikes at every turn.
Running through the rest of the pre-game indicators, Asian markets were higher on mining and commodities shares while European markets are mixed at the moment. Oil futures are currently trading up $0.34 to $70.74 and are sure to be a focal point today. Natural Gas is following suit and is trading higher by $0.27 to $7.85. Bond yields are down so far this morning with the 2-yr yield at 4.87% and the 10-yr is currently trading below 5% at 4.98%. And finally, stock futures in the U.S. are pointing to a higher open with the Dow futures sporting a gain of +21 points, the S&Ps are up by 3.10, and the NASDAQ futures are gaining 3 points
Stocks �In Play� This Morning:
Merrill Lynch (MER) � Reported $0.44 vs. $0.35, Revenues $8.0B vs. $7.40B
UnitedHealth (UNH) � Reported $0.68 vs. $0.65, Revenues $17.59B vs. $17.03, Raises guidance
Target (TGT) � Ups April Sales guidance
Activision (ATVI) � Upgraded at Bear Stearns
Micron Technology (MU) � Upgraded at JP Morgan
SAP (SAP) � Downgraded at Thomas Weisel
Computer Associates (CA) � Downgraded at Credit Suisse
DR Horton (DHI) � Reported $1.11 vs. $1.12, Revenues $3.60B vs. $3.42B
Pepsi Bottling Group (PBG) � Reported $0.14 vs. $0.11, Revenues $2.4B vs. $2.29B
Manpower (MAN) � Reported $0.48 vs. $0.38, Revenues $3.93B vs. $3.87B
Dow Jones (DJ) � Reported $0.14 vs. $0..16
US Bancorp (USB) � Reported $0.63 vs. $0.62
Anheuser Busch (BUD) � Bear Stearns cautious
Johnson and Johnson (JNJ) � Reported $0.99 vs. $0.98, Revenue $12.99B vs. $13.19B
Freeport McMoran (FCX) � Reported $1.23 vs. $0.88, Revenue $1.09B vs. $939M
Disclosure: Long positions in stocks mentioned: MER, BSC, JNJ
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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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