Thermal coal: China imports 60% more coal in April vs. March
Two new developments in the thermal coal space this week :
(1) China trade data this week supports demand strength, confirming 9.2 mt of imports(including coking and thermal coal), up 3.4 mt (60%) from March and 5.7 mt (168%)YoY. (
2) Mc CloskeyEuropean Coal Outlook Conference - Macq commodities team came out of the conference less bearish on prices from here, at least in the Pacific.
On China , the most bullish assessment came from Philip Gasteen, head of marketing and logistics at Asian coal and electricity producer Banpu.
He suggested thata round 55 mt of thermal coal is due to be delivered into China this year under recently completed deals. This would drive imports 20-25 mt higher, while export volumesare likely to fall 15-20 mt. Thus, he sees China's net imports increasing by 40 mt this year.
My take -closer to home, many Asian coal analysts & corporates will attend the Coal Trans conference in Bali during the first week of June.
We shall see whether they will come back with the same positivetake-aways on China/India coal demand. Indoproperty: upgrading price targets Macq research coverage of Indoproperty sector remains on the transition phase, since our previous analyst Lydia Toisuta left the firm on Nov 2008.
In the meantime, ahead of Macquarie Asean conference in June (Bakrieland & Lippo Karawaci have confirmed attendance), Elaine Cheong (Macq property analyst based in Singapore) re-affirms our positive sector view today by lifting price targets on Bakrieland fromRp100 to Rp330 (22% upside), Ciputra Dev from Rp320 to Rp650 (18% upside), andLippo Karawaci from Rp250 to Rp530 (35% downside).
Essentially, she has reduced the NAV discounts implied by those price targets, without changing the NAV estimates by much. She applies a 35%NAV discount for Bakrieland (NAV estimate of Rp519), 35% NAV discount for Ciputra Dev (NAV estimate of Rp1,001), and 35% NAV discount for Lippo Karawaci (NAV estimate of Rp816).
She re-iterates Outperform rating on Ciputra Dev &Bakrieland, Underperform rating on Lippo Karawaci.
Her key arguments for the narrower NAV discounts:
1. Resilient domestic demand in Indonesia
2. Lowering of interest rates PGAS : smoothing out ways for gas price hike (Adam Worthington) Yesterday, PGAS met with government officials and industry players to discuss the future of the gas market.
Upside risk to gas prices post presidential election, re-iterate Outperform.
Three key points:
1. Supply shortage: The domestic gas market is in a supply shortage, and further exploration and development is required at the upstream level.
2. US$ pricing appropriate: Industry participants agreed that US$ pricing is appropriate given that capex, financing cost of gas production, and transmission and distribution costs are US$denominated.
3. Gas is undervalued vs its closest substitute: Participants noted that the selling price of gas has not been raised since July 2007 despite the surge in other commodities, and that at the current exchangerate, the selling price of PGAS 's natural gas is approximately Rp2,038 perdiesel equivalent litre, a competitive price when compared with othersources of energy.
The participants discussed the potential for gas price increases (in the upstream and downstream) to encourage exploration and development of reserves.
Snippets :
Macro - VP candidate Boediono will focus on integrating fiscal, monetary, and sectoral policies, ifhe got elected.
Medco - BPMigashead Mr.Priyono confirms that Medco will get a 20-year extension for its block A project, located in North Aceh, when the term expires in 2011. Block A is a high priority project for the government, since the block will supply to PT Pupuk Iskandar Muda and to PT PLN (85 trillion BTU in 2010-2027). The other partners in block A are Premier Oil (42% stake) and Japan Petroleum Exploration (16%).
Crude Palm Oil - The government may impose 3% tax on palm oil exports, according to theJakarta Post.
PT Telkom -will cancel its plan to acquire a stake in the Telecommunciations Company of Iran, according to Tempo and Bisnis Indonesia.The cancellation is due to the requirement by the Iranian government that the bidders be free of American shareholders. PT Telkom has ADRs listed on the NewYork Stock Exchange.
PT Timah - will pay a dividend of Rp133/sh or equivalent to a 50% payout ratio. The company is budgeting Rp350 bn for capex.
PT Unilever Indonesia -will pay a final dividend of Rp220/sh. The total dividend is Rp315/sh or equivalent to a 100% payout ratio. The company is budgeting Rp700bn for capex.
PT Jaya Ancol -is exploring a Rp250 bn rights issue, according to Bisnis Indonesia. The company will pay adividend of Rp37/sh.
Friday, May 22, 2009
ML INDO : PGAS volume could surprise Flows CPO Fund Mgr Survey (22 May 2009)
While investors continue to have doubt over PGAS execution risk, PGAS volume ramp-up up to April does not disappoint. Gas delivery rose from 720 mmscfd in 1Q to 770mmscfd in April.
At this rate, Daisy's FY09 volume expectation of 720 mmscfd could be easily surpassed. Also, the no. of customers that took up gas below the minimum payment level fell from 270-350 in 1Q to 260, while gas contracts not absorbed by customers dropped from 2-3% in 1Q to 1.6%.
Separately, 3-days planned gas supply stoppage from Conoco Philips for maintenance is not a concern, as impact is minimal at 5-2 mmscfd for transmission and distribution respectively.
On the customer front, by end-09, 56% of PGAS' revenue will come from state owned PLN. This will underpin PGAS's robust growth as we expect PLN's gas consumption to grow at 3-yr CAGR of16%.
We only expect PGAS to grow 7% for 2008-12. Trades at 9.8x '10 P/E,a 41% disc to regional utilities. Potential earnings upside from higher volume, lower tax rate,and higher dividend.
Buy PO Rp3,200
Market News
* Politics:
During a presidential debate,incumbent President SBY pledged to boost economic growth to 7% by 2014 (more conservative than VP Kalla's +8% promise and Megawati's +10%), to accelrate reform of the bureaucracy and cut red-tape for business startups. (Jakarta Post)
* Timah (TINS) cut back this year's capex to Rp 350 bn from Rp 900 bn as it delays plan to buy coal mining company and to built an ash plat plant due to limited fund following the drop in tin prices. (Bloomberg)
* United Tractors (UNTR) to pay dividend of Rp 320/shr or 3.2% yield, of which Rp 100/shr interim has been paid last year. This represent 40% of 2008's profit. Separately, UT allocated Rp 650 bn to acquire coal mines. They continue to do due dilligence on target mines. Funding will come from rights issue proceed from last year. (Bisnis Indonesia)
* Indocement (INTP) - post +14% performance over the past 3 days, media Bisnis Indoensia is speculating that Heidelberg may change their mind on selling 15% stake in Indocement. (Bisnis Indoensia)
* Medco (MEDC) to get 20-year extension for its Block A gas field in Aceh. Medco's current contract for Block A will expire in 2011. Medco owns 41.67% in the field. (Bisnis Indoensia) EM more inflow EM equity funds saw $2.5 bn inflow in week to 20 May, bringing total inflows over past 9 weeks to $20bn ,the largest 9 week inflow since EEM $55 peak in Nov-07. BAS-ML fund flow trading rule still signals Sell, as inflows over past 4 weeks represents 3.2%of AUM.
In recent weeks trading rule has been wrong-footed by big policy stimulus and reallocation into equities. But Mike Hartnett feels the case for EM pause/pullback is now strengthened by big EM bullishness revealed in Fund Mgr Survey, e.g. 55% asset allocators OW EM, 80% of PMs OWChina, i.e. "pain trade" no longer up.
Note also EEM struggles once its gets >20% above its 200 mda (was 17% above yest'). By region: inflows into Asia ($0.9bn), GEM ($0.9bn),LatAm ($0.6bn). EMEA flows flat. By country: big inflows into Brazil & China. CPO: beginning of the fall?Jeffrey Ngreiterates his bearish view on CPO following the futures mkt down as much as 4.7%yest', breaking key support of RM2,500/mt as rain lashed oil palm growing regions and on concerns that high prices may curb demand.
He has been bearish since the rally began in late March. The rally, in our view, was driven by liquidity, tactical positioning by refiners and supported by low inventory data.Meanwhile, long term fundamentals are unchanged - production to recover, US soybean planting starts might be revised upward in June and stockpiling is over. CPO price in 2009 is supply driven and with production picking up in2H09, the only direction CPO going is downward. Jeff sees current levels as agood opportunity to take profit.
Global Fund Mgr Survey: No"Sell in May"
Investors are now positioned for global economic recovery according to the May Fund Mgr Survey. The unrelenting gloom 3mths ago has been replaced by fairly typical early-cyclicalsentiment, with the only hint of potential irrational-exuberance in Emerging Markets.
For the first time since March '05, investors expect corporate profits to improve in the next 12 months, with many forecasting EPS growth to exceed10%. Asset allocators are still hedging their bets: they remain U/W equities (-6%)and have only marginally lowered cash O/W (+21% from +24%).
A brief 9-month so journ into bonds ended with allocators cutting to a net 3% U/W. They stay U/WEurope & Japan, but a record net 40% of investors see GEM as the region toO/W for the next 12 mths.
Investors´ top 3 global sectors are now tech , energy, & materials as May saw a rout in defensive sectors: pharma fell to-2% from +21%, staples -1% from +9%, and utilities -19% from -15% (now the mostU/W sector). In Asia, cash positions droppedsharply with a net 9% saying they are now UW cash.
At this rate, Daisy's FY09 volume expectation of 720 mmscfd could be easily surpassed. Also, the no. of customers that took up gas below the minimum payment level fell from 270-350 in 1Q to 260, while gas contracts not absorbed by customers dropped from 2-3% in 1Q to 1.6%.
Separately, 3-days planned gas supply stoppage from Conoco Philips for maintenance is not a concern, as impact is minimal at 5-2 mmscfd for transmission and distribution respectively.
On the customer front, by end-09, 56% of PGAS' revenue will come from state owned PLN. This will underpin PGAS's robust growth as we expect PLN's gas consumption to grow at 3-yr CAGR of16%.
We only expect PGAS to grow 7% for 2008-12. Trades at 9.8x '10 P/E,a 41% disc to regional utilities. Potential earnings upside from higher volume, lower tax rate,and higher dividend.
Buy PO Rp3,200
Market News
* Politics:
During a presidential debate,incumbent President SBY pledged to boost economic growth to 7% by 2014 (more conservative than VP Kalla's +8% promise and Megawati's +10%), to accelrate reform of the bureaucracy and cut red-tape for business startups. (Jakarta Post)
* Timah (TINS) cut back this year's capex to Rp 350 bn from Rp 900 bn as it delays plan to buy coal mining company and to built an ash plat plant due to limited fund following the drop in tin prices. (Bloomberg)
* United Tractors (UNTR) to pay dividend of Rp 320/shr or 3.2% yield, of which Rp 100/shr interim has been paid last year. This represent 40% of 2008's profit. Separately, UT allocated Rp 650 bn to acquire coal mines. They continue to do due dilligence on target mines. Funding will come from rights issue proceed from last year. (Bisnis Indonesia)
* Indocement (INTP) - post +14% performance over the past 3 days, media Bisnis Indoensia is speculating that Heidelberg may change their mind on selling 15% stake in Indocement. (Bisnis Indoensia)
* Medco (MEDC) to get 20-year extension for its Block A gas field in Aceh. Medco's current contract for Block A will expire in 2011. Medco owns 41.67% in the field. (Bisnis Indoensia) EM more inflow EM equity funds saw $2.5 bn inflow in week to 20 May, bringing total inflows over past 9 weeks to $20bn ,the largest 9 week inflow since EEM $55 peak in Nov-07. BAS-ML fund flow trading rule still signals Sell, as inflows over past 4 weeks represents 3.2%of AUM.
In recent weeks trading rule has been wrong-footed by big policy stimulus and reallocation into equities. But Mike Hartnett feels the case for EM pause/pullback is now strengthened by big EM bullishness revealed in Fund Mgr Survey, e.g. 55% asset allocators OW EM, 80% of PMs OWChina, i.e. "pain trade" no longer up.
Note also EEM struggles once its gets >20% above its 200 mda (was 17% above yest'). By region: inflows into Asia ($0.9bn), GEM ($0.9bn),LatAm ($0.6bn). EMEA flows flat. By country: big inflows into Brazil & China. CPO: beginning of the fall?Jeffrey Ngreiterates his bearish view on CPO following the futures mkt down as much as 4.7%yest', breaking key support of RM2,500/mt as rain lashed oil palm growing regions and on concerns that high prices may curb demand.
He has been bearish since the rally began in late March. The rally, in our view, was driven by liquidity, tactical positioning by refiners and supported by low inventory data.Meanwhile, long term fundamentals are unchanged - production to recover, US soybean planting starts might be revised upward in June and stockpiling is over. CPO price in 2009 is supply driven and with production picking up in2H09, the only direction CPO going is downward. Jeff sees current levels as agood opportunity to take profit.
Global Fund Mgr Survey: No"Sell in May"
Investors are now positioned for global economic recovery according to the May Fund Mgr Survey. The unrelenting gloom 3mths ago has been replaced by fairly typical early-cyclicalsentiment, with the only hint of potential irrational-exuberance in Emerging Markets.
For the first time since March '05, investors expect corporate profits to improve in the next 12 months, with many forecasting EPS growth to exceed10%. Asset allocators are still hedging their bets: they remain U/W equities (-6%)and have only marginally lowered cash O/W (+21% from +24%).
A brief 9-month so journ into bonds ended with allocators cutting to a net 3% U/W. They stay U/WEurope & Japan, but a record net 40% of investors see GEM as the region toO/W for the next 12 mths.
Investors´ top 3 global sectors are now tech , energy, & materials as May saw a rout in defensive sectors: pharma fell to-2% from +21%, staples -1% from +9%, and utilities -19% from -15% (now the mostU/W sector). In Asia, cash positions droppedsharply with a net 9% saying they are now UW cash.
Monday, May 11, 2009
U.S. Recession May Be Over, Barclays’ Knapp Says: Chart of Day
U.S. Recession May Be Over, Barclays' Knapp Says: Chart of DayBy David Wilson
May 11 (Bloomberg) -- The longest U.S. recession since the Great Depression may have ended last month, according to Barry Knapp, a strategist at Barclays Capital.
"We appear to be in the sweet spot of a recovery," Knapp wrote in a weekly report on May 8.
The CHART OF THE DAY highlights spending on services, one indicator that Knapp used to reach his conclusion. Outlays rose 1.5 percent in each of the past two quarters after a 0.1 percent drop in last year's third quarter, the first decline since 1991, according to data compiled by the Commerce Department.
"Service-sector employers expected sharp drops in demand, and may have overshot in terms of cutting back on workers", he wrote. The report cited figures from ADP Employer Services that showed job losses at service companies slowed to 229,000 last month from 384,000 in March.
Quarterly percentage changes in demand for durable goods, made to last more than three years, and other goods are included in the chart. Both rebounded in the first quarter after tumbling in 2008's final three months.
The National Bureau of Economic Research may eventually declare April 2009 as the end of the recession, Knapp's report said. The slump began in December 2007, according to the panel, which took a year to set that date.
While capital markets are also on the mend, stocks "have overshot the improvement of the economic outlook," Knapp wrote. His year-end estimate of 757 for the Standard & Poor's 500 Index is the lowest among 11 strategists in a Bloomberg survey.
May 11 (Bloomberg) -- The longest U.S. recession since the Great Depression may have ended last month, according to Barry Knapp, a strategist at Barclays Capital.
"We appear to be in the sweet spot of a recovery," Knapp wrote in a weekly report on May 8.
The CHART OF THE DAY highlights spending on services, one indicator that Knapp used to reach his conclusion. Outlays rose 1.5 percent in each of the past two quarters after a 0.1 percent drop in last year's third quarter, the first decline since 1991, according to data compiled by the Commerce Department.
"Service-sector employers expected sharp drops in demand, and may have overshot in terms of cutting back on workers", he wrote. The report cited figures from ADP Employer Services that showed job losses at service companies slowed to 229,000 last month from 384,000 in March.
Quarterly percentage changes in demand for durable goods, made to last more than three years, and other goods are included in the chart. Both rebounded in the first quarter after tumbling in 2008's final three months.
The National Bureau of Economic Research may eventually declare April 2009 as the end of the recession, Knapp's report said. The slump began in December 2007, according to the panel, which took a year to set that date.
While capital markets are also on the mend, stocks "have overshot the improvement of the economic outlook," Knapp wrote. His year-end estimate of 757 for the Standard & Poor's 500 Index is the lowest among 11 strategists in a Bloomberg survey.
Monday, May 4, 2009
Coal Stocks Push up Australia
SINGAPORE -- Asian share markets were higher Tuesday on hopes for some stability in the global economy, and as coal stocks rose, although trade was quiet with markets shut in Japan and South Korea for holidays.
Australia's S&P/ASX 200 was up 0.5% -- after a 3% rise Monday to six-month highs -- with New Zealand's NZX-50 up 2.1%, briefly hitting its best levelsince Nov. 11.
The Dow Jones Industrial Average jumped 2.6% while the S&P 500 turned positive for the year to date.
There's "quite a bit of literature from around the world these days about economies slowly picking up," said PeterYoung, an adviser at Forsyth Barr.
Data from the U.S. and China have been reassuring in recent days, althoughthere are also signs of ongoing economic weakness and concerns about the health of the large U.S. banks."We have made a lot of money over the last eight weeks and continue to think the trick from here will be to keep that money," said analyst Jeffrey D.Saut at Raymond James Equity Research in the U.S.
"Longer-term we are pretty optimistic. Near-term, we are cautious."Stocks tied to the economic cycle led the way in Sydney, with David Jones up6%, Macquarie Group up 5.2%, Boral up 7.5% and Rio Tinto up 3.8%.Coal-sector stocks took their lead from a rise in U.S. coal shares Monday after Goldman Sachs raised its coverage view on the companies to attractive from neutral, saying there was expectations for an economic recovery in China.Maccarthur Coal was up 4.2% with Centennial Coal rising 9.6%, while Whitehaven Coal added 2.5%.
Singapore's Noble Group said it was increasing its cash offer for Gloucester Coal, calling on the board of Gloucester toact immediately to declare the offer superior to a proposed merger deal with Whitehaven Coal.In Australia, BlueScope Steel, the country's largest steel maker, said it planned to raise up to 1.41 billion Australian dollars ($1.11 billion) through an entitlement offer to cut debt and streng then its balance sheet.
That stock was suspended from trade.Cyclical stocks were higher also in New Zealand, with chip maker Rayon up13.6% after announcing a research project, to be half funded by a government grant.
Fisher & Paykel Appliances was up 13.7%, Fletcher Building up 4.4%,Contact Energy up 2.7% and Telecom 2.6% higher.
The euro was still stronger in currency markets as risk appetite improved,with the single currency at $1.3421, from $1.3405 late in New York, and at¥132.68, from ¥132.60, off an early low of ¥132.35.
"I am bullish risk, so Iam bullish the euro," said ANZ Bank senior dealer Alex Sinton.The U.S. dollar was at ¥98.86, from ¥98.93 in New York, while the Australian dollar was sticking near US$0.7400 before the Reserve Bank of Australia's interest-rate decision, with the central bank expected to stand pat.
Despite the recent market inclination to sell the U.S. dollar, Westpac said that, based on leading indicators, it was the most desirable currency among the Group of Three, followed by the euro and the yen.
"The temptation is to ignore these signals and to be short the dollar by focusing exclusively on improving risk appetite," said analyst Richard Franulovich, "but sentiment is fickle.
"Spot gold was down 95 cents at $902.25 a troy ounce after a strong performance in New York.
Three-month copper on the London Metal Exchange gained 2.7% in electronic trade after Monday's London holiday, to $4,720 a metric ton.
David Moore, an analyst at Commonwealth of Australia, said the market was taking a "glass is half full view" on the global economic outlook.
Front-month Nymex crude oil futures were down 14 cents on Globex at $54.33 a barrel, having risen $1.27 in New York.
By - Rosalind Mathieson
Australia's S&P/ASX 200 was up 0.5% -- after a 3% rise Monday to six-month highs -- with New Zealand's NZX-50 up 2.1%, briefly hitting its best levelsince Nov. 11.
The Dow Jones Industrial Average jumped 2.6% while the S&P 500 turned positive for the year to date.
There's "quite a bit of literature from around the world these days about economies slowly picking up," said PeterYoung, an adviser at Forsyth Barr.
Data from the U.S. and China have been reassuring in recent days, althoughthere are also signs of ongoing economic weakness and concerns about the health of the large U.S. banks."We have made a lot of money over the last eight weeks and continue to think the trick from here will be to keep that money," said analyst Jeffrey D.Saut at Raymond James Equity Research in the U.S.
"Longer-term we are pretty optimistic. Near-term, we are cautious."Stocks tied to the economic cycle led the way in Sydney, with David Jones up6%, Macquarie Group up 5.2%, Boral up 7.5% and Rio Tinto up 3.8%.Coal-sector stocks took their lead from a rise in U.S. coal shares Monday after Goldman Sachs raised its coverage view on the companies to attractive from neutral, saying there was expectations for an economic recovery in China.Maccarthur Coal was up 4.2% with Centennial Coal rising 9.6%, while Whitehaven Coal added 2.5%.
Singapore's Noble Group said it was increasing its cash offer for Gloucester Coal, calling on the board of Gloucester toact immediately to declare the offer superior to a proposed merger deal with Whitehaven Coal.In Australia, BlueScope Steel, the country's largest steel maker, said it planned to raise up to 1.41 billion Australian dollars ($1.11 billion) through an entitlement offer to cut debt and streng then its balance sheet.
That stock was suspended from trade.Cyclical stocks were higher also in New Zealand, with chip maker Rayon up13.6% after announcing a research project, to be half funded by a government grant.
Fisher & Paykel Appliances was up 13.7%, Fletcher Building up 4.4%,Contact Energy up 2.7% and Telecom 2.6% higher.
The euro was still stronger in currency markets as risk appetite improved,with the single currency at $1.3421, from $1.3405 late in New York, and at¥132.68, from ¥132.60, off an early low of ¥132.35.
"I am bullish risk, so Iam bullish the euro," said ANZ Bank senior dealer Alex Sinton.The U.S. dollar was at ¥98.86, from ¥98.93 in New York, while the Australian dollar was sticking near US$0.7400 before the Reserve Bank of Australia's interest-rate decision, with the central bank expected to stand pat.
Despite the recent market inclination to sell the U.S. dollar, Westpac said that, based on leading indicators, it was the most desirable currency among the Group of Three, followed by the euro and the yen.
"The temptation is to ignore these signals and to be short the dollar by focusing exclusively on improving risk appetite," said analyst Richard Franulovich, "but sentiment is fickle.
"Spot gold was down 95 cents at $902.25 a troy ounce after a strong performance in New York.
Three-month copper on the London Metal Exchange gained 2.7% in electronic trade after Monday's London holiday, to $4,720 a metric ton.
David Moore, an analyst at Commonwealth of Australia, said the market was taking a "glass is half full view" on the global economic outlook.
Front-month Nymex crude oil futures were down 14 cents on Globex at $54.33 a barrel, having risen $1.27 in New York.
By - Rosalind Mathieson
Sunday, May 3, 2009
Stock Market Insider: Week Ahead - Stock Market Could Face Headwinds
Topics:Earnings Banking Currencies Stock Market Investment Strategy
Stocks are likely to encounter headwinds as the market tries to keep pushing higher in the week ahead.
The S&P 500 has gained in seven of the past eight weeks, and is positioned to keep rising after closing above a key resistance level Friday. The S&P finished the week up 1.3 percent, at 877, a level not seen since Jan. 9.
Yet, traders say there are a number of risks in the coming week, the biggest of which will be the results of the government's stress tests on 19 banks, now expected to be released Thursday. There are also a number of economic reports, some major earnings, and testimony from Fed Chairman Ben Bernanke before the Joint Economic Committee Tuesday.
A real wild card for the markets is the swine flu outbreak, which has so far been ignored but could become a factor if it is seen as a more deadly threat in the U.S.
Berkshire Hathaway's [BRK 92005.00 -1995.00 (-2.12%) ] annual meeting was scheduled for Saturday, and that could be a catalyst for stocks Monday depending on what its CEO and legendary investor Warren Buffett tells investors.
At the top of the list for markets though are those stress tests of the biggest banks that took funds under the government's Troubled Asset Relief Program. The results for each of the institutions were expected Monday but the release was moved to Thursday. Several banks are expected to need capital but it is not clear how that information will be reported and what solutions for capital raising will be included with the reports.
"They postponed the stress test again so people are saying they want to tiptoe into next week," said Art Cashin, director of floor operations for UBS. "The floor has always thought the stress test was a no-win situation... from the minute it was conceived it was thought to be a a not so hot idea. They're just worried about the presentation now.
"David Kotok of Cumberland Advisers said it's important the tests are seen as credible. "If some pass and some fail, the market will adjust the prices between the two groups," he said.
Steven Stanley, chief U.S. economist at RBS, said it appears the government's negotiations with the banks are what stalled the release of the tests. "I think the government just assumed the banks would take whatever results were presented to them, and the banks are complaining they did it wrong. As far as big events next week, that's clearly one and the other one is the payroll number on Friday," he said.
Stanley said he expects that April employment report to show unemployment has climbed to 8.8 percent. As for the pace of job loss, "we do expect to see some improvement. . a decline of 535,000 (non farm payrolls). It's gargantuan but an improvement relative to March. Our sense is, as with other indicators, that things are still pretty bad but they are starting to decelerate," he said.
"We're now starting to see evidence that suggests that things, at a minimum, are getting worse at a slower pace but perhaps stabilizing in certain areas," said Stanley. He said he will also be watching chain stores' April sales Thursday, which will provide a good look at the consumer.
Another big market event will be the Treasury's issuance of more than $70 billion in 3-year, 10-year and 30-year notes in three days of auctions. The yield curve steepened in the past week as the long end came under pressure on supply concerns. The yield on the 10-year rose to 3.174 percent, its highest level since Nov. 24.
Whither Stocks?
Kotok believes swine flu could become an issue for stocks if there are more deaths in the U.S. or other parts of the world. "The stock market has ignored swine flu for all intents and purposes. It's busy with its green shoots," said Kotok. "Do you weigh risk proactively or reactively? If proactively, you have to manage risk events before they are understood..
"If the public does start to have a greater fear of the flu, the resulting social behavior would have the potential to cause an economic shock. "When things are good, large shocks are dealt with...This shock would come when the economies around the world are weak, and the U.S. is particularly weak," he said.
Kotok said there are other risks for the market in the economy, including the growing problems in commercial real estate and commercial mortgages. Unlike housing, there is no political sympathy for commercial property owners and now the shuttering of auto dealerships puts more pressure on the sector which already faced oversupply.
Richard Bernstein, former chief investment strategist at Merrill Lynch, also sees some hurdles for the stock market. He said investors are not considering the type of economic impact that could come from the ripple effect of General Motors [GM 1.81 -0.11 (-5.73%) ] shutting down its production for nine weeks, a process that starts Monday. He said that shutdown will show up in economic statistics as it impacts suppliers and other related parts of the economy. Chrysler, which filed for bankruptcy Thursday, is also shutting down its production while in bankruptcy.
The Currency:
Euro, British Pound, Australian Dollar All to Face Rate Decisions
"Another thing people aren't considering when trying to anticipate the turn...is that it's not just lower interest rates. It's lower interest rates and pent up demand. it's hard to imagine there's pent up demand for housing," he said.Bernstein, like many, thinks the market has gotten ahead of itself. "I think a pull back is pretty likely," he said.
"I think consensus has changed quite quickly that we're out of the soup, and things are getting better...I think he only one that's showing real improvement is the stock market.
"Bernstein said though there are some positives, including the slope of the yield curve. "There's no doubt about that. The question is how bad are the bank balance sheets," he said. The dollar's strength is also a positive. "I think people should be more bullish about the dollar. I think people forget what it is financial institutions and banks do, that is create dollars. We had a credit bubble, and the dollar was exceptionally weak. If you are a bear on credit, you want to be a bull on the dollar and vice versa," he said.
Reserve Bank of Australia Rate Decision – May 5The Reserve Bank of Australia is anticipated to leave their cash rate target unchanged at 00:30 ET on Tuesday, after surprisingly cutting the rate by 25 basis points to 3.00 percent, but the Australian dollar may only respond to a surprise rate cut or a biased monetary policy statement. After the central bank’s last meeting, RBA Governor Alan Bollard said, “The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” suggesting that further reductions were unnecessary. As a result, it will be important to look to Bollard’s statement, as signs that the RBA may consider cutting the cash rate target again eventually could weigh on the Australian dollar, while indications of a broadly neutral bias could support the currency.
European Central Bank Rate Decision – May 7According to a Bloomberg News poll of economists and Credit Suisse overnight index swaps, the ECB will cut rates by 25 basis points to 1.00 percent on Thursday morning. A reduction in line with Bloomberg's estimates could exert bearish pressures on the euro, but where the currency ends the day may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Many ECB members have indicated that they will announce “unconventional” measures following this meeting, which many have taken to mean credit easing, and if Trichet makes such an announcement, the euro could tumble. On the other hand, if the ECB leaves rates unchanged, indicates that they have no intention of bringing interest rates lower in the near term, or if they put off credit easing, the euro could rally.
"Econorama"
Jobs data is the big one, but there is plenty to watch in the coming week. On Monday, there is pending home sales and construction spending data. The ISM non manufacturing number is reported Tuesday, and Wednesday is the ADP employment report, a kind of preview to Friday's number. On Thursday, more hints at the jobs number come when the latest weekly unemployment claims data is reported. Productivity and costs and consumer credit are also reported that day. In addition to employment on Friday, wholesale trade data for March is reported.
Besides Bernanke's Congressional testimony earlier in the week, the Fed chairman speaks at the Chicago Fed's conference on bank structure and competition Thursday at 9:30 a.m. Chicago Fed President Charles Evans speaks at the same conference, as does FDIC Chair Sheila Bair.
Other Fed speakers include Fed President Thomas Hoeing who speaks in New York on the financial crisis Monday, and Richmond Fed President Jeffrey Lacker speaks in Charlottesville, Va. Monday afternoon. San Francisco Fed President Janet Yellen speaks at U.C. Berkeley Tuesday on financial turmoil.
Earnings Central:
Nearly 80 S&P 500 companies report earnings in the coming week. On Monday, Tyson Foods, Sysco, Sprint Nextel, Loews, Entergy, Estee Lauder, Chesapeake Energy and McKesson report. Disney, Kraft Foods, CVS Caremark, Duke Energy, UBS, Archer-Daniels and Teva report Tuesday.
Wednesday's reports include News Corp, Anadarko, Devon Energy, PG&E, Transocean, and Marsh and McLennan. On Thursday, Axa, Dynegy, D.R. Horton, Thomson Reuters, Unilever, Sara Lee, Nasdaq OMX, CBS, Public Storage, Allstate, and Nvidia report. Friday's major companies are Toyota and Berkshire Hathaway.
Stocks are likely to encounter headwinds as the market tries to keep pushing higher in the week ahead.
The S&P 500 has gained in seven of the past eight weeks, and is positioned to keep rising after closing above a key resistance level Friday. The S&P finished the week up 1.3 percent, at 877, a level not seen since Jan. 9.
Yet, traders say there are a number of risks in the coming week, the biggest of which will be the results of the government's stress tests on 19 banks, now expected to be released Thursday. There are also a number of economic reports, some major earnings, and testimony from Fed Chairman Ben Bernanke before the Joint Economic Committee Tuesday.
A real wild card for the markets is the swine flu outbreak, which has so far been ignored but could become a factor if it is seen as a more deadly threat in the U.S.
Berkshire Hathaway's [BRK 92005.00 -1995.00 (-2.12%) ] annual meeting was scheduled for Saturday, and that could be a catalyst for stocks Monday depending on what its CEO and legendary investor Warren Buffett tells investors.
At the top of the list for markets though are those stress tests of the biggest banks that took funds under the government's Troubled Asset Relief Program. The results for each of the institutions were expected Monday but the release was moved to Thursday. Several banks are expected to need capital but it is not clear how that information will be reported and what solutions for capital raising will be included with the reports.
"They postponed the stress test again so people are saying they want to tiptoe into next week," said Art Cashin, director of floor operations for UBS. "The floor has always thought the stress test was a no-win situation... from the minute it was conceived it was thought to be a a not so hot idea. They're just worried about the presentation now.
"David Kotok of Cumberland Advisers said it's important the tests are seen as credible. "If some pass and some fail, the market will adjust the prices between the two groups," he said.
Steven Stanley, chief U.S. economist at RBS, said it appears the government's negotiations with the banks are what stalled the release of the tests. "I think the government just assumed the banks would take whatever results were presented to them, and the banks are complaining they did it wrong. As far as big events next week, that's clearly one and the other one is the payroll number on Friday," he said.
Stanley said he expects that April employment report to show unemployment has climbed to 8.8 percent. As for the pace of job loss, "we do expect to see some improvement. . a decline of 535,000 (non farm payrolls). It's gargantuan but an improvement relative to March. Our sense is, as with other indicators, that things are still pretty bad but they are starting to decelerate," he said.
"We're now starting to see evidence that suggests that things, at a minimum, are getting worse at a slower pace but perhaps stabilizing in certain areas," said Stanley. He said he will also be watching chain stores' April sales Thursday, which will provide a good look at the consumer.
Another big market event will be the Treasury's issuance of more than $70 billion in 3-year, 10-year and 30-year notes in three days of auctions. The yield curve steepened in the past week as the long end came under pressure on supply concerns. The yield on the 10-year rose to 3.174 percent, its highest level since Nov. 24.
Whither Stocks?
Kotok believes swine flu could become an issue for stocks if there are more deaths in the U.S. or other parts of the world. "The stock market has ignored swine flu for all intents and purposes. It's busy with its green shoots," said Kotok. "Do you weigh risk proactively or reactively? If proactively, you have to manage risk events before they are understood..
"If the public does start to have a greater fear of the flu, the resulting social behavior would have the potential to cause an economic shock. "When things are good, large shocks are dealt with...This shock would come when the economies around the world are weak, and the U.S. is particularly weak," he said.
Kotok said there are other risks for the market in the economy, including the growing problems in commercial real estate and commercial mortgages. Unlike housing, there is no political sympathy for commercial property owners and now the shuttering of auto dealerships puts more pressure on the sector which already faced oversupply.
Richard Bernstein, former chief investment strategist at Merrill Lynch, also sees some hurdles for the stock market. He said investors are not considering the type of economic impact that could come from the ripple effect of General Motors [GM 1.81 -0.11 (-5.73%) ] shutting down its production for nine weeks, a process that starts Monday. He said that shutdown will show up in economic statistics as it impacts suppliers and other related parts of the economy. Chrysler, which filed for bankruptcy Thursday, is also shutting down its production while in bankruptcy.
The Currency:
Euro, British Pound, Australian Dollar All to Face Rate Decisions
"Another thing people aren't considering when trying to anticipate the turn...is that it's not just lower interest rates. It's lower interest rates and pent up demand. it's hard to imagine there's pent up demand for housing," he said.Bernstein, like many, thinks the market has gotten ahead of itself. "I think a pull back is pretty likely," he said.
"I think consensus has changed quite quickly that we're out of the soup, and things are getting better...I think he only one that's showing real improvement is the stock market.
"Bernstein said though there are some positives, including the slope of the yield curve. "There's no doubt about that. The question is how bad are the bank balance sheets," he said. The dollar's strength is also a positive. "I think people should be more bullish about the dollar. I think people forget what it is financial institutions and banks do, that is create dollars. We had a credit bubble, and the dollar was exceptionally weak. If you are a bear on credit, you want to be a bull on the dollar and vice versa," he said.
Reserve Bank of Australia Rate Decision – May 5The Reserve Bank of Australia is anticipated to leave their cash rate target unchanged at 00:30 ET on Tuesday, after surprisingly cutting the rate by 25 basis points to 3.00 percent, but the Australian dollar may only respond to a surprise rate cut or a biased monetary policy statement. After the central bank’s last meeting, RBA Governor Alan Bollard said, “The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” suggesting that further reductions were unnecessary. As a result, it will be important to look to Bollard’s statement, as signs that the RBA may consider cutting the cash rate target again eventually could weigh on the Australian dollar, while indications of a broadly neutral bias could support the currency.
European Central Bank Rate Decision – May 7According to a Bloomberg News poll of economists and Credit Suisse overnight index swaps, the ECB will cut rates by 25 basis points to 1.00 percent on Thursday morning. A reduction in line with Bloomberg's estimates could exert bearish pressures on the euro, but where the currency ends the day may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Many ECB members have indicated that they will announce “unconventional” measures following this meeting, which many have taken to mean credit easing, and if Trichet makes such an announcement, the euro could tumble. On the other hand, if the ECB leaves rates unchanged, indicates that they have no intention of bringing interest rates lower in the near term, or if they put off credit easing, the euro could rally.
"Econorama"
Jobs data is the big one, but there is plenty to watch in the coming week. On Monday, there is pending home sales and construction spending data. The ISM non manufacturing number is reported Tuesday, and Wednesday is the ADP employment report, a kind of preview to Friday's number. On Thursday, more hints at the jobs number come when the latest weekly unemployment claims data is reported. Productivity and costs and consumer credit are also reported that day. In addition to employment on Friday, wholesale trade data for March is reported.
Besides Bernanke's Congressional testimony earlier in the week, the Fed chairman speaks at the Chicago Fed's conference on bank structure and competition Thursday at 9:30 a.m. Chicago Fed President Charles Evans speaks at the same conference, as does FDIC Chair Sheila Bair.
Other Fed speakers include Fed President Thomas Hoeing who speaks in New York on the financial crisis Monday, and Richmond Fed President Jeffrey Lacker speaks in Charlottesville, Va. Monday afternoon. San Francisco Fed President Janet Yellen speaks at U.C. Berkeley Tuesday on financial turmoil.
Earnings Central:
Nearly 80 S&P 500 companies report earnings in the coming week. On Monday, Tyson Foods, Sysco, Sprint Nextel, Loews, Entergy, Estee Lauder, Chesapeake Energy and McKesson report. Disney, Kraft Foods, CVS Caremark, Duke Energy, UBS, Archer-Daniels and Teva report Tuesday.
Wednesday's reports include News Corp, Anadarko, Devon Energy, PG&E, Transocean, and Marsh and McLennan. On Thursday, Axa, Dynegy, D.R. Horton, Thomson Reuters, Unilever, Sara Lee, Nasdaq OMX, CBS, Public Storage, Allstate, and Nvidia report. Friday's major companies are Toyota and Berkshire Hathaway.
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