Morning Report: July 5, 2011

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Ahead of the Bell: Dow futures are trading down 4 points and S&P futures are trading down 2 points following speculation of an interest rate hike in China after a report by Moody's says the scale of problem loans at local governments in China might be bigger than anticipated. Traders are concerned the ECB could also be getting ready to tighten interest rates. Investors will be watching for a pick up in the growth rate in Europe and the U.S. after a dismal first half. S&P cut Greece's debt rating to default status.

  • On the economic calendar today, the Commerce Department will release factory orders after the market opens which are forecasted to have risen 1% in May, after falling 1.2% April. The dollar is down against the major currencies. Crude oil is currently trading at about $94 a barrel.
  • Last week, the equity market finished the first half of the year just about even. The Dow was up 5.3%, the S&P 500 gained 5.5% and Nasdaq increased 1.4%. Housing and jobless claims data both came in better than expected and the ISM Manufacturing Index was much higher than expected. However, the University of Michigan Consumer Sentiment for June was slightly disappointing. France proposed a plan to voluntarily roll over maturing Greek debt for 30 years which the IMF and EU still need to  consider. The Greek Parliament provided the necessary votes to pass austerity measures, as mandated by the IMF and EU to receive the next tranche of financial aid.  Treasury’s Timothy Geithner said he will stay in his job for the foreseeable future after speculation he was planning to leave. Congress continues to haggle over the debt ceiling and budget negotiations. 
  • The week ahead, trading is expected to be light on a short trading week. Economic reports due this week include Factory orders, ADP private sector jobs report, ISM nonmanufacturing survey, and Chain stores sales. However, the most important data due this week will be June's employment report on Friday which is expected to show that just 100,000 new jobs were added for the month. The unemployment rate is expected to fall to 9%, from 9.1% from the prior month. Traders will be focusing on efforts between Congress and President Obama to reach a compromise on deficit reduction and an agreement to raise the debt ceiling. Investors will be looking for companies to make pre-announcements ahead of 2Q earnings season. Aloca kicks off the 2Q earnings season when  reports results on July 11.
  • Quote From the Trading Floor for the coming week: David Darst, Managing Director and Chief Investment Strategist at Morgan Stanley Smith Barney. Darst said traders are anticipating no more supply chain disruption from the Japanese earthquake and bad weather. Darst also said traders are looking for above consensus in auto sales which are expected to bounce back in the third and fourth quarter. And, traders are also looking for an inventor rebuilt and higher exports in the second half of 2011.
  • On CNBC today, Barry Knapp, head of U.S. equity strategy at Barclays Capital, and other commenter’s talked about the budget negotiations and the debt ceiling vote. Knapp said something good could happen if the debt ceiling vote gets done, he expects the rest of 2011 to get better, with healthcare and technology to leading the way. Knapp said the administration and Congress need to comprise on the revenue side. Knapp commented that the rally in the equity markets last week left some investors with expensive positions, we could see another pull back in late August/early September. The employment situation has not improved and companies will have to start hiring if they want the economy to improve. Other commentators said they don’t see the lower bond yield as a test that the economy is about to go into a double dip recession. The equity markets seem to be punishing companies who are hording cash and rewarding companies who are paying down debt by issuing dividends. Knapp commented that the Greek debt situation is hardly over. 
  • Transformers 3 "Dark of the Moon" was the top movie at the box office this past weekend. Happy Tuesday, have a nice day. 

Friday’s Close

DJIA up 168.43 pts/+1.36%/12,582.77

S&P up 19.03 pts/+1.44%/1,339.67

Nasdaq up 42.51 pts/+1.53/2,816.03

Tuesday’s Futures

Dow Futures down 4 pts/-0.02%

S&P Futures down 2.50 pts/-0.16%

Nasdaq Fut down 2.75 pts/-0.26%

Overseas Markets

FTSE +0.14%

CAC 40 -0.38%

NIKKEI 225 +0.07%

HANG SENG -0.10%

Overseas:  World stock markets were mixed today. European markets are mixed on lower than anticipated growth rate. Asian markets were basically flat, weighed down a bit on fears of an interest rate hike in China.

Economic Reports:  Factor Orders expected to be 1.0% @10:00 a.m., ISM Non-Mfg Index, Jobless Claims, Employment Situation, and Consumer Credit.

Top Headlines:

  • Energy Transfer (ETE) announced it is increasing its offer for Southern Union (SUG) to $8.9 billion, including $5.1 billion in cash and ETE common units, holders can elect to exchange their common shares for $40.00 of cash or 0.903 ETE common units.
  • Zynga the maker of social games filed for its $1 billion IPO. Morgan Stanley, JPMorgan Chase, Goldman Sachs, Bank of America, and Barclays will be underwrites on the deal.
  • Exxon Mobil (XOM) confirms a pipeline leak into the Yellowstone River for about a 10-mile stretch. The company has started the cleanup of tens of thousands of gallons of spilled crude.
  • Reports indicate the Tokyo Stock Exchange has proposed a tender offer for Osaka Securities Exchange Company. 
  • Sun Life Financial (SLF) announced its CEO Donald Stewart plans to retire on November 30. Dean Connor currently COO has been appointed President and a member of the BOD and he will be appointed President & CEO effective December 1.

Commodities/Currency:

Gold:down $5.10 to $1,502.85

Oil:up $0.32 to $95.20

EUR/USD 1.4483 -0.0058

USD/JPY 81.1250  +0.3800

GBP/USD 1.6108 +0.0014

Volatility Index (VIX): As of the close of business Friday, July 1, the VIX is down 0.88 pts to 21.85

Companies Reporting Quarterly Earnings: None as of yet.

Today’s Opening and Closing Bells:

Voyager Oil and Gas Celebrates Listing on NYSE Amex. CEO JR Reger and CFO Mitch Thompson will ring the opening bell.

Volunteers of America in celebration of their launch of Operation Backpack 2011 for NYC’s Homeless Children.  Jonathan Crystal, EVP, Frank Crystal & Company will ring the closing bell.

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