U.S. Equity Market Radar (August 20, 2012)

Sunday, August 19th, 2012

U.S. Equity Market Radar (August 20, 2012)

The S&P 500 Index rose 0.87 percent this week, as dormant news flow from Europe proved a relief to developed markets in general.  Trading volume has been characteristically anemic in the summer heat, but investors have not given up hope on potential policy change ahead of the Federal Reserve Chairman’s Jackson Hole speech at the end of the month. Cyclical areas continued to exhibit strength this week with technology, discretion, and financials leading. Defensive sectors including utilities, telecom, and healthcare were laggards for the week.

Strengths

• The technology sector was the best performer this week, rising 2.3 percent driven by a rally in communication equipment and internet software and services. JDS Uniphase, Cisco, Ebay, and Google were among the best performing names.
• The discretion sector also performed well with housing-related names particularly strong. Both PulteGroup and The Home Depot rose around 7 percent as U.S. building permits surprised on the upside in July with a 6.8 percent sequential jump.
• Sears was the best performer in the S&P 500 this week rising by 15.7 percent as its second quarter loss narrowed due to lower inventory costs.

Weaknesses

• The utilities sector lagged as rotation into more cyclical areas continued for the week. Utilities also became the worst performing sector over the past three months.
• Telecom also underperformed this week, in synch with a change in risk preference.

• Staples, Inc. was the worst performer in the S&P 500 this week, falling by more than 15 percent. The company reported lower-than-estimated sales for the second quarter and lowered annual sales and earnings guidance citing slower growth in the U.S. and sluggish demand in Europe.

Opportunity

• The market is looking past the current economic weakness and remains focused on the potential monetary policy action from the Fed, the European Central Bank (ECB), and China.

Threat

• The S&P 500 has almost reached its April high, a technical resistance level, and could be vulnerable to any disappointments from global central bankers.

Tags: China Threat, Communication Equipment, Ebay, ECB, Economic Weakness, Federal Reserve Chairman, Google, Home Depot, Inventory Costs, Jackson Hole, Jds Uniphase, Laggards, Market Radar, Quarter Loss, Risk Preference, Sears, Sluggish Demand, Staples Inc, Summer Heat, Technology Sector
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The Economy and Bond Market Radar (August 20, 2012)

Sunday, August 19th, 2012

The Economy and Bond Market Radar (August 20, 2012)

Treasury yields rose for a fourth week in a row.  Additionally, the benchmark 10-year yield is on the verge of breaking above the technically significant 200-day moving average.

Strengths

• The Thomson Reuters/University of Michigan preliminary August index of consumer sentiment increased to 73.6, the highest level since May, from 72.3 the prior month.
• The four-week average for initial jobless claims remains at its lowest level since March.
• According to the Conference Board’s gauge of Leading Economic Indicators, the economic outlook for the next three to six months increased 0.4 percent last month after a revised 0.4 percent drop in June. Economists projected the gauge would rise by 0.2 percent.

Weaknesses

• Initial jobless claims rose slightly to 366,000 this week, somewhat muddling the picture for the job market.
• Manufacturing in the Philadelphia region contracted in August for a fourth consecutive month as orders and employment declined.
• China July foreign direct investment fell 8.7 percent year-over-year to $7.58 billion, its lowest level in two years, which fuels concern that a slowdown in confidence in China’s growth prospects may restrain any economic rebound.

Opportunity

• The ECB appears ready to implement some form of QE in the very near future.
• With further weak economic data out of China, the odds of additional easing measures continue to move higher.
• Interest rates are likely to remain very low for the foreseeable future.

Threat

• Europe remains a wildcard with the markets shifting focus on a weekly basis.
• China also remains somewhat of a wildcard as the economy has slowed and officials appear in no hurry to take decisive action.

Tags: Bond Market, Decisive Action, ECB, Economic Data, Economic Outlook, Economic Rebound, Foreign Direct Investment, Growth Prospects, Index Of Consumer Sentiment, Initial Jobless Claims, Leading Economic Indicators, Market Radar, Philadelphia Region, Qe, Reuters, S Gauge, Shifting Focus, Slowdown, Treasury Yields, Wildcard
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Gold Market Radar (August 20, 2012)

Sunday, August 19th, 2012

Gold Market Radar (August 20, 2012)

For the week, spot gold closed at $1,616.05 down $4.15 per ounce, or 0.26 percent.  Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 1.14 percent. The U.S. Trade-Weighted Dollar Index edged higher, gaining 0.05 percent for the week.

Strengths

• Despite the dollar’s steady rise since the start of the summer, the gold price continues to defy efforts to push it lower.  Technically, gold has now traded above both its 50- and 100-day moving averages and the seasonally strong autumn rally in gold could well play out again this year.
• Gold sentiment likely got a boost when recent filings showed billionaire John Paulson raised his stake in an exchange-traded fund tracking the price of gold, leaving his $21 billion hedge fund with more than 44 percent of its U.S. traded equities tied to bullion.  In addition, the $25 billion Soros Fund Management LLC portfolio also made a sizable increase in its exposure to bullion. The Soros Fund, based in New York, raised its existing weight by slightly more than 175 percent from the previous filing.  And finally, investment funds in China soon plan on launching the country’s first batch of gold exchange-traded funds, according to the state-run Shanghai Securities.
• Nomura International Plc told clients that the gold price is “not heavily pricing in QE3,” referring to so-called quantitative easing.  “The potential upside, were QE3 to be introduced, would likely far outweigh any potential downside.  Even if it is not introduced, real rates remain very low and the gap between them and gold is large.”

Weaknesses

• Great Basin Gold announced this week that CEO Ferdi Dippenaar has resigned with immediate effect. This is due to a strategic review process begun as a result of delays at the group’s Burnstone operation in South Africa.  On release of the news the stock tumbled 50 percent.  In recent months, both Aaron Regent and Tye Burt, CEOs of Barrick and Kinross, respectively, also have been shown the door during these tough times for gold miners.
• Clive Johnson, the president and CEO of B2Gold Corporation, expressed his frustration on the company’s quarterly conference call with regards to the difficulty of trying to get distressed companies to come to the table for a potential acquisition.  Johnson noted the self-interest of management versus the shareholders was clearly evident in that many companies either are unwilling to sign confidentiality agreements or, if they are, they come with caveats – shackles in the form of standstill agreements – that make it tough to do anything.
• The World Gold Council (WGC) recently reported that gold demand reached 990 tonnes in the second quarter, down 7 percent from a year ago. The weaker trend in investment, jewelry and technology demand for gold was compensated by the Central Banks’ surging appetite, which led to the largest quarterly increase since the second quarter of 2009. Though both China’s and India’s gold consumer demand declined year-on-year in the second quarter, retail investment demand ex-China and India actually rose 16 percent. In particular, the European purchase of bullion bars and coins rose 15 percent, revealing investors’ demand for gold for capital preservation in light of the European debt and banking crises. The WGC highlighted that Russia will continue to be a driving force in the gold market. It is now the fourth largest consumer of gold jewelry, and has the world’s eighth largest gold reserves.

Opportunities

• David Prowse, Metals and Mining Specialist Sales at Bank of America Merrill Lynch, recently visited a number of accounts in New York and Boston.  David reported that he was perhaps halfway through the second day before a single investor had mentioned gold or gold shares. It has essentially been a year since gold peaked last August and few have interest in the shares these days making it that much easier to pick up a reasonable position without much market impact.
• Barron’s also carried a technical analysis of gold bullion versus the gold stocks this past week.  The publication noted that for the first time in more than two years, gold stocks are looking better than the metal, although they are not yet fully in bullish mode.  Barron’s pointed out that the desire to sell gold stocks versus gold itself reached a climax in May and since then the short gold stock trade looks to have washed out, perhaps establishing a price floor, and making their risk/reward profile look fairly good
• Since February, the COMEX speculative position on silver has fallen by 72 percent.  A survey of hedge funds showed they are the least bullish on silver in almost four years.  However, physical holdings of silver via exchange-traded products has climbed for three months and is now valued at $16.2 billion. In the coming weeks, the Jackson Hole Fed retreat may be the last chance the Fed has to act before the presidential election.

Threats

• Platinum producers in South Africa, which account for 75 percent of world output, are facing plunging profits, surging energy costs, and labor instability.  Lonmin plc has been at the epicenter of the crisis.  The labor unions have been the nucleus of the problem where the Association of Mineworkers and Construction Union (AMCU) has been targeting the platinum mines to extend its membership at the expense of the established mining unions, the NUM and Solidarity which are nowadays seen by some as part of the mining establishment.  Several murders took place between the rival factions so police were called in.  Unfortunately the conflict escalated with 34 deaths at the Lonmin Mine.
• Some believe David Rosenberg of Gluskin Shelf to be a perennial bear but he’s pretty much one of the few strategists who is willing to mention the bad news and bare the disdain of those who want us to keep the rose-tinted glasses on.  Dave noted this week that the spike in food and gas prices casts a cloud over the back-to-school shopping season.
• With regard to investors’ appetite for income-producing securities versus taking the risk of parking cash in the equity markets and trying to sleep at night, Mr. Rosenberg pointed out that that retail investors eagerly snapped up nearly one-third of the largest municipal debt deal of the year, a $10 billion one-year bill issued by California with a range of 0.3 to 0.55 percent.

Tags: David Rosenberg, Dippenaar, Dollar Index, Exchange Traded Fund, Exchange Traded Funds, Gluskin Sheff, Gold Exchange Traded Funds, Gold Market, Gold Miners, Gold Price, gold stocks, Great Basin Gold, India, John Paulson, Market Radar, Nomura International Plc, Nyse Arca, Price Of Gold, Qe3, Rosenberg, Rosie, Russia, Sizable Increase, Soros Fund Management, Soros Fund Management Llc, Spot Gold
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Energy and Natural Resources Market Radar (August 20, 2012)

Sunday, August 19th, 2012

Energy and Natural Resources Market Radar (August 20, 2012)

Strengths

• The price of oil gained 3.5 percent this week, to $96 a barrel, the highest level since May 11.
• Output from the world’s largest copper mine, Chile’s Escondida, jumped 18.3 percent in the first half of the year compared with the same period of 2011, to 533,200 metric tons.
• China electricity consumption in July increased 4.5 percent year-over-year to 456 million MWh. The growth rate remains somewhat subdued due to soft manufacturing sector demand.

Weaknesses

• The latest composite leading indicators (CLI) from the Organisation for Economic Co-operation and Development, designed to anticipate turning points in economic activity, continue pointing to a slowdown in activity for most of the world’s major economies.
• The civil disorder issues at Lonmin’s Marikana platinum mine appear to be worsening. South African riot police have reportedly opened fire on striking miners armed with machetes and sticks, killing more than 30 miners. Lonmin said it had lost the equivalent of 15,000 ounces of platinum from the six-day disruption.
• Baosteel cut September prices of its main steel products for a third time since June, following a fall in demand. Its list price for hot-rolled coil (HRC) was reduced by Yuan 100/t to Yuan 4062/t ($635/t).

Opportunities

• Colombia’s main railway, Fenoco, has restarted shipping coal to ports after the end of a nearly month-long strike in the world’s fourth-largest coal exporter, the company’s president reported on Friday. The union on Thursday ended the 25-day strike, which had prevented exports from Colombia’s main coal-producing province of Cesar.
• Vale’s CEO expects iron ore prices to start recovering in September due to falling stocks in China.
• Newcrest Mining expects to spend about $5 billion over the next five years to lift output to 3.5 million ounces of gold by 2017 (vs. target of 2.5 million ounces for 2012).

Threats

• The probability of a large scale asset purchase announcement (QE3) at the September 12-13 Federal Open Market Committee meeting is not as certain as originally thought, according to some economic analysts.  This could be a headwind for further gains in the commodities asset class.
• Markets are facing a potential threat from the “fiscal cliff,” a series of U.S. tax and spending policies scheduled to take effect on New Year’s Day 2013. It is difficult to predict exactly whether or how a solution can be reached given impending elections, leading to increased market uncertainty.

Tags: China Electricity Consumption, Coal Exporter, Copper Mine, Economic Activity, Gold Miners, Hot Rolled Coil, Hrc, Iron Ore Prices, Leading Indicators, Machetes, Manufacturing Sector, Market Radar, Metric Tons, Newcrest Mining, Next Five Years, Price Of Oil, Riot Police, Steel Products, Striking Miners, Target, Yuan
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U.S. Equity Market Radar (August 13, 2012)

Saturday, August 11th, 2012

U.S. Equity Market Radar (August 13, 2012)

The S&P 500 Index rose 1.07 percent this week as the equity market has rallied for five weeks in a row. It has been a choppy ride but the market is looking past the current economic weakness and focusing on expected government policy action. Cyclicals led the way this week with materials, energy and technology setting the pace. Defensive, lower beta sectors such as utilities and consumer staples were down for the week.

Strengths

• The materials sector was the best performer this week rising 2.83 percent driven by a rally in the steel and metals and mining areas. Standout performers included Freeport—McMoRan, U.S. Steel and Allegheny Technology.
• The energy sector also performed well with coal names particularly strong. Coal companies Consol Energy, Peabody Energy and Alpha Natural Resources all rose by more than 6 percent as interest in the space returns as the entire sector has been under tremendous pressure over the past year with many stocks in this space down 50 percent or more.
• Dean Foods was the best performer in the S&P 500 this week rising by 36 percent as the company announced it will spin off its organic and soy milk operation.

Weaknesses

• The utility sector lagged on what appeared to be sector rotation into more cyclical areas. Utilities have still outperformed over the past three months.
• Consumer staples also underperformed this week, likely due to sector rotation.

• Monster Beverage was the worst performer this week in the S&P 500, falling by nearly 19 percent. The company reported earnings that disappointed and the company announced it had received a subpoena relating to energy drink sales and promotion.

Opportunity

• The market remains focused on the potential monetary policy action from the European Central Bank (ECB) and China and is looking past the current economic weakness.

Threat

• While policy makers in Europe have made strides to stabilize the situation, many risks remain and the situation remains very fluid.
• The S&P 500 is now less than 1 percent away from the highs reached in April and is at a technical resistance level.

Tags: Alpha Natural Resources, Coal Companies, Consol Energy, Consumer Staples, Cyclicals, Dean Foods, ECB, Economic Weakness, Energy Drink, energy sector, Freeport Mcmoran, Market Radar, Materials Sector, Mining Areas, oil, Peabody Energy, Promotion Opportunity, Sector Rotation, Setting The Pace, Space Down, Utility Sector
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The Economy and Bond Market Radar (August 13, 2012)

Saturday, August 11th, 2012

The Economy and Bond Market Radar (August 13, 2012)

Treasury yields rose for the third week in a row. It is interesting that as we get closer to additional monetary easing in the U.S., Europe and China, the Treasury bond market has already anticipated that and is selling into the news. This would follow a similar pattern as the two quantitative easing programs in 2009 and 2010, as bond yields moved higher immediately after the announcements.

Strengths

• Initial jobless claims fell to 361,000 this week, indicating a somewhat better job dynamic than a couple of months ago.
• The Labor Department reported that job openings in June were the highest since July 2008.
• The U.S. trade deficit narrowed to $42.9 billion in June, lower by more than $5 billion. Exports grew while imports contracted.

Weaknesses

• New foreclosures rose 6 percent in July, the third monthly increase in a row.

• European economic data remains weak as Italian GDP has contracted for four quarters in a row.

• Economic news out of China was weaker than expected for July as exports grew a meager 1 percent and industrial production was weaker than expected.

Opportunity

• The ECB appears ready to implement some form of quantitative easing in the very near future.
• With weak economic data out of China this week, odds of additional easing measures continue to move higher.
• Interest rates are likely to remain very low for the foreseeable future.

Threat

• Europe remains a wildcard with the markets shifting focus on a weekly basis.
• China also remains somewhat of a wildcard as the economy has slowed and officials appear in no hurry to take decisive action.

Tags: Bond Yields, Decisive Action, ECB, Economic Data, Economic News, Foreclosures, GDP, Hurry, Initial Jobless Claims, Italian Gdp, Job Openings, Labor Department, Market Radar, Quantitative Easing, Quarters, Shifting Focus, Trade Deficit, Treasury Bond Market, Treasury Yields, Wildcard
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Gold Market Radar (August 13, 2012)

Saturday, August 11th, 2012

Gold Market Radar (August 13, 2012)

For the week, spot gold closed at $1,620.20 up $16.42 per ounce, or 1.04 percent.  Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 5.05 percent. The U.S. Trade-Weighted Dollar Index edged higher, gaining 0.22 percent for the week.

Strengths

• Merger and acquisition activity is picking up.  On Monday, Australia’s Silver Lake Resources said it will acquire Integra Mining in an all-scrip deal to create a gold miner with a market value of nearly $1 billion.  The combined companies would create a gold producer with a 6.6 million ounce resource base, with current production of 200,000 ounces projected to more than double in 2014.
• Endeavour Mining’s announcement that it plans to acquire Avion Gold sent Avion’s shares up 20 percent.
• Overall, few companies have reported positive dynamics with their second-quarter updates.  However, Randgold is certainly the exception and reported group gold production of 210,534 ounces of gold in the quarter, a 27 percent increase over the first quarter and a 14 percent rise over the second quarter of 2011, and with a pleasant decline in total cash costs to boot.  Randgold Resources, under the leadership of Mark Bristow, is well on its way to becoming a Tier 1 gold miner and its latest milestone is the official opening of its Gounkoto mine in Mali.  Capital cost to develop the mine was repaid in less than a year.

Weaknesses

• Roy Sebag of Natural Resource Holdings compiled a report showcasing the rarity of +1 million ounce gold deposits.  Of the 439 mines or deposits identified, 189 were identified as producing mines owned by companies.  This left only 250 undeveloped deposits but the declining quality of available resources was also shown. There is a 37 percent drop in grade between that of producing mines as compared to undeveloped deposits. Higher gold prices will be needed to bring these projects into production.
• In a story published Sunday, the Financial Times stated, “A four-year investigation into the possible manipulation of the silver markets looks increasingly likely to be dropped after U.S. regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation.” One analyst we spoke to commented that regulators in the U.S. are much more interested in prosecuting foreign banks for any misdoings.  Potential charges against Goldman Sachs in relation to the mortgage-backed securities scandal were also dropped this week as the Justice Department backed off the case.  However, HSBC, Barclays, and now Standard Bank are being pursued on changes ranging from money laundering of the drug trade, fixing interest rates, to allowing illegal trade with Iran.
• Sentiment towards the junior miner space is still weak, at least for the roughly 1,000 prospectors attending the Diggers and Dealers conference in Australia, which has made its industry uncompetitive with taxes and regulation.

Opportunities

• Silver stocks outperformed their golden peers this week.  The catalyst was likely the recent fully subscribed $200 million offering of new units by the Sprott Physical Silver Trust and with the associated green shoe being fully taken up by the underwriters.  What this means is Sprott will be in the market looking to acquire some 8 million plus ounces of physical silver to fulfill the mandate of the trust.  When Sprott launched the Physical Silver Trust securing 15 million ounces, it took a full three months before delivery of the metal was received and, according to Sprott, some of the delivery had not even been mined when the order was put in.
• Draft Russian legislation could facilitate foreign mining of gold and other precious metals within its borders.  Undoubtedly, the Russians have realized their overly protective restriction of excluding foreign companies from mining significant gold deposits means that the gold is unlikely to get mined. The draft bill would allow foreign-owned businesses to mine deposits of up to 250 tons (about 8 million troy ounces) of gold, five times the existing cap of 50 tons set in 2008, without facing additional regulation from the state, the documents showed.  Another important measure is the suggestion that a discoverer of a strategic deposit could proceed to mine development without the threat that the government could withdraw the license. This should spur more mineral exploration.
• Jamie Sokalsky, the new CEO of Barrick Gold, showed some confidence on his expectations of a turnaround at the company when he acquired 50,000 shares of his own stock through open market purchases recently.

Threats

• Niall Ferguson recently penned an essay on the “Stationary State” of the U.S. economy.  The mood disorder is especially bad for investors. Only seven out of 47 national stock markets around the world have posted gains in the last 12 months.  Ferguson noted that the U.S. economy has created 2.6 million jobs since June 2009.  In the same period, 3.1 million workers have signed up for disability benefits.  Back in 1992 there was one person on disability benefits for every 36 people in employment. Now the ratio is 1 to 16. Unemployment is being concealed—and rendered permanent—in ways all too familiar to Europeans.
• Nikos Kavalis, an analyst at RBS, noted he was struggling to see where the kind of volumes of investment in gold that we got in 2009 and 2010 are going to come from.  Even if there is another round of quantitative easing he feels we are getting close to game over for gold as a lot of investors are reluctant to expand positions.  Analyst Robin Bhar of  Societe Generale shares Nikos’ disillusionment. “What’s the upside to gold with more QE? Maybe $1,800 – certainly not new highs,” he commented.
• More trouble for the platinum miners were hinted at this week as the Department of Mineral Resources in South Africa is said to be contemplating having the miners re-up the ownership stakes that were lost by certain Black Economic Empowerment partners that had margin calls, due to being financially extended, and were forced to sell down their ownership stakes.

Tags: Acquisition Activity, Combined Companies, Endeavour Mining, Gold Deposits, Gold Market, Gold Miner, Gold Miners, Gold Prices, Gold Producer, Gold Production, gold stocks, Lake Resources, Mali Capital, Mark Bristow, Market Radar, Merger And Acquisition, Nyse Arca, Randgold Resources, Resource Holdings, Russia, Spot Gold, Sprott
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Energy and Natural Resources Market Radar (August 13, 2012)

Saturday, August 11th, 2012

Energy and Natural Resources Market Radar (August 13, 2012)

Strengths

• The Global Resources Fund gained an additional star from Morningstar and is now a 4-star overall rated fund as of July, 31 2012. This overall rating is out of 121 natural resources peers.
• Copper futures traded flat on the week as data out of China showed that copper imports rebounded in July from the lowest level in 10 months, to 366,548 metric tons, the General Administration of Customs said on its website. This was 5.9 percent higher than in June, and 20 percent higher than a year ago, customs data compiled by Bloomberg show.
• Soybean imports by China, the world’s biggest buyer, gained for a fifth month even as futures in Chicago climbed to a record.  Arrivals totaled 5.87 million metric tons in July, the General Administration of Customs said on its website today.

Weaknesses

• BHP Billiton Ltd. (BHP) has moved to cut jobs at a regional office in northeastern Australia that handles planning for its metallurgical coal division in an effort to tackle slumping prices for the steelmaking commodity and increased costs.

• Data from China’s customs department shows July iron ore imports falling slightly month-over-month to 57.87 million tons from 58.31 million tons last month.  Analysts at Dahlman Rose & Co. expect further declines in the upcoming months as demand for iron ore cargoes has slowed and Chinese mills begin to reduce steel production, albeit slowly.
• Natural gas futures fell to a four-week low around $2.80 per mmbtu on lowered expectations of demand for air-conditioning as weather forecasters see cooling temperatures next week.

Opportunities

• Barclays highlighted tightness in the oil market due to supply outages which are mounting both among OPEC and non-OPEC producers. Along with technical and structural shortfalls (Brazil’s June production was lower by 4.9 percent), pipeline linked disruptions are also dominating the reason for outages, and in that subset geopolitics remains the primary cause. Barclays noted Yemen’s Maarib pipeline (100 thousand barrels per day) has just resumed flows following an 11-month outage, and it remains vulnerable to a repeat of the series of strikes seen in late 2011. This week has seen an explosion on the Kirkuk-Ceyhan pipeline impacting oil flows up to 300 thousand barrels per day, with repairs expected to take 10 days. This pipeline has come under repeated attacks in the past, but attacks have concentrated on the Iraqi side of the border. Overall, Barclays thinks these outages, along with the reduced availability of Iranian exports, continue to weigh down the supply side, supporting a constructive market balance going into the fourth quarter of 2012.
• Per Reuters, Russia’s ministry of natural resources has drafted a bill that will facilitate the access of companies with foreign capital to mine its gold, platinum group metals (PGM) and diamond reserves, according to documents published on a ministry website. Russia’s gold reserves account for about 10 percent of the global volume; its share in palladium accounts for 24 percent of global reserves.
• The United Nations called for a suspension of U.S. government-mandated ethanol output amid surging corn prices, the Financial Times reported. The U.S. will use about 40 percent of its corn for ethanol production because of the Congress-enacted mandate despite “huge damage” to the crop from the worst drought in at least half a century, the newspaper reported, citing Jose Graziano da Silva, director-general of the UN’s Food & Agriculture Organization. An immediate, temporary suspension of the ethanol mandate would allow more of the crop to be channeled toward food and feed uses, the FT cited Graziano da Silva as saying.
• China’s transition to consumer-led economic growth is forecast to result in growing steel demand, peaking in 2030, as the world’s largest consumer of many commodities moves away from investment-led growth, the chief economist of mining titan Rio Tinto (RIO) said this week.

Threats

• China’s petroleum and chemical industry is expected to grow at a slower pace this year, dragged down by the losses in oil refinery businesses and weakening raw materials demand from export-oriented sectors, an industry federation said Monday.  The industry is facing downward pressure, due to sluggish demand from export-oriented sectors such as textiles and toy manufacturing, as well as rising production costs, a growing tax burden and large-scale losses in the refinery and natural gas sectors, said Li Yongwu, chairman of the China Petroleum and Chemical Industry Federation.

Tags: Bhp Billiton, Bhp Billiton Ltd, Brazil, Cargoes, Coal Division, Copper Futures, Customs Department, General Administration, Global Resources, Market Radar, Metallurgical Coal, Million Metric Tons, Mmbtu, Morningstar, Natural Gas Futures, Northeastern Australia, oil, Opec Producers, Resources Fund, Steel Production, Steelmaking, Weather Forecasters
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U.S. Equity Market Radar (August 6, 2012)

Sunday, August 5th, 2012

U.S. Equity Market Radar (August 6, 2012)

The S&P 500 Index rose 0.36 percent this week as the equity market shrugged off initially disappointing news from both the Federal Reserve and European Central Bank (ECB). The market rallied strongly on Friday to erase losses from earlier in the week. It appears the market also negatively reacted to the news that Knight Capital lost $440 million in a mini “flash crash” for the firm caused by a software glitch. By Friday, the company was able to secure short-term financing to continue trading and this appeared to be a relief to the market.

Strengths

• The technology sector was the best performer this week rising 1.52 percent driven by a stealth rally in Apple which rose by more than 4 percent this week, along with healthy performances from Teradata, Microchip Technologies and Cisco.
• The financial sector was once again near the top of the performance charts with solid performances from the insurance companies as Metlife, Lincoln National, Prudential and Allstate all reported earnings this week that were well received by the market.
• Frontier Communications was the best performer in the S&P 500 this week, rising by 18 percent on better than expected second quarter results and an improving outlook.

Weaknesses

• The healthcare sector lagged as managed care companies and healthcare distributors sold off sharply on disappointing quarterly results. Within the managed care industry group, Humana dropped more than 11 percent and in the distribution space, Cardinal Health fell by more than 7 percent.
• Utilities also underperformed this week, bucking a recent positive trend for the sector.
• Abercrombie & Fitch was the worst performer in the S&P 500 this week. The stock hit a three-year low as the company slashed its full-year earnings outlook by almost a third.

Opportunity

• The market shifted its focus from earnings to central bank policy last week and that shift will likely dominate the price action for the next several weeks.

Threats

• While policy makers in Europe have made strides to stabilize the economic situation, many risks remain and the situation remains very fluid.
• The head of the ECB, Mario Draghi, stated that the ECB will do whatever it takes to save the euro. However, it appears all is not under his control and policy makers in Germany may not allow for the policies the central bank believes the economy needs.

Tags: Allstate, Cardinal Health, Distribution Space, Financial Sector, Frontier Communications, Healthcare Distributors, Healthcare Sector, Industry Group, Insurance Companies, Lincoln National, Market Radar, Market Strengths, Metlife, Microchip Technologies, Performance Charts, Quarter Results, Quarterly Results, Short Term Financing, Software Glitch, Technology Sector
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The Economy and Bond Market Radar (August 6, 2012)

Sunday, August 5th, 2012

The Economy and Bond Market Radar (August 6, 2012)

Treasury yields were little changed this week as a tug of war continues between global central bankers and economic data. This week was all about the Fed and ECB announcements, which came in with a bang last week but went out with a whimper this week.  Neither central bank took action and, once again, tried to reassure the markets with words not action. Global economic data remains weak as can be seen in the JPM Global PMI chart below, which indicates a global contraction in manufacturing. Tempering this news was a better than expected employment report on Friday, potentially causing policy action indecision from the Fed.

Strengths

• July nonfarm payrolls grew 163,000 vs. the 100,000 that was expected and was the best showing since February.
• Retail sales posted surprising strength in July as same-store sales rose 4.4 percent.
• Consumer confidence unexpectedly bounced back in July, showing greater optimism about short-term business and employment prospects.

Weaknesses

• ISM’s July manufacturing index remained in contraction territory for the second month in a row.
• The Fed failed to take any action this week after it was widely viewed that the Fed planted those seeds in a widely disseminated story last week.
• The ECB also failed to follow through with any action and possibly lost some credibility with investors. The market has become used to a lot of talk from European officials but when the head of the Central Bank promises to do whatever it takes to save the euro and then is unable to articulate exactly what that entails, it raises credibility issues.

Opportunity

• The Fed and ECB are still talking about additional monetary stimulus and it may happen in the near future. Interest rates are likely to remain very low for the foreseeable future.

Threat

• Europe remains a wildcard with the markets shifting focus on a weekly basis.
• China also remains somewhat of a wildcard as the economy has slowed and officials appear in no hurry to take decisive action.

Tags: Bond Market, Consumer Confidence, Contraction, Credibility Issues, ECB, Economic Data, Employment Prospects, Employment Report, European Officials, Indecision, Market Radar, Nonfarm Payrolls, Shifting Focus, Stimulus, Term Business, Treasury Yields, Tug Of War, Whimper, Wildcard
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