Morning Call: Monday, June 29, 2009
The market responded to the green shoots as the US consumer spending increased at the same time as the US consumer paradoxically increased their savings rate. Durable Goods were up again and US leading Indicators were up a second time. On top of that the momentum in the oil price move is easing, so that will be less of a brake on the expected recovery. The US$ looks like it has started the slide again. China was calling for a global super sovereign currency in its annual "Stability Report". This is quite incredible because such public actions all but guarantee that the US$ will go lower. Increasing their strategic reserve of oil to 270mm bbls (up 150%) is another part of the theme. Being the largest external creditor to the US, these actions directly impact the value of their Holdings. The effect will be to bring back bullion and in effect kick off the Carry Trade again. We think that bullion's in a range for now, probably $930 to $1030 and is setting up for its semi-usual summer run. The commodities outside of oil should do well, and for Canada:
"The Bull is Back".
There's lots of news coming this week with 3 and 6 month auctions today, then tomorrow morning: We will see the Chicago PMI (unchanged at 35) at 9:45am and Consumer Confidence (57 vs 55) at 10am. Wednesday at 10am we will get the ISM (45 vs 42.5). Then on Thursday at 8:30am we get non Farm payroll (little changed at 350K) and unemployment up to 9.6% on its way north of 10% eventually. However, one should remember that markets try to go up ahead of long weekends and especially Quarter ends. (The shorts really want to be flat, and equally those that publish portfolios, want to give away as little as possible) We expect that the auctions will be OK and that the numbers will be viewed as positive on balance. We don't expect Cap and Trade to get through the Senate.
Bernanke’s Magnificent Adventure is turning out OK.
However, while we are still optimistic as the economy is changing from "free fall" to just "slow fall" we do have to worry about how robust will the forecast recovery be. We are up 40% off the bottom in 4 months. We won't repeat that torrid pace. So while we remain on the buy-side we can't help but think that it slows down in the second half which starts this Thursday.
Invest the Money
Ed Pennock, CFA, Managing Director
416-369-6921, epennock@dominick.ca
Graham Farrell, Institutional Equity Trading
416-369-4208, gfarrell@dominick.ca
The above note is prepared by an Institutional Salesperson based on morning meeting comments and general Institutional desk discussion and should not be construed as a research report or a solicitation. For information purposes only. D&D Securities, its clients, and principals may have positions in these securities.
