October 6th, 2011 Newsletter
Dear Friends,
Tangents:
R.I.P. Steve Jobs
1955-2011
Apple co-founder Steve Jobs, who changed the daily habits of millions by reinventing computing, music and mobile phones, died on Wednesday at the age of 56.
Apple loses a visionary leader who inspired personal computing and iconic products such as the iPod, iPhone and iPad, which made Jobs one of the most significant industry leaders of his generation.
His death after a long battle with pancreatic cancer sparked an outpouring of tributes as world leaders, business rivals and fans alike lamented his premature passing and celebrated his monumental achievements. (Reuters)
Photo of the Day:
October 6th, 2011
Nineteen-year-old Jonathan Mak, a student at Hong Kong’s Polytechnic University School of Design, came up with the idea of incorporating Steve Jobs’ silhouette into the bite of the Apple logo, symbolizing both Jobs’ departure and lingering presence at the core of the company.
Market Commentary:
Canada
By Chris Fournier
Oct. 6 (Bloomberg) — Canada’s dollar fell versus a majority of its major peers before domestic and U.S. jobs data that may show the North American economy is faltering.
The loonie, as the Canadian currency it’s nicknamed, touched the lowest level in more than a year against its U.S.
counterpart this week on concern a slowing American economy will crimp the nation’s exports of raw materials. The currency underperformed its commodity-linked peers of Australia and New Zealand, which rallied along with stocks.
“Investors are very cautious ahead of dual payroll numbers and expectations are sliding lower for both reports,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal, by e-mail. “I don’t think the Canadian dollar selling is overdone. I think it will slide lower.”
The Canadian currency was little changed at $1.0391 per U.S. dollar at 3:09 p.m. in Toronto, compared with C$1.0402 yesterday. It touched C$1.0658 on Oct. 4, the weakest level since August 2010. One Canadian dollar buys 96.25 U.S. cents.
BMO’s Jespersen predicted the currency would hit a floor at around C$1.12. Canadian employers added 15,000 jobs in September after cutting 5,500 positions in August, according to the median of 25 estimates compiled by Bloomberg. That would mean employers added 16,500 jobs in the third quarter, compared with 109,000 in the second quarter and 82,800 in the first three months of the year. Statistics Canada is due to report the employment data tomorrow at 7 a.m. in Ottawa.
Jobs
U.S. businesses added 90,000 workers to payrolls in September, according to the median forecast of economists surveyed by Bloomberg. The unemployment rate was 9.1 percent for a third consecutive month, the survey showed.
The loonie fell today against its commodity-linked peers as investors sold the loonie to buy the dollars of Australia and New Zealand amid gains in stocks and oil.
“Canada is the low-beta currency within the commodity block so as risk appetite emerges, investors tend to go long the higher-beta currencies and sometimes fund it out of the lower- beta currencies,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York, in a telephone interview today. Beta refers to a currency’s sensitivity to changes in another variable. The currency extended losses after the European Central Bank failed to cut borrowing costs and domestic building permits unexpectedly fell.
‘Massive Threat’
“The underlying sentiment is: global economy slowing, central banks struggling to find further measures to ease and the global financial system is a massive threat to the global economy and nobody has done anything to stabilize it,” said Kit Juckes, head of foreign-exchange research in London at Societe Generale SA, by phone from London.
European Central Bank officials left their benchmark rate at 1.5 percent, as predicted by 41 of 52 economists in a Bloomberg News survey. ECB President Jean-Claude Trichet said the region’s economy is facing “intensified downside risks,” and said the central bank will resume covered-bond purchases and reintroduce year-long loans for banks as the sovereign debt crisis threatens to freeze money markets.
Government bonds fell, pushing the 10-year yield seven basis points higher to 2.21 percent. The yield touched a record low 1.994 percent on Oct. 4.
‘Wouldn’t Buy
Canadian building permits fell for a second consecutive month in August. The value of municipal permits fell 10.4 percent to a seasonally adjusted C$5.9 billion ($5.7 billion), following a revised 0.4 percent decline in July, Statistics Canada said today in Ottawa. The drop was larger than any of the
12 responses to a Bloomberg survey of economists, which had a median forecast for a 0.3 percent advance.
“I wouldn’t buy the Canadian dollar” at these levels, Societe Generale’s Juckes said. “You wouldn’t want to own the Canadian dollar until you had some comfort that the global risk environment was improving or the global economy wasn’t getting worse.”
US
By Michael P. Regan and Rita Nazareth
Oct. 6 (Bloomberg) — U.S. stocks rallied for a third day, commodities gained and Treasuries slid as European officials detailed plans to tame the sovereign debt crisis and reports on retail sales and jobless claims bolstered optimism in the economy. The euro erased an earlier drop versus the dollar.
The Standard & Poor’s 500 Index gained 1.8 percent to 1,164.94 according to preliminary closing figures at 4 p.m. New York. The Russell 2000 Index extended its three-day advance to 11 percent, its biggest since March 2009. The Stoxx Europe 600 Index surged 2.7 percent. Ten-year Treasury yields increased 10 basis points to 1.99 percent. The euro strengthened 0.7 percent to $1.3442 after losing as much as 0.8 percent. The S&P GSCI Index of commodities jumped 2.5 percent as oil increased 3.7 percent to $82.59 a barrel.
American equities extended a global rally after European Central Bank President Jean-Claude Trichet said the ECB will resume covered-bond purchases and reintroduce yearlong loans for banks, while defying calls for an interest-rate cut and acknowledging “downside risks” to the economy have intensified. The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default.
“People have priced in a Lehman II type of situation,” Brian Barish, Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a telephone interview. “You start to hear some credible stuff on European bank recapitalization. They will do what they’ve got to do to prevent a Lehman from happening. There’s a good chance we might had a bottom in stocks.”
Covered Bonds
The 2.5 trillion-euro market for covered bonds — assets backed by mortgages or public-sector loans — underpins much of Europe’s real estate lending, which almost ground to a halt in the wake of Lehman Brothers Holdings Inc.’s collapse in September 2008.
U.S. stocks also climbed after claims for unemployment benefits rose less than forecast last week to a level that shows the pace of dismissals may be slowing. Applications for jobless benefits rose by 6,000 to 401,000, Labor Department figures showed. Economists projected 410,000 claims, according to the median estimate in a Bloomberg News survey. The monthly average dropped to the lowest level since the end of August. Government data tomorrow is forecast to show employers added 55,000 jobs last month and the unemployment rate held at 9.1 percent, according to the median estimates of economists.
Bear Market Averted
The S&P 500 has rebounded 6 percent since Oct. 3, when it closed within 1 percent of a level that would have marked a bear-market plunge of 20 percent from its April peak. The S&P GSCI Index of commodities is up more than 5 percent in two days, trimming its drop from this year’s high to 20 percent. Treasury yields have increased after demand for safer assets dragged the 10-year note’s rate to a record low of 1.67 percent on Sept. 23.
The Dollar Index has slipped about 1.3 percent since Oct. 4, when it reached the highest level since January.
Financial, commodity and consumer companies helped lead gains in the S&P 500 today. Bank of America Corp. and Alcoa Inc. were among the top gains in the Dow Jones Industrial Average.
Target Corp., Limited Brands Inc. and Saks Inc. climbed after reporting September sales that surpassed analysts’
projections. Apple Inc. shares swung between gains and losses during the day after co-founder Steve Jobs died.
The cost to protect the debt of Morgan Stanley and Citigroup Inc. declined amid growing speculation Europe’s leaders will be able to prevent the debt crisis from infecting bank balance sheets.
Bank CDS Tightens
Credit-default swaps on Morgan Stanley, the owner of the world’s biggest retail brokerage, fell 40 basis points to 490 and those on Citigroup slid by 34 basis points to 311, the biggest one-day decline since May 2009, according to data provider CMA. Swaps on Goldman Sachs Group Inc. eased 16 basis points to 380, the data show.
Wall Street strategists say the S&P 500 will post the biggest fourth-quarter rally in 13 years even after they cut forecasts at a rate exceeded only during the credit crisis.
The benchmark index for U.S. stocks will climb 14 percent from yesterday to end 2011 at 1,300, according to the average estimate of 12 strategists surveyed by Bloomberg. The last time they were this bullish in October was 2008, when the group predicted a 27 percent gain and the index lost 18 percent.
Trading Range
Excluding its dip to a 13-month closing low of 1,099.23 on Oct. 3, the S&P 500 has mostly traded between about 1,120 and 1,220 for the past two months. Following 14 periods since 1990 when the index was stuck in a range, more than 75 percent resulted in gains in the next one, three and six months, according to Birinyi Associates Inc., the Westport, Connecticut- based money management and research firm. The average trading range studied lasted about seven months, with the shortest beginning in March 1998 and lasting three months, Birinyi data show.
“We’ll need clear economic data or policy movements out of Europe to break out of that range,” Wasif Latif, vice president of equity investments at USAA Investment Management Co. in San Antonio, which oversees about $50 billion, said in a telephone interview.
Earnings Season
Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.
Among European stocks, BNP Paribas SA, Credit Agricole SA and Natixis surged at least 5.3 percent after Le Figaro said the French government is working on a contingency plan to take stakes in the country’s lenders. BHP Billiton Ltd., the world’s biggest mining company, rallied 5.9 percent as metal prices increased. SABMiller Plc surged 7 percent after a report by Brazilian news website IG said the brewer is in talks to be bought by Anheuser-Busch InBev NV. Spokespeople for both companies declined to comment.
Ten-year Spanish and Italian bond yields decreased seven basis points each, while rates on U.K., French and German debt rose at least four points. The dollar weakened against 14 of 16 major peers today, with the Brazilian real surging 2.7 percent to lead gains after higher-than-forecast inflation spurred bets the central bank may slow the pace of interest-rate cuts.
Copper futures climbed 4.5 percent to $3.2465 a pound in New York and rallied 5.9 percent in London to lead gains in 19 of 24 commodities tracked by the S&P GSCI Index. The MSCI Emerging Markets Index of stocks surged 3.8 percent, extending its rebound from a two-year low on Oct. 4. Benchmark indexes in South Korea, Brazil and Chile climbed at least 2.6 percent.
Be Magnificent!
Have a Wonderful Evening Everyone!
As Always,
Kyle,
For Carolann.