February 19, 2009

Better Trades US News

After a short stint in positive territory after the opening bell, the major indices could not hold ground and fell into the red by late morning. With disappointing company reports and mixed economic results, the markets slipped into the close.

Following Tuesday’s nearly 300 points loss on the Dow Jones, investors continue to be leery to head back in the markets until significant signs of bottom appear. With that, the Dow dropped below the 7,500 level for the first time in nearly seven years.

Released before the opening bell, the Labor Department confirmed their report that the PPI, Producer Price Index, also referred to as wholesale prices, increased 0.8% in January, its largest increase since July. The advances in prices were reflected by increases in the price for gasoline and other energy products and came in well above analysts’ expected increase of 0.2%.

Leading the way was a 3.7% jump in energy prices, which included a 15% surge in the price of gas, the biggest gain in more than 14 months. Furthermore, the prices for heating oil was higher by 5.4% for the month, and liquid petroleum gas was up by more than 20%, its biggest price jump in more than six years.

Excluding the price of food and energy, the Core PPI, jumped more than anticipated as well, coming in up 0.4%, much higher than the 0.1% advance that economists were projecting. With the price of food remaining relatively calm, actually declining for the past two months, the main contributors to the increase in core inflation was prices for civilian aircraft, pharmaceuticals, and light trucks

Another release by the Labor Department today was the initial claims report. In it, the government agency revealed that the number of people filing new applications for unemployment remained the same week-over-week, coming in at 627,000 claims. The weekly number still came in higher than the 620,000 claims that economists were expecting.

The biggest news from the report came from those continuing to receive benefits as the number jumped to an all-time high of 4.99 million, continuing its streak of four consecutive weeks inching higher towards record levels. These figures only solidify the nation’s woes as more people are joining the unemployment lines.

Another bit of economic news released today was by the Conference Board, which showed that the leading indicators in January increased 0.4%. The index, which is comprised of 10 economic components, including initial claims, unemployment benefits, building permits and new orders among others, was expected to remain flat following December’s smaller increase of 0.2% and November’s decline of 0.7%.

In a report from the Energy Department’s Energy Information Administration (EIA), U.S. inventories declined unexpectedly for the week ending February 13. Data showed that inventories of crude oil retreated by 200,000 barrels to 350.6 million, with analysts looking for an increase in supply of 3.5 million barrels.

Moreover, supplies of distillates, such as diesel and heating oil, dropped by 800,000 barrels to 140.8 million as analysts looked for a drop of 1.5 million barrels. Gasoline inventories increased however, adding 1.1 million barrels to 218.7 million, with analysts expecting a drop of 1 million barrels.

With the overall inventory report showing a decline in supply, the price of oil jumped in today’s trading. As March’s contract is set to expire on Friday, the majority of trading was done on the April contract. By the close, the price for a barrel of light, sweet crude for April delivery gained $2.77 to settle at $40.18. March’s contract advanced as well, adding $4.86 to settle at $39.48 a barrel.

In additional NYMEX trading, gasoline futures added $0.0334 to $1.0986 a gallon. Heating oil gained $0.0576 to $1.2045 a gallon, while natural gas for March delivery retreated by $0.136 to $4.078 per 1,000 cubic feet. Natural gas prices haven’t seen these levels since September. 2006, when it was trading at $4.05 per 1,000 cubic feet.

As the Treasury Department gets set to infuse more debt into the bond markets, investors waited to see the impact of next week’s Treasury auction. As for the sale of note, next week will see some $40B worth of 2-year notes sold, $32B in 5-year notes and $22B worth of the newly reissued 7-year notes. The government will also be auctioning off more than $96B worth of shorter-term security notes next week as well.

By the end of trading, the benchmark 10-year note slipped 27/32 to 99 3/32 with its yield advancing to 2.85%. Additionally, the 30-year note fell 2 1/32 to 97 4/32 as its yield increased to 3.65%. Finally, the 2-year note inched lower as well, dropping 1/32 to 99 25/32 as its yield increased to 0.97%.

Within the Forex markets, the U.S. Dollar reverted from its gains yesterday to trade lower against the major currencies as the 16-nation Euro surged in trading, gaining more than $0.02 against the greenback. By late afternoon, the Euro traded as high as $1.2760, up from Wednesday’s price of $1.2511, before retreating to $1.2675 by early evening.

In additional currency trading, the British pound advanced against the greenback as well, buying $1.4405, up from yesterday’s $1.4224, while the Dollar increased in value against the Japanese yen, buying 94.13, up from last night’s 93.76.

By the sound of the closing bell, the Dow Jones Industrial average fell 89.68 points, or 1.19%, to end the day at 7,465.95, but not before slipping as low as 7,447.71. In addition, the broader market indicators concluded the session in the red as well, as the S&P 500 index lost 9.45 points, or 1.20%, to close at 778.95, while the NASDAQ composite index retreated by 25.15 points, or 1.71%, to finish the session at 1,442.82.

Heading into the Friday’s trading session, the markets may be influenced by the Labor Department’s release of the CPI and Core CPI reports and by a handful of company earnings that include Lowe’s (LOW) and JCPenney (JCP).

2009 Better Trades Article

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BRIAN MULLIN