Thursday, March 31, 2005

08:26 31Mar2005 RTRS-Goldman Sachs says oil could spike to $105/bbl

<> LONDON, March 31 (Reuters) - Oil markets have entered a "super-spike" period that could see prices rising as high as $105 a barrel, Goldman Sachs said in a research report.

Goldman's Global Investment Research note also raised its 2005 and 2006 NYMEX crude price forecasts to $50 and $55 respectively, from $41 and $40.These forecasts sit at the top of a table of 25 analysts, consultants and government bodies surveyed by Reuters [O/POLL]. "We believe oil markets may have entered the early stages of what we have referred to as a "super spike" period -- a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower energy prices return," Goldman's analysts wrote. "Resilient demand has caused us to revise up our super-spike range to $50-$105 per bbl up from $50-$80 per bbl previously," the analysts added, noting strength in oil demand and economic growth in the United States and China especially.<> U.S. oil futures on the New York Mercantile Exchange have averaged $50.02 per barrel so far in 2005 .The Goldman Sachs Commodities Index is a widely-watched barometer of energy and commodities prices.

Morning Comments- One Hit Wonders... The real test today is whether or not yesterday’s oversold rally was only a one-hit wonder along the likes of the Divinyls’ “I Touch Myself” and OMC’s “How Bizarre”, or will the “bulls on parade” continue. A Fed favorite inflation indicator will hit the charts today with the 8:30am release of the Feb PCE core deflator, estimated for +.2% vs +.3% in Jan which was the biggest gain in 25 months. Headline # expecting up .5%. Income expecting up .4% and consumption up .5%. Jobless claims looking for 320k vs 324k last week. At 10am Mar Chicago PMI expecting 60.5 vs 62.7, would be lowest reading since Aug '04. The $ lower vs the yen on end of fiscal year repatriation in Japan and the So Korean PM said they need to make efficient use of their foreign reserves (ie diversify!). German unemployment at 12% is new post war high but European mkts finishing the 1st Q with solid gains as investors think things can only get better. However, when Sir-Mix-a-Lot’s “Baby Got Back” topped the charts, I’m sure he thought the same thing.

Wednesday, March 30, 2005

Morning Comment... Yesterday, traders turned over every remaining blade of fake Easter grass in search of an overlooked nestle of Peeps and an elusive rally. Neither was to be had. After a hoppin’ morning rally, an over-reaction to “weather related” production cuts from PD forced major indexes back in their respective rabbit holes. Although the prices losses were not severe (-0.76% for the DJIA and the S&P 500), breadth was almost 4-to-1 down. Released last night, ABC Conf poll dropped 4 pts to -13, its lowest level since June ’04 due to rising gas and falling stocks. Weekly Mortgage Aps rose 2.4%, as the average 30-year fixed rose to 6.08% probably goosing some fence sitters. At 8:30am GDP estimates are 4% (an old # at this point). Japan IP fell more than expected confirming weakness in other data points and lackluster growth in Europe. 2 Fed members speak today on monetary policy. The bond market will key off the PCE deflator on Thurs and payrolls on Friday. II: Bulls 51.6 vs 53.6 Bears 28 vs 27.8. At current levels the SPX and NDX futures are above fair value as we had our 1st test of the Jan lows yesterday.

Tuesday, March 29, 2005

Morning Comments.... Smart Money? They say the “smart money” trades from 3-4pm. This concept must be unnerving for the bulls as the last 4 sessions have brought about significant weakness into the close, even after last Tuesday’s closing RSI ticked its lowest level since Aug ’04. Overseas markets are lower on weaker than expected economic data from Japan and France. The $ is slightly lower vs the yen and euro following a few weeks of strong gains. Oil is up modestly after OPEC says they will wait for another rise in prices before discussing another production hike. Bonds are slightly higher ahead of Mar Consumer Conf at 10am- estimates are 103 vs 104 in Feb, and the 1 year average is 98. MT’s market strategist Peter Boockvar thinks a retest of the Jan lows in the SPX and DJIA will occur shortly, 1163.75 in the SPX cash and 10,369 in the DJIA.

Monday, March 28, 2005

Morning Comments... Traders are nursing their “Peeps” hangovers this morning after the shortest-of-all-possible three day weekends that was choc full of NCAA barn-burners. There is continued strength in the $, with the $/yen at the highest level since Nov, and the $/euro at levels firmly below 130. Oil lower by .50 after Qatar’s oil minister says there is no shortage of supply and “traders aren’t asking for extra cargoes.” WMT reports Mar comps in-line but Easter related sales slightly less than last year and spring merchandise sales behind plan due to the weather. Europe closed for the holiday. Most of the potentially market moving economic data comes Thursday and Friday with Chicago PMI, PCE, ISM and Mar payrolls. Bonds down modestly with no economic data today. AMG reports equity inflows of $1.71B with 65% going into domestic funds. Better comeback: Louisville-WVU, Illinois-Arizon, or Peter Manfredo Jr?

Thursday, March 24, 2005

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Morning Comments... CNBC must have a mandate to re-report GE’s raised Q1 EPS guidance every 5 minutes today. The consistent barrage of positive news from the 2nd largest company in the world plus murmurings of an oversold rally may precipitate higher prices going into the 3-day weekend. Philly Roth notes that the 10-day net downside volume has reached fully oversold levels (-3.5bln shares on tues), and the SPX RSI is at its lowest level since Aug ’04 (the 1060 bottom)- Peter Cottontail Snapback Rally may be in effect. Bonds unched ahead of jobless claims expecting 315k vs 318k last week. Feb Durable Goods expecting up .9% and up .3% ex-transports. Question is whether the healthy cap spending from 2004 continues. At 10am Feb New Home Sales expecting 1.15mm vs 1.06mm. Energy prices higher after fallout from the Texas refinery explosion. The yen drops to a 6 week low vs the $ after Japanese manufacturing confidence for Q1 fell sharply from Q4. $ little changed vs the euro. If interest rates continue their upward trend, any stock bounce would likely be followed by a retest of the Jan lows in the DJIA and SPX.

Wednesday, March 23, 2005

Morning Comment... The first step in any 12-step program is the acknowledgement of a problem. For the first time yesterday, the Fed noted “pressures on inflation have picked up recently”, yet continued their feeble 25bp increases and refused to drop the “measured” pace of tightening. Contrary to today’s media reports, bond and equity markets DID NOT sell off due to “concern about inflation”, I think we already knew this (4.7% PPI, 3.0% CPI, 20 year high in commodity markets). The negative reaction yesterday was due to concern about the Fed acknowledgment of a problem, and their apathetic attitude towards it. At 8:30am Feb CPI expecting up .3% and up .2% ex f&f. Maybe the Fed's mention that pricing power is more evident in yesterday's statement was b/c they saw today's #. At 10am Feb Existing Home Sales expecting 6.7mm vs 6.8mm in Jan. B/c the # measures closings, the contract was probably signed months before when mortgage rates were lower. Mortgage apps today fell 9.5% with refi's down 16.5% to lowest since early Jan and purchases fell 3.5%. ABC confidence fell 1 pt to -9 with 2 of 3 components dropping. The long term avg is -9. $ continues its rally vs the euro after German IFO business confidence fell unexpectedly to the lowest level since Sept '03. Oil lower by 0.80 ahead of inventory data at 10:30am. Faltering demand is the only catalyst for a decline in oil and with interest rates going higher, economic growth is at risk.

Tuesday, March 22, 2005

Feb PPI up .4% and .1% in the core reading. This puts the y/o/y at 4.7% and 2.8% core (highest in 10 years). Price declines were seen in Auto Prices and Prescription Drugs. One cautionary note is that Core Intermediate Prices rose +0.5%, following gains of +0.8% (Jan) and +0.5% (Dec). The y/o/y rate is for Core Intermediate Prices is +8.4%, a rise which will eventually find its way to Finished Products, and thus the headline #. Crash course on Intermediates- if raw cotton is the "Crude Good", the yarn used to make a shirt would be an "Intermediate Good", and the shirt would be the "Finished Good".

Morning Comments... It’s “Groundhog Day” at the Fed. Every six weeks for almost a year now, Greenspan (aka Phil Connors) has been lugging the briefcase to the meeting only to result in a +25bp outcome at the end of the day. Since the size of the hike is already predetermined, the focus today is on the removal of the word “measured”. This step would make them sound more vigilant on the increasing levels of inflation, which would ease the longer end of the curve and stabilize the $. More likely than not, they are to continue on the same “measured” pace as they are cognizant of our dependency on low rates. At 8:30am Feb PPI expecting up .3% and up .1% ex food & fuel vs gains of .3% and .8% last month. CPI tomorrow.

Monday, March 21, 2005

Morning Comments... The first order of business this morning is to toss the office pool into the garbage as the road to the Final Four for WF and Uconn hit a detour this weekend. The $ is rallying sharply after the EU loosened deficit restrictions as a % of a country’s GDP, leading to concerns about EU fiscal prudence. European bonds trading down in response and US tsys modestly lower. Also strengthening the $ are comments from a Hong Kong monetary official prognosticating that hastily adding euro reserves at the expense of the $ “would undermine the stability of international finance.” Gold lower by $4 in response to $ strength. Oil higher by 0.25 on fears that the expected Nigerian strike will have an impact on supply this time. WMT March sales remain on track. No economic data today but tomorrow PPI reported followed by CPI Wednesday. FOMC announement Tuesday 2:15pm.

Friday, March 18, 2005

Morning Comments. The Juice is loose... Yesterday’s example of McCarthyism in baseball left us wondering when the WWF, the NFL, Arnold Schwarzenegger, and Jesse “the Body” Ventura will be called to testify. With a record current account deficit, 15% of the country without health insurance, and an entitlement benefits system headed for chap 11, it’s good to see our tax dollars at work. After Wednesday’s drubbing and yesterday’s tepid buying, the market could use a healthy injection of banned anabolic substances. A whippy, 2-billion share day is expected due to quadruple witch expiration and the free float rebalancing of the S&P. Bonds trading lower following weakness in European bonds after German Feb PPI was 0.1% higher than expected. At 8:30am Feb Import Prices expecting up 0.6% and 0.3% ex-petro. Ex-petro import prices are up 3% y/o/y vs the 5 year average of up .2%. At 10am March U of Mich expecting 94.9 vs 94.1 in Feb. Feb semi equip bk-bill weaker than expected at .78. AMG reporting the continuing trend of most flows going to int'l markets. Of the $1.97B of inflows only 16% went to domestic funds. Next week could set the course of the spring selloff or rally with the FOMC meeting, PPI, and CPI.

Thursday, March 17, 2005

Morning Comment... "They're always after me lucky charms!" Yesterday’s trifecta of surging crude, a wider-than-expected trade deficit #, and GM’s warning left the major indexes within earshot of February’s lows. While “it wasn’t enough” seems to be the knee-jerk reaction to OPEC’s 2% increase in supply, it would seem as if only a global recession (green beer, perhaps) will be enough for a sustainable decline in prices. Bonds are bouncing with the 10 yr yield below 4.50%, a continued wrassling match between those fearful of inflation and those who say $55+ oil will dramatically crimp economic growth. Jobless claims expecting 315k vs 327k last week. Feb Leading Indicators expecting up .1% but never a mkt moving #. At 12pm Mar Philly Fed expecting 20 vs 23.9. The avg in the last expansion was 11. $ bouncing as traders shift their focus to interest rate differentials b/w the US and the rest of the world and the thought that oil will have a greater impact on overseas economies.

Wednesday, March 16, 2005

Morning Comments... Today’s OPEC meeting ironically coincides with 6 weeks to the day after the cowardly vermin from Punxsautawney scurried back in his hole. After the last few weeks of below normal temps, one would think it’s time to hire Carl Spackler. OPEC to raise production quota’s by 500k barrels to 27.5mm b/d, even though they are already producing 27.7mm right now per day. They also grease the path for a May 1 hike too. Oil back below $55. $ lower vs the yen and the euro following optimistic comments on their respective economies from the Bk of Japan and the Pres of the ECB. Bonds unched ahead of Housing Starts and Q4 Current Acct Deficit at 8:30am and IP and Capacity Utilization at 9:15am. ABC confidence fell by 1pt to -8, long term avg is -9. Mortgage aps rose by 3.2% with refi’s up by 4.2% and purchases up by 2.5%. As rates tick higher, the fence sitter effect will positively impact mortgage apps in the short term. GMs lowered guidance, while not unexpected, pressuring the futures off its highs. “He's on his final hole. He's about 455 yards away, he's gonna hit about a 2 iron I think.”

Tuesday, March 15, 2005

Morning Comment... “Et tu Brute?” The Ides of March finds the 10 year meandering around the 4.50% level with a spate of economic data on the way today. At 8:30am, the March Empire Manufacturing is expected at 19.90 vs 19.19 prior, and a 1 yr avg of 25.6. Feb Advance Retail Sales expected +0.6%, vs -0.3% prior and +0.9% ex-autos. At 9am, Foreign Sec Purchases are expected $58.5Bln vs $61.3Bln prior. At 10am, Business Inventories are expected +0.9% vs +0.2% prior. At 1pm, NAHB Housing Market Index for March is expected 68 inline with last month. OPEC announces a consensus to raise output, as foreshadowed as Brutus sharpening his dagger in Act II, scene ii. $ lower after So Korean official said Asian savings can't keep financing US consumption and China's premier hinted at revaluing the yuan at an unexpected time (et tu, PR of C?). German investor confidence in its economy was better than expected.

Monday, March 14, 2005

Morning Comments... Last week started with DJ 11k party hats and noise makers and ended with the bulls hoping we’d hold support at 10,750. US 10 years are a touch weaker this morning with yields currently trading at 4.57. The $ is stronger vs the yen and euro, bouncing on technical factors. Japan reports 4Q GDP at +0.1% vs an expected decline of 0.2%, but future quarter growth expectations were scaled back. Oil is weaker after Saudi oil minister Naimi said he wants OPEC to raise its production quota at their Weds meeting. The large quarterly S&P rebalancing with the free float change and Friday's triple witch expiration should provide for some whippy action.

Friday, March 11, 2005

Morning Comment... Jacko’s not dead (just nuts) and Greenspan does not expect a financial market crisis based on the current acct imbalance… PHEW! While major indexes are up firmly on the back of INTC’s “sales to come in at the high end of our range forecast”, equity traders will continue to closely monitor developments in the bond market as we teeter around the 4.50% level on the 10year and await the March 22 Fed meeting. In light of recent inflationary developments (payrolls, CRB 20+ year high, PPI core blowout), the chatter is for a 25bp hike and a removal of the “measured” language. At 8:30am Jan Trade Deficit expecting $56.8B vs $56.4B in Dec. The record high was in Nov of $59.3B. Oil is down .50+, while the IEA raised its global energy demand estimates for '05. The mutual fund money continues to flow into int'l funds and not here. AMG equity inflows of $2.96B but only 20% went into domestic funds.

Thursday, March 10, 2005

Morning Comment... It might matter now. The market yday backed up on its heals after a right hook from Tony Ten-Year as bonds snapped the 4.40% and are currently trading 4.55%. The yield rose even more last night as Japanese PM commented on possible asset diversification. The tough talking PM was quickly set straight by Japan’s top FX official who said that right now is not the time to diversify while the $ is weak and machinery orders were also weaker than expected. Euro higher after a RBS survey of 56 central banks reported 70% raised their exposure to the euro in Q4. Oil lower after China said oil imports fell 13% in Feb. Bk of England left rates unchanged as expected. Jobless claims expecting 310k unch with last week. Last week's jobs # confirming that this level of claims is consistent with monthly job gains of 200K+. Jan Wholesale Inventories expecting up .6%. INTC mid-Q update tonight.

Wednesday, March 09, 2005

Morning Comment... “Run me out in the cold rain and snow”… The frigid temps are not only affecting energy prices, but food shortages are helping to push the CRB to 25 year highs, which in turn have sent the 10 yr well below the 4.40 yield level (highest since Aug ’04). We await the 5 yr auction today and 10yr auction tomorrow. $ trading at 2 month lows vs the euro after German Jan IP was much stronger than expected. $ also lower vs the yen after Japanese Leading Indicators hit 5 months high and machinery orders were up 26% in Feb. Gold at 2 month high. ABC confidence rose by 2 pts to -7 to highest level since 12/27. Long term avg is -9. Mortgage apps fell .7% with refi's dropping 4.6% to lowest since Jan 2 and purchases rising by 2.7% to highest since late Dec. Beige book out at 2pm. Oil higher ahead of the 10:30 inventory data. II: Bulls 55.7 vs 54.7 Bears 21.6 vs 22.1.

Tuesday, March 08, 2005

Morning Comment... Sell, Mortimer, Sell! Phil Roth points to the high level of insider selling as a cause of concern. The 8-week sell/buy transaction ratio (from Vickers) stands at a bearish 4.51, with 3.00 or higher to be bearish and 1.25 or lower to be bullish. We would note there has not been one weekly reading below 3.00 since right at the Oct 2004 bottom, as insiders have been selling all the way up. Following the 15% run-up in the SOX from its late January lows, TXN’s modestly lower guidance should put a damper on the tech parade. Recently, there has been a deluge of market strategists and PM’s on TV touting the sector’s underinvestment, climaxing when my “Ned Riley Alarm” went off last night when he picked tech as his top pick last night on “Closing Bell”.

The $ is lower vs the yen after the Japanese Govt said in Jan the # of full time workers rose for the 1st time since 1997. $ also lower vs the euro after an ECB council member said higher interest rates are likely b/c the current low level is inducing inflation. Fighting inflation is much more a focus than growth in the eyes of ECB members due to the horrid inflation problems Germany has had in the past. Oil lower by .50 after a 2nd day of OPEC trying to jawbone prices lower by saying they will keep mkts well supplied. No economic data today but longer end bonds down modestly ahead of the 5 yr and 10 yr auctions Wednesday and Thursday.

Monday, March 07, 2005

Morning Comments... After Friday’s impressive performance, Warren Buffett’s “rich spending junkies” annual report tried to put a damper on our return of the Goldilocks economy. Underperformance due to underinvestment and a $21.4bln short on the dollar would cause even the metaphysical optimists to talk negatively on the US economy. Friday’s breakout in the transportation index gave Dow Theorists reason to celebrate the new highs in the DJIA. The news this week will be mostly corporate as TXN and INTC give mid-Q updates and a bunch of specialty retailers report earnings. Economic calendar is quiet. Oil lower by almost .50 after OPEC said they are committed to keeping markets well supplied. Friday's CFTC data reported biggest net longs in crude since June '04. $ higher vs the yen after Q4 Japanese capital spending was much weaker than expected and up vs the euro after Euro region retail sales were the lowest since May but overseas markets are up modestly with Japan up for an 8th straight day.

Friday, March 04, 2005

Dare we say "perfect storm"? The S&P is at levels not seen since early Jan. Industrials, pharm, banks, and selected techs leading the way. Job growth is strong, though not strong enough (yet) to tip the inflation scale in the bond bears' favor. Looks like 10yr yields won't break the dreaded 4.40 level just yet. Crude is subdued, over $2 lower than yesterday's RedBull high. Martha's back on the farm, 50cent survived another rumor, Jacko's heading to jail (we hope), and it's pizza day at MT!

Morning Comments... Employment Day. For all the heat they've taken, Economists have only overestimated this number 8 of the past 13 months (61.5%). They have guesstimated 193k new payrolls a month vs 178k actually reported (not including revisions). Which begs the question- how many uncounted NILF's are twixting around. Today's expectations are: Nonfarm payrolls +225k (146k prior); Unemp rate 5.2% (5.2% prior), Ave weekly hours 33.8 (33.74 prior). At 9:45: Feb U of Mich Conf expect at 94.5, 10am: Factory orders -0.1% (prior 0.3%). The $ is mixed vs the yen and euro. Asia and Europe both higher on rises in energy stocks. AMG reports equity inflows of $2.8B, with 92% going to non-domestic funds. AOC may pay $190M to settle NY AG probe; DELL authorized $10B in share repurchases.

Thursday, March 03, 2005

Morning Comments... The only thing providing traders with more indigestion this week than zig-zagging indexes is Motley Crue's apparent comeback. Phil Roth thinks "yesterdays final figures are indicative of a consolidation, not a failure and a top." At 8:30am, Final 4Q Nonfarm Product. is expected 1.5%, vs 0.8% prior. Final 4Q Unit Labor Costs are expect 1.8%, vs 2.3% prior. Jobless Claims are expected to fall to 310k, at levels not seen levels since late 2000. Continuing claims expected 2658k vs 2650 prior. At 10am, ISM Services expected 60.0, vs 59.2. Service jobs account for 80% of the work force. Asian markets closed higher, with the Nikkei up for 6 straight days. Europe is mixed with declines in airlines and utilities. Oil is unched. $ is mixed vs the yen and euro. WSJ CVX considering bid for UCL; FNM may have to recognize billions in new losses.

Wednesday, March 02, 2005

<>Morning Comment... “One man gathers what another man spills.” That is, what energy spilled yesterday was gathered up by financials, some consumer stocks, and semis. The S&P came within one point of erasing Monday’s losses, and is still gearing up for the parade IF the jobs # is encouraging on Friday. The street is expecting a 225k print in payrolls, an event which has occurred only 4 times in the past 4 years. With weekly jobless claims the lowest since Nov 2000 and the employment component of the Chic PMI at its 2nd highest reading in 10 years, we wonder where the payrolls are. Crude is slightly lower. The $ is up versus the yen and the euro ahead of Greenspan’s likely hawkish 10am testimony before the House Budget Committee. Odds of a 25bp hike at the March 22 meeting: 100%. Odds of 50bp by May 3 meeting: 100%. Odds of 75bp by June 30: 100%. Odds of ditching that clunky briefcase for a T*Mobile Sidekick after the recent hacking debacle: ZILCH.

Tuesday, March 01, 2005

Morning Comment... Last night’s double rejection on the final episode of The Bachelorette was akin to yesterday’s drubbing of both the stock and bond markets. Thankfully for the equity bulls, however, the final hour of trading left the indexes a “cloudy” short term interpretation and avoided “negative outside days” in many indexes. The contestants, on the other hand, were not so fortunate. At 10AM, Feb ISM is expected to rise to 56.8, slightly higher than last month’s reading of 56.4. After surging to a 20-year high of 62.8 in Jan ’04, the index has pulled back, consistent with a moderated pace of manufacturing. Prices paid is expected at 67.0. Jan construction spending probably grew at a 0.4% pace, slightly slower than it’s one-year average of 0.66%. Feb Total vehicle sales are expected at 16.6M and Domestics at 13.4M, about even with January’s reading. Although GM and Ford resumed incentives, the #’s are expected to be lower than ’04. Asian markets finished mixed. India raised the price of fuels, reducing subsidies in an effort to balance its budget; markets moved sharply higher. European markets are trading higher, led by financials, healthcare, telecom services and consumer staples.

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