Market Insider/Friday Look Ahead
GE and the G7 -- two big stories for the markets Friday with the dollar as a common theme.
First, General Electric (the parent of CNBC) releases earnings before the open. More than half its revenues come from outside the U.S., and it is the multinationals this quarter that are expected to continue to see decent earnings because of the strength of the world economy and the weakling dollar.
GE is as diverse and multinational as they come, and traders always watch its results and comments closely to see what it says about, not just its businesses, but about the bigger economic picture. GE is expected to report profits of $0.51 per share for the first quarter and an increase in revenues of 9 percent to $43.68 billion.
Then there's the Group of Seven finance ministers, together all day in Washington, for a meeting wrapped around the International Monetary Fund spring meeting. It would be hard to imagine they can avoid talking about the dollar, which actually rose a half percent against the euro in Thursday's session. Year-to-date, the green back though has lost 7.3 percent of its value against the euro and 8.6 percent against the yen.
Robert Hormats, vice chairman of Goldman Sachs International, thinks it's very unlikely the G-7 would say anything specific about stabilizing the dollar. "I think they will talk a lot about the dollar, the credit crisis, the weakening US economy and ways to strengthen the functioning of capital markets but without making any major policy pronouncements," he wrote to me.
"They will likely say something to the effect that currencies should reflect underlying economic circumstances, that they will cooperate closely to strengthen and restore the smooth functioning of capital markets, and that the fundamentals of their economies are sound," he said.
Doubtful, he says, that Larry Kudlow's G7 fantasy will come true. If you were watching Wednesday, Kudlow said on Kudlow and Co that he hopes Treasury Secretary Hank Paulson will make a statement, taking on the weak dollar. That would rally the currency and reverse the commodity trade that keeps driving oil prices and a whole range of metals and agricultural commodities higher.
Not likely, says Hormats. "At best, they might hint that they will act to counter disorderly currency markets," he writes.
There's just a few economic items Friday. Import and export prices are reported at 8:30 a.m. and consumer sentiment is due at 10 a.m. Paulson holds a post G-7 press conference at 6:45 p.m. We'll see the G-7 ministers at 5 p.m. for a "family photo."
On Thursday, the Dow was down, then up triple digits, and then just up a bit. It did finish the day 54 points higher at 12,581, while the S&P 500 rose 6 points to 1,360. Nasdaq was a bright spot, jumping 29 points or 1.27 percent. Bank of America made an important tech call, boosting Intel , Semtech and others to a buy from neutral. It raised National Semiconductor and LSI to neutral from sell. The firm reportedly noted that two metrics it watches are signaling a bottom in semiconductors.
The bad news retailers defied the downtrend in their March sales and moved higher, while brokers and the financials ended weaker.
Goldman Sachs held its annual meeting Thursday, and comments from CEO Lloyd Blankfein were somewhat soothing to the market (but apparently not the brokerage stocks). He said people are seeing light at the end of the tunnel and that we are "closer to the end than the beginning" of the credit crisis. He said the markets are more than half way to recovery and the credit crunch is maybe "at the end of the third quarter, beginning of the fourth quarter."
Pete McCorry, who trades bank stocks at Keefe Bruyette, said he liked Blankfein's use of a football reference, over the standard baseball innings comment. But seriously, he said Blankfein carries a lot of weight and the comment would be seen as a confidence builder in a stock market still tethered to credit market worries.
"There is more psychological baggage to this tape than I've ever seen," he said of current market sentiment.
Oil slipped to $110.11 per barrel, off 0.7 percent. Heating oil fell 1.3 percent to $3.1940. But gasoline rose 0.6 percent to $2.7921 per gallon, a new record on the NYMEX. Natural gas, meanwhile rose 0.4 percent to $10.098 per million BTUs.
Addison Armstrong, director of Exchange Traded Markets at TFS Energy, said if oil closes above $112 per barrel it will be a signal that it still has momentum, and its next stop could be $115 per barrel on the way to $120 per barrel. If it does not close above $112, he expects it to move back down to the $99 range. Armstrong, a CNBC contributor, said the dollar has been a major factor behind the crude move.
What would stop the run up? "It's a question of when the slowing U.S. economy is going to impact demand," he said, noting demand has not diminished much despite rising prices.
In an uncertain stock market, it always makes sense to get different views so lately we've been seeking the views of technicians more than usual.
Scott Redler of T3 Capital says he thinks the stock market may be setting up to break its current downtrend if the Dow closes above 12,800, and it could do that in the next couple of sessions. If it makes that move, it would then be positioned to break out to a level of 13,200 to 13,400.
"On the S&P 500, I would say we need to break and close above 1390. If we break and close above 1390 that will negate the double top and cause another round of short-covering, and that would take us to around the 200-day moving average on the S&P - 1425 to 1440," he said.
In order to break out, Redler says the market needs some good news. "The market and technical patterns are perfect. Now all we need is a fundamental catalyst," he said. "The market's perfectly set up so if we get some good earnings, the market could break that downtrend."
If it does not break that downtrend soon, the market would likely falter, he said.
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