Trader Talk

New Week, New Concerns


Stocks are weaker, the dollar is up, as the World Bank has cut its 2009 global growth forecast, saying the world economy will shrink 2.9 percent, worse than prior predictions of a decline of 1.7 percent, and noting that a retreat from emerging market investments will deepen poverty in less developed countries.


1) Even though the China trade (reflation trade) is showing signs of being long in the tooth, the Shanghai Composite Index closed up another 0.6 percent to its highest level since July. Premier Wen Jiabao said China would stick to its stimulus package.

2) Walgreen is down 3 percent in pre-market trading after its Q3 EPS decreased to 53 cents, missing estimates of 56 cents. Declining margins and higher expenses put pressure on its bottom line. However, unlike most retailers, the drugstore chain saw its same-store sales rise in the quarter (up 2.8 percent), fueled by a 3.8 percent rise in prescription drug same-store sales.

3) The U.K.'s Guardianreports that Goldman Sachs staff will see the biggest bonus payouts in the firm's 140-year history.

So why is the stocktrading down slightly this morning? Because Goldman has recovered almost all its post-Lehman losses. It was trading near $150 just prior to the Lehman bankruptcy, then quickly dropped to about $50 in November of 2008...but from there is has mostly been up, it touched $150 a couple weeks ago before settling back down to $143. Goldman hit its historic high of $250 back in October 2007.

The profits come from a surge in trading revenues from currency, bonds, and fixed income products--as well as less competition. Speaking of capital markets in general, Buckingham Research noted on Friday that "Capital markets trends remain favorable in 2Q09 across most asset classes and business units, driving higher expectations for "operating" results in the quarter."

4) Marvell Technologyis up 2 percent pre-open after raising its second quarter revenue guidance to $600 million-$630 million from $540 million-$580 million. The more optimistic outlook comes as the microchip/circuit manufacturer has seen an "improved order rate" so far in the quarter.

5) China's biggest chemical maker ChemChina is reportedly evaluatinga bid for Dow Chemical'sherbicides and insecticides unit, Dow AgroSciences. Analysts estimate the unit could fetch as much as $7 billion. The potential sale of this unit would help Dow Chemical pay off its $9.2 billion bridge loan that is being used to finance its Rohm & Haas merger.

6) The Federal Trade Commissionhas requested more informationfrom pharmaceutical giants Merck and Schering-Ploughbefore approving their pending $4.1 billion merger. The companies still expect the deal to close in the fourth quarter.

7) The FOMC meeting this Tuesday and Wednesday is generating interest on two fronts:

a) will they give any signals about when they plan to raise rates? The Fed has said that the committee "anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Will that continue?

b) the other issue of great interest--whether the Fed will increase its purchase of Treasuries--seems to have been dashed by Former Fed Governor Mishkin, who impied in a WSJ editorialthat it was unlikely the Fed would increase its purchase of Treasuries. 



Questions?  Comments?