By Robert Perrego, at 4:40 pm on July 29th, 2009
The big news today hit before the market opened with Microsoft (NSDQ: MSFT) and Yahoo (NSDQ: YHOO) announcing a business alliance which will have Yahoo using Microsoft’s Bing search engine on their websites and Yahoo selling ads that appear next to the Internet-search results. There was no cash exchanged in the deal and Yahoo’s stock dropped significantly today as some analysts speculated that an up-front Microsoft payment of up to $3 billion would be included. It looks like Yahoo needed the deal worse and did not want to walk away from another Microsoft deal after Jerry Yang and Terry Semel missed the chance to sell the company to Microsoft for $31 a share in 2008. Yahoo closed today at less than half that bid at $15.14 (-$2.08, -12.07%). Microsoft gained $0.33 (+1.4%, $23.80).
Other big news that came out before the open was that the Chinese stock market had its biggest fall in five weeks with a one day drop of 5% after running up 7% in the past five trading days. China sold off on speculation that banks would tighten up their lending. China, the largest of the world’s emerging economies, threw a damper on emerging market exchanges worldwide. Having the highest GDP growth rate, and also one of the few current positive GDP growth rates, has made the Chinese economy appear to be the growth engine of the planet with the drop in this market throwing copper and other commodities into a tailspin. The double whammy of China’s perceived lessening appetite for commodities to fuel its economic build out, and the fact that many emerging market economies are commodity exporters, set an opening negative tone for the U.S. market as many foreign exchanges were lower and the price of commodities, especially economically sensitive copper was falling.
Durable Goods orders released at 8:30 a.m. showed a drop of 2.5% vs an expected drop of 0.5%. This was the headline bad economic news until 1 p.m. when the 5-year Treasury auction met with tepid demand. $39 billion of 5-year notes were sold at 2.689% with a bid-to-cover ratio of 1.92, the lowest b-t-c since 2002. As mentioned in an earlier “Raked InSights” report on Treasury Auctions (7/27/2009), it appears there still is strong interest in very short term Treasury maturities as they are much less risky. Once you start going out the curve the big buyers (China, Middle East, anyone with a brain) are getting much more worried about the value of the dollar with a U.S. $1.92 trillion dollar 2009 budget deficit and plans to fund such future expensive programs as socialized health care, cap and trade and a journey to the center of the Earth (OK, so I am exaggerating just a little). This poor auction caused bonds to fall and interest rates to rise and this is very worrying. If I were holding a lot of long term Treasuries and was worried about the dollar falling, I would be quietly selling off what long paper I could as not to cause a selling spiral, and so that the front page statistics did not show I was dumping Treasuries, I would be buying back into the short term paper so I can say ‘look Ma’ same dollar holdings’.
Weakness in the longer end of the Treasury curve is something we do not need right now as it is one of the things that could kill any economic recovery. The big question remains; If our traditional large long term Treasury buyers shy from the upcoming huge amount of issuance scheduled, causing interest rates to spike, what then? This could leave the only serious buyer of U.S. long term debt being Bernanke and the Fed with his quantitative easing program. This would basically eliminate any efficacy of this program as the U.S. would be selling the bonds with one hand and buying them with the other and that is nothing short of monetizing the deficit and printing money – which would cause rates to rise and the dollar to drop. The only hope we have that foreign money will continue to finance our spending and deficits is that they need to prop up the dollars and bonds they already own, but just like with OPEC – countries and people will cheat. Maybe by selling long term and shifting assets to short term?
In spite of the bad news today the market held up surprisingly well so there still is hope. The Dow Jones lost just 26 points (-0.28%, 9070.72) with the S&P 500 dropping 4.47 points (-0.45%, 975.15) and the Nasdaq 100 losing 5.86 points (-0.36%, 1599.61).
NYMEX WTI Crude Oil had a rough day getting clocked for a huge $4.29 a barrel at 4:42 p.m. est (-6.40%, $62.93) on a reported build in inventory of 5.2 million barrels and the beginning yesterday of hearings held by the Commodity Futures Trading Commission into position limits on the commodities markets here in the U.S. Gold, which could also be affected by these hearings, dropped $7.80 an ounce ($929.20/ounce at 4:43 p.m. est).
The sectors that led today were consumer non-cyclicals up 0.36% and technology while losing 0.10% lost less than the other sectors. Down big was energy on the oil drop at -2.54% followed by industrials down 0.60%.
Looking on the bright side we are going to get Jobless claims numbers tomorrow! OK, so it is not a ‘bright side’ to see people losing their jobs and we are expecting 585,000 additional job losses to be announced at 8:30 a.m. Let’s hope for less than 554,000 as that was last weeks number and this would continue of a trend of dropping job losses and that would be good news.
Earnings season tomorrow continues with many reporting. The long list concludes: ABC (0.39) before the open, AOC (0.74) bto, APA (1.07) bto, AZN (1.40) bto, ADP (0.45) bto, AVP (0.34), ABX (0.38) bto, BEC (0.81) after the close, BDX (1.24), CVC (0.29) bto, CRS (-0.28) bto, CI (0.96) bto, CL (1.05), DTE (0.15) atc, EK (-0.37) bto, XOM (1.02) bto, FSLR (1.62) atc, BEN (0.87) bto, GT (-0.70) bto, HP (0.51) bto, IP (0.00) bto, KSU (0.10) bto, K (0.82) bto, LVS (-0.01), MA (2.42) bto, MFE (0.57), MET (0.68) atc, MHK (0.47), MOT (-0.04) bto, NBL (0.55), OMX (-0.07), OSK (-0.18) bto, PBI (0.60) atc, PDE (0.66) bto, COL (0.90) bto, SLW (0.07) atc, SNE (-0.69), TSM (0.13), DOW (-0.08) bto, TYC (0.45) bto, VCI (0.14), DIS (0.51) atc, WMI (0.54) bto, XEL (0.25) bto, YRCW (-1.71) atc
