Friday's Brew - Oct 6
Enjoy your fresh morning coffee with our summary of the market outlook for the day and a medley of important information you should find useful today. The clear driver of early market trading today will be the U.S. September Jobs Report released this morning at 8:30 a.m. Lower than expected job additions and slightly lower than anticipated unemployment, net to a negative for the economy. However, this information might lend support to the argument for a Fed rate cut.
European shares were flat on Friday, near a five-year peak, as investors were cautious ahead of the U.S. September jobs report.
Regarding the jobs data... Overall, U.S. payrolls increased by 51,000 jobs in September, according to the Labor Department, down from the revised 188,000 job gain in August. Economists surveyed by Briefing.com had forecast a gain of 120,000 jobs. The 51,000-job gain in September was the weakest since October 2005, when only 37,000 jobs were added following last year's Gulf Coast hurricanes. However, there was some positive news in the report, which also showed the unemployment rate dipped to 4.6 percent from 4.7 percent in August. However, net net, and taking into account the private survey released on Wednesday by ADP Employer Services, showing U.S. private employers added 78,000 jobs in September, well below a Reuters poll's median forecast of 110,000 and an August gain of 107,000, jobs data this month has been negative. If these numbers prove part of a trend, this portends trouble for the economy, and now the question remains, will the Fed act to cut rates and when. Indications from the Fed have been that it remains highly concerned with taming inflation, and the price of energy and housing markets are more important than the monthly jobs data. However, if monthly data carries over a longer period, perhaps the Fed will become more concerned with it.
On Wednesday, we correctly called a turn upward in the oil market. Yesterday, we warned that positions taken in early cyclicals, like semiconductor stocks, would be great investments until they preannounce earnings. We suggested waiting until after Q3 results before taking positions in the semiconductor stocks, and reevaluating those positions ahead of the Q4 preannouncement season. When we are wrong, we will accept your criticism, but when we are right, we will also point that out. Shares of Micron Technology Inc., the largest U.S. maker of computer-memory chips, fell after it reported profit and sales that missed analysts' estimates. Micron dipped $1.57, or 9 percent, to $15.97 in Germany. Profit in the fourth quarter ended Aug. 31 was 8 cents a share, the company said yesterday after U.S. markets closed, well-below the 14-cent average estimate by analysts surveyed by Thomson Financial.
Here's what we would do today. After the recent run in stocks, and rebounding geopolitical concerns with the U.S., U.K., France, Germany, Russia and China planning a meeting to discuss sanctions for Iran, and with a North Korean nuclear test perhaps on the near-term horizon, we would look now to beaten down gold stocks. We expect to take a position today ourselves.
Looking at the recent short-term charts of gold stocks, you will be faced with fear that the momentum trend downward could continue, and it will take some courage to overcome that and make the investment in gold. Also of concern, we should be wary of potential earnings preannouncement within gold shares, as gold prices have decreased significantly from their highs. We want to verify that coinciding decreases in EPS estimates reflect current earnings potential at the prevailing price. Shares of unhedged companies would pose the most risk and we should note that if corporate guidance was given last quarter, it could be revised anytime. However, we expect that with the volatility of gold, there is little likelihood of guidance existence. Estimates should prove more important, and we should insure that estimates in the shares we have chosen are reflecting the decrease in gold prices. You should also note the capital inflow/outflow activity between gold and energy versus other stocks recently. On Wednesday's record breaking day, gold shares fell to lows not previously seen since June. However, theorizing if North Korea were to test a nuclear weapon over the weekend, we believe November call option investments in gold shares could increase over 1,000%. http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/10/06/ukorea.xml . Growing concern alone should help to stabilize gold at minimum.
On tap for Friday, Lehman sees consumer credit rising by $4 billion in August, as it believes consumer spending suggests an increase in credit card debt. This could eventually stress the consumer enough that spending decreases sharply. Dallas Fed Chief Richard Fisher speaks about trade today. We hope you enjoyed Today's Morning Coffee, and we wish a good day trading. (disclosure)
European shares were flat on Friday, near a five-year peak, as investors were cautious ahead of the U.S. September jobs report.
Regarding the jobs data... Overall, U.S. payrolls increased by 51,000 jobs in September, according to the Labor Department, down from the revised 188,000 job gain in August. Economists surveyed by Briefing.com had forecast a gain of 120,000 jobs. The 51,000-job gain in September was the weakest since October 2005, when only 37,000 jobs were added following last year's Gulf Coast hurricanes. However, there was some positive news in the report, which also showed the unemployment rate dipped to 4.6 percent from 4.7 percent in August. However, net net, and taking into account the private survey released on Wednesday by ADP Employer Services, showing U.S. private employers added 78,000 jobs in September, well below a Reuters poll's median forecast of 110,000 and an August gain of 107,000, jobs data this month has been negative. If these numbers prove part of a trend, this portends trouble for the economy, and now the question remains, will the Fed act to cut rates and when. Indications from the Fed have been that it remains highly concerned with taming inflation, and the price of energy and housing markets are more important than the monthly jobs data. However, if monthly data carries over a longer period, perhaps the Fed will become more concerned with it.
On Wednesday, we correctly called a turn upward in the oil market. Yesterday, we warned that positions taken in early cyclicals, like semiconductor stocks, would be great investments until they preannounce earnings. We suggested waiting until after Q3 results before taking positions in the semiconductor stocks, and reevaluating those positions ahead of the Q4 preannouncement season. When we are wrong, we will accept your criticism, but when we are right, we will also point that out. Shares of Micron Technology Inc., the largest U.S. maker of computer-memory chips, fell after it reported profit and sales that missed analysts' estimates. Micron dipped $1.57, or 9 percent, to $15.97 in Germany. Profit in the fourth quarter ended Aug. 31 was 8 cents a share, the company said yesterday after U.S. markets closed, well-below the 14-cent average estimate by analysts surveyed by Thomson Financial.
Here's what we would do today. After the recent run in stocks, and rebounding geopolitical concerns with the U.S., U.K., France, Germany, Russia and China planning a meeting to discuss sanctions for Iran, and with a North Korean nuclear test perhaps on the near-term horizon, we would look now to beaten down gold stocks. We expect to take a position today ourselves.
Looking at the recent short-term charts of gold stocks, you will be faced with fear that the momentum trend downward could continue, and it will take some courage to overcome that and make the investment in gold. Also of concern, we should be wary of potential earnings preannouncement within gold shares, as gold prices have decreased significantly from their highs. We want to verify that coinciding decreases in EPS estimates reflect current earnings potential at the prevailing price. Shares of unhedged companies would pose the most risk and we should note that if corporate guidance was given last quarter, it could be revised anytime. However, we expect that with the volatility of gold, there is little likelihood of guidance existence. Estimates should prove more important, and we should insure that estimates in the shares we have chosen are reflecting the decrease in gold prices. You should also note the capital inflow/outflow activity between gold and energy versus other stocks recently. On Wednesday's record breaking day, gold shares fell to lows not previously seen since June. However, theorizing if North Korea were to test a nuclear weapon over the weekend, we believe November call option investments in gold shares could increase over 1,000%. http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/10/06/ukorea.xml . Growing concern alone should help to stabilize gold at minimum.
On tap for Friday, Lehman sees consumer credit rising by $4 billion in August, as it believes consumer spending suggests an increase in credit card debt. This could eventually stress the consumer enough that spending decreases sharply. Dallas Fed Chief Richard Fisher speaks about trade today. We hope you enjoyed Today's Morning Coffee, and we wish a good day trading. (disclosure)
posted by The Greek | 8:29 AM
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