Yuan, Mahmoud, BP and Me

Market Summary

As it turns out, the Chinese yuan and Mahmoud Ahmadinejad make an imperfect combination

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Yuan, Mahmoud, BP and Me

The Chinese Yuan

The absence of US economic reports Monday left the market to international devices. One prominent factor emerged, as China signaled it would allow the yuan to float more freely. Yuan strengthening would be a good thing for US exporter competitiveness, and would also aid Chinese importers with their purchases of raw materials. Thus, basic materials stocks led today's rally that began in Asia and triggered a gap higher open in the US. However, by the end of the day, stocks had given back all of their gains. As Chinese imports become as important or more important to China than its exports, the Chinese will alter their currency policy to suit.

Mahmoud Ahmadinejad

Likely playing a role in the down slide, a US Congressional panel agreed on a set of tough sanctions to be imposed on Iran. The sanctions include the long-threatened penalty on companies that sell refined petroleum, like gasoline, to Iran. With all its oil, Iran is still unable to refine product on its own, and still imports all its gasoline. Iranians already pay a steep price for their gas, and now will have trouble finding it at all. This is the noose the US was hoping to loop around the neck of the Iranian government. Once passed by Congress, it should drive intensified protests and possibly revolution if effectively applied. The President will have some leeway on how tightly the noose is pulled, and so will have an effective bargaining chip to deal with the Iranians.

However, the move also ups the ante to the unpredictable Iranian regime and its radical President Mahmoud Ahmadinejad. The uncertainty that results from this legislative intensification impacts stocks negatively. Iran has threatened time and again to return pain for this level of sanctioning, and now it'll be their move to make. The Iranians already barred two IAEA inspectors from further examining nuclear facilities Monday, accusing them of manipulating data.

Going Nuclear on BP

Speaking of nuclear and oil, the US government sent BP (NYSE: BP) a new invoice for $51.4 million, its latest needs for clean-up expenses. BP also recently agreed to the US government's demand to put $20 billion in escrow toward clean-up efforts, but Anadarko Petroleum (NYSE: APC) held back its share while directing all the blame toward BP. Looks like BP will be digging deep into that account too, since it will not have its relief well drilled until August.

Corporate News Drivers

The day's corporate drivers were led by news that Congress would rein in credit and debit card issuers again by cutting swipe fees they charge retailers for debit card transactions. Financial regulatory reform is going to include this facet. Financials will take a hit on this legislation, especially the ten largest banks in the nation who collect the fees passed on to them by Visa (NYSE: V) and Mastercard (NYSE: MA). Retailers get the gain, as they'll save the fee, but there's no guarantee that savings will be passed on to you in product price markdowns (NYSE: WMT, NYSE: M, NYSE: JCP, NYSE: TGT, NYSE: GPS, NYSE: ARO, NYSE: AEO).

Having already anticipated the move, the big banks were relatively unaffected today (NYSE: JPM, NYSE: BAC, NYSE: C, NYSE: MS, NYSE: GS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: BCS, NYSE: DB). Visa and Mastercard shares rose sharply, as Congressmen working on the legislation said the Fed could not regulate the network fees they charge.

The CEOs of ArcelorMittal (NYSE: MT), United States Steel (NYSE: X) and Nucor (NYSE: NUE) address the audience at a metal market conference running through Wednesday. The day's earnings reports included news from Ennis (NYSE: EBF), GameTech Int'l (Nasdaq: GMTC), Simulations Plus (Nasdaq: SLP), Somanetics (Nasdaq: SMTS), Sonic (Nasdaq: SONC) and Steelcase (NYSE: SCS). Webcasts were presented by Acergy (Nasdaq: ACGY), Biovail Corp. (NYSE: BVF), Corn Products Int'l (NYSE: CPO), Covanta Holding (NYSE: CVA), Exelixis (Nasdaq: EXEL) and Valeant Pharmaceuticals (NYSE: VLX).



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