Thursday, June 5, 2008

U.S. Market Update

Dow -66 S&P -1.7 NASDAQ -3.8

Markets were trading in the red for a second day in a row this morning as oil continues its long march north, passing the $130/bbl mark before the New York open and hitting $132/bbl in mid-morning trading following weekly inventory data. Airline names are feeling the pain of soaring fuel costs and fresh analyst downgrades, while AMR took the opportunity this morning to say it would make significant capacity reductions in its 2008 domestic schedule and speed up retiring planes. CAL -10% DAL -7.5% UAUA -12.6% LCC -12% JBLU -4.25%. IMH-17% was another big looser after announcing a FY07 net loss of $2B and disclosing an SEC inquiry into its operations. In more positive news, ADLR+6% after the FDA approved its Enterg drug candidate after the close yesterday; GlaxoSmithKline has signed a co-development deal with Adolor for the drug. BGP+14% was surging after the Wall Street Journal reported that Barnes & Noble has assembled a team of executives and advisers to study a bid for Borders, although it remains unclear what sort of antitrust barriers a merger of the US's top two book retailers would face. SOLF+8.3% after crushing the Street in its Q1 earnings report before the open this morning; the Chinese solar manufacturer noted that higher selling prices offset higher raw-material costs and boosted its guidance for full-year production to a maximum of 180MW. Treasury prices are marginally lower sending the 10-year yield back above 3.80%.

The USD was broadly weaker on Wednesday as higher commodity prices and better German economic data weighed upon its sentiment. The EUR/USD probed the 1.5780 area to embark on a potential retest of the 1.60+ all-time high in the pair. Chatter circulated that Asian central banks continued to diversifying dollar reserves into euros throughout the week, before today's German data release. In addition, comments from various members of the IFO noted there was no urgency for a potential ECB rate cut. IFO members also said that the euro's appreciation was a concern, but noted that Euro-Zone exports levels remain positive. German Econ Min Glos stated that the IFO data showed economy on solid footing, hence the robustness that ECB members have pointed out throughout the spring.

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