Wednesday, June 6, 2007

Morning Market Comment

No surprise from the European Central Bank. They have lifted their benchmark lending rate by a quarter point to 4%. The bigger is question is how much higher? A Goldman Sachs report this morning says perhaps another 50 bps more of rate hikes this year from the ECB.

The Wall Street Journal has a thoughtful piece this morning on how spare production capacity is running out in many countries while workers in those far, far away factories are winning wage increases. Fancy that! These are key ingredients for global INFLATION. The Journal article says this situation is forcing central banks around the globe to consider rate hikes Click here for the article -a subscription required. Fed speak today includes comments from the Cleveland Fed Bank president which are not conducive to a warm and fuzzy feeling for the bulls: Fed's Pianalto says longer-term inflation trend too high.

MBA data continues to move back toward reality: US mortgage applications declined last week - MBA.

Rate hikes are not good for stocks and this is widely being cited as a factor behind this morning's slide in S&P futures. Overnight, the Shanghai composite clawed its way to a half percent rise. The DJ Stoxx 50 is down about 1 percent in Europe. Enhancing the decline in stock futures - the latest productivity and unit labor costs figures. Productivity revised down, unit labor costs up: U.S. productivity revised lower to 1% in first quarter. So the inflation switch is suddenly turned on. It's not as if there have been no inflation warning signs until now, but with the 10 year yield recently backing up to just about 5%, the issue has moved to the front burner. It looks like a rough ride ahead on Wall Street. I'm still of the opinion that the market will have to bust through S&P 1500-1505 to demonstrate the bulls are starting to lose their control. We're now at 1530.

There's a little takeover-mania and it's in the online brokers. As noted late yesterday, Hedge Funds Push for Ameritrade Merger. AMTD is uo 7%. ETFC is up about 4% and we'll see if others like OXPS move higher as well.

What about Sears (SHLD)? Ackman may target Sears... could be something brewing here.

Prudential (PRU) has announced a big cutback: Prudential Shuts Equity Division.

Panera Bread (PNRA) is down about 10% citing pressured margins and the wallets of its customers squeezed by rising gasoline prices: Panera Cuts 2nd-Quarter Guidance.

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