Friday, July 10, 2009

Quick Notes for the Day - July 10

A "New Beginning" for GM - "Today marks a new beginning for General Motors, one that will allow every employee, including me, to get back to the business of designing, building and selling great cars and trucks and serving the needs of our customers," said CEO Fritz Henderson.

In his comments, Henderson said the new GM will focus on customers, cars, and culture as a way to regain a foothold and build for the future. Henderson also wants the company to repay loans "much sooner" than the due date with the hope of a new GM IPO as early as next year. Prior to the IPO, the U.S. government would own 60.8%, the Canadian government 11.7%, the United Auto Workers retiree trust 17.5%, and 10% to the old GM bondholders.

Surprisingly, Trade Gap Narrows - Q2 GDP Positive? - The Commerce Department reported Friday morning that the U.S. trade deficit narrowed by 9.8% in May to $25.96 billion which is the lowest deficit since November 1999. The decrease in the deficit was completely unexpected especially when most analysts had predicted the deficit to widen. Exports rose while imports declined in May. The U.S. trade deficit with China narrowed to $17.48 billion in compared with $21.36 bln in the same month last year. The government also revised the deficit in April to $28.8 billion from $29.2 billion.

On this news, Q2 GDP could turn out to be positive due to the downward revision of the deficit in May and June's surprise reading. According to a note from the economic team at RDQ Economics, "The narrowing of the average real trade deficit in the first two months of the quarter versus the first quarter...puts trade on course to add as much as two percentage points to second-quarter real GDP growth. We think that a drop of 0.5% rather than 1.5% in the second quarter is now a central forecast for GDP and there is a significant possibility that real GDP could actually grow slightly in the second quarter, which would further add to our view that the recession ended last quarter."

July Consumer Sentiment Falls - According to the University of Michigan and Reuters survey, U.S. consumer sentiment fell in early July to 64.6 from 70.8 in June. Most economists had expected a only a slight drop in the reading.

Gold, Oil Down, Dollar Up - Continuing in the on-going push-pull of the dollar, the dollar staged a rally today which put pressure on gold and oil. Gold fell about $9 to $907 for a loss of about 2.5% this week. Oil is down about $1.50 to below $59 a barrel, and it is on pace for a weekly loss of 12%.

Analysts Increase Earnings Predictions for BofA - On Friday morning, analysts from J.P. Morgan upwardly revised their 2009 earnings estimates for Bank of America one week before BofA announces its results from the second quarter. For Q2, J.P. Morgan now expects BofA to report earnings of 38 cents a share versus the previous estimate of a loss of 3 cents a share. Full-year 2009 earnings were also revised higher to 78 cents versus 21 cents a share.

The "messy" report will have several one time items and charges but will get a boost from the $4.5 billion gain on the sale of China Construction Bank (CCB), along with a $1.2 billion gain on merchant processing joint venture according to the report. Q2 has been a busy quarter for BofA with several asset sales, debt offerings and restructurings, and stock offerings to raise more than the required capital in wake of the U.S. stress tests.

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