Evening Market Update

Traders Away on Summer Vacay, Wait for Jobs Data

Stocks ended nearly unchanged on the day amid light volume, while Treasuries moved much higher, with the yield on the 10-year falling closer to 3.0%, a level not seen since April 2009, but still at a higher rate than the depths of the US financial crisis. Economic data showed that US consumers saved more during May, while Japanese consumers shun spending, and inflation remains benign in both the US and the euro-zone. Traders may be treading cautiously ahead the key US jobs data due out Friday. Elsewhere in international economics, the weekend meeting of the G20 leaders ended with a pledge to cut deficits by 2013. In US equity news, Apple Inc announced a strong launch for the iPhone 4, Aflac Inc said it shed some European debt, and the tobacco industry moved higher after the US Supreme Court rejected a lawsuit appeal. Overseas, Toyota Motor announced another recall and financial institution Standard Chartered issued cautious commentary.

The Dow Jones Industrial Average fell 5 points (0.1%) to close at 10,139, the S&P 500 Index lost 2 points (0.2%) to finish at 1,075, and the Nasdaq Composite decreased 3 points (0.1%) to 2,221. In light volume, 926 million shares were traded on the NYSE and 1.8 billion shares were traded on the Nasdaq. Crude oil fell $0.61 to $78.25 per barrel, wholesale gasoline lost $0.03 to $2.13 per gallon, and the Bloomberg gold spot price lost $16.96 to $1,238.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.5% higher at 85.72.

Apple Inc. (AAPL $268) announced that the company sold over 1.7 million iPhone 4 units through June 26th, three days after its launch, and AAPL’s CEO Steve Jobs said this was the most successful product launch in the company’s history. In addition to being available in the US, the device is available in the UK, France, Germany and Japan, and will be available in an additional 18 countries by the end of July. Shares overcame an early loss and were higher.

Aflac Inc. (AFL $45) was nicely higher after the insurance firm reported that it has sold its holding of Greek sovereign debt and reduced its investment exposure to European perpetual securities—also known as hybrid securities—through two separate transactions. AFL said it will realize an after tax loss of $67 million on the Greek sovereign debt sales, but its perpetual transactions are expected to result in an $80 million gain.

Tobacco firms are gaining solid ground after the US Supreme Court rejected the government’s appeal to impose additional penalties on the tobacco companies, which could have led to forfeited profits of up $280 billion and a pay out of $10 billion for smoking cessation programs. Additionally, the US Supreme Court declined to review a landmark industry ruling that found that the industry violated federal racketeering laws by engaging in a scheme to deceive the public about the dangers of smoking. Altria Group Inc. (MO $20) and Reynolds American Inc. (RAI $54) are among the industry stocks that were solidly higher.

Shares of Toyota Motor Corp. (TM $69) were under some pressure after it announced that it was recalling 17,000 of its 2010 Lexus hybrid sedan vehicles and is temporarily halting sales because of a potential fuel leak problem. However, the world’s largest automaker did announce that it increased global vehicle production by 28% in May.

Meanwhile, shares of Standard Chartered Plc. (SCBFF $26) fell after the UK financial firm said recent market volatility has hampered sentiment and impacted its business. But the company said it posted strong first-half results supported by its Asian business. However, the company’s Finance Director said the company is comfortable with the analyst consensus for its full-year profit. Moreover, the company executive said the company supports making stress tests results public and they are confident on what the bank will report, per Dow Jones Newswires.

Personal income and spending increase to roughly match expectations

Personal income was 0.4% higher in May, just below the Bloomberg survey of economists, which called for a 0.5% increase, while April’s 0.4% increase was revised to a 0.5% gain. Personal spending was 0.2% higher in May, compared to expectations of a 0.1% rise, and April’s flat reading was left unrevised. The savings rate increased to 4.0% in May, after an upwardly revised 3.8% reading for April.

Also, the PCE Price Index, which is released with the income and spending data, was up 1.9% y/y in May, after April’s 2.0% increase, above the consensus forecast of a 1.8% increase. The core PCE Price Index, which excludes food and energy, was 0.2% higher month-over-month (m/m), versus the 0.1% increase that economists expected. Year-over-year, core prices moved 1.3% higher, just above the consensus of economists surveyed, which called for a 1.2% gain. Treasuries rose, with the yield on the 2-year note falling 2 bps to 0.63%, the yield on the 10-year note declining 9 bps to 3.02%, and the 30-year bond yield decreasing 6 bps to 4.01%.

The G20 concluded a meeting that was held in Toronto over the weekend, in which world leaders pledged to cut deficits by 2013, and vowed to maintain stimulus measures and take “concerted efforts” to try to ensure the continuation of the global economic recovery. Also, members endorsed a flexible timeline for implementing last year’s new bank rules the G20 members agreed to, aimed at boosting capital and increasing liquidity at financial firms.

Asian economics dominate international calendar

China’s Leading Index dipped slightly from 104.15 in April to 103.44 for May, the third straight decline in the index compiled by the China Economic Monitoring & Analysis Center and Goldman Sachs, and the OECD version has declined for five consecutive months, while the Conference Board version continues to increase due to the impact of housing starts on its index. Japan retail sales fell 2.0% month-over month (m/m) in May, versus the expectation of economists, which called for sales to decline 0.1%, and on a y/y basis, sales rose 2.8%, compared to the 4.8% increase that was anticipated. Elsewhere, New Zealand’s business confidence and activity outlook both declined.

The economic front was relatively light in Europe, as euro-zone money supply unexpectedly fell in May, a UK housing survey of prices increased in June, Spain’s mortgages rose in April, and Sweden’s trade surplus unexpectedly narrowed in May. Meanwhile, Germany reported that its national Consumer Price Index (CPI) rose 0.1% m/m in June, matching expectations, and y/y, the CPI is 0.9% higher, compared to the 1.0% increase that economists had expected.

Tomorrow’s economic calendar includes the April reading of the S&P/CaseShiller Home Price Index, forecasted to decline 0.1% m/m, as the data lags the sales reports by a month. Additionally, the Conference Board’s measure of consumer confidence in June is expected to decline to 62.5 from 63.3.

International economic releases include Japan household spending, unemployment rate, industrial and vehicle production, euro-zone industrial and consumer confidence, and Canadian industrial product prices.