Daily Market Commentary for July 25, 2011

Federal Reserve reportedly anticipates it will propose measures to remove references to credit ratings. (read more at Millennium-Traders.Com) http://www.millennium-traders.com/news/newscommentary.aspx

Markets across the board as well as around the globe were sharply lower today as the U.S. debt ceiling debacle, continues. Investors remain tense over the possible downgrade of the U.S. credit rating. The Dow Jones Industrial Average was hosting a hefty triple digit gain early on in the trading session. As U.S. lawmakers continue their disputes over the debt limit, gold surged to yet another new, historic high. Oil on the other hand was taking it on the chin, trading at a low on the day before noon of $98.52 a barrel. The drop for crude came despite a weaker dollar, which traded lower on the U.S. debt impasse.

The IMF already issued a warning about the need for the U.S. to increase the debt ceiling and carefully reduce the deficit. Various comments from the International Monetary Fund (IMF) regarding the U.S. debt crisis: “While U.S. trade is important, outside of close neighbors it is the global bellwether nature of U.S. bond and equity markets that generates the majority of spillovers,” the IMF said. “Deep markets and the accompanying vast volume of market analysis mean that, despite the strong domestic orientation of U.S. markets, U.S. financial assets are bellwethers for global prices,” the IMF said. The IMF also said that the U.S. stimulus had a bigger impact on the world in 2009 than 2010. “Facing global turmoil, 2009 initiatives calmed markets. In the less fraught 2010 environment similar policies produced a less favorable response,” the IMF said in concluding that the Federal Reserve’s second round of quantitative easing, or QE2 as it’s popularly called, was less effective than the Fed’s first usage of that alternative monetary policy technique. “With QE2 having limited spillovers, its fully anticipated ending will have even less effects. The main monetary exit risk is that expectations of monetary tightening would reverse earlier capital flows to other countries,” the IMF said. “Spillovers from credible and gradual fiscal consolidation are limited and ambiguously signed, while those from the tail risk of a potential loss of confidence in U.S. debt sustainability are universally large and negative,” the IMF said. “Some senior officials agreed that spillovers appear to travel largely through financial market prices adding that uncertainty about the reasons for these asset price correlations implied equal uncertainty about the underlying channels of transmission. Other senior officials, pointing to factors such as global risk aversion, were less convinced that financial market connections (which in any case could reflect real sector behavior) predominated in the transmission of shocks, and pointed to the lower estimates of U.S. spillovers in Chapter 4 of the Spring 2007 World Economic Outlook,” the IMF said.

Sunday night President Barack Obama met two lawmakers from his own party, House Democratic Leader Nancy Pelosi and Senate Majority Leader Harry Reid. “In the meeting the president received an update on the state of negotiations on the Hill from Leader Pelosi and Leader Reid, and the Leaders and the President reiterated our opposition to a short-term debt limit increase,” the White House said in a statement. Boehner plan is for a two-stage approach - an immediate increase in the debt ceiling of about $1 trillion and an additional amount next year to be determined by a commission that would be created to study the issue. Reid's plan would increase the debt ceiling by $2.4 trillion to make it through the next presidential election and include spending cuts that were greater than the debt ceiling increase, but wouldn’t include the tax increases that derailed the Obama-Boehner talks.

European markets selloff was associated with a three-notch downgrade of Greece by Moody’s Investors Service. Moody's said the support package for Greece negotiated last week benefits all euro-zone sovereigns by “containing the severe near-term contagion risk.” The impact is likely to be neutral for creditors of Ireland and Portugal however, it would be negative for creditors of other sovereigns such as Italy and Spain; with high debt burdens or large budget deficits.

Research In Motion (NasdaqGS: RIMM) shares were lower by 4% into mid-afternoon trading after announcing they were cutting approximately 2000 jobs - part of a 'cost optimization program' announced during last earnings report during June. That number of jobs represents nearly 11% of RIMM's overall workforce. Additionally, the company has reshuffled some of upper management ranks. Chief operating officer Don Morrison, who has been out on medical leave, is retiring. His role will be divided among two other RIM executives: Thorsten Heins, who will serve as COO of product and sales; and Jim Rowan, who will serve as COO of operations.

HCA Holdings (NYSE: HCA) shares got whacked after reporting Q2 earnings that fell short of estimates just four months after the companies initial public offering. HCA reported net income was $229 million or 43 cents a share, compared to $293 million or 67 cents a share, for the same period a year ago. Adjusted earnings were 51 cents a share, short of the 59 cents expected by analysts. HCA had returned to the public markets in March after five years under private ownership. This was the third move for HCA into the public markets - it went public in 1969 and 1992. “While the company had favorable admissions growth during the quarter, we experienced a shift in service mix from more complex surgical cases to less acute medical cases,” HCA Chairman and Chief Executive Richard M. Bracken said in a press release.

Silicon Laboratories (NasdaqGS: SLAB) shares were down 12% into early afternoon trading after reporting weaker-than-expected outlook reignited worries of a broad economic slowdown. “We’re facing weakening end-user demand in several of our markets,” Chief Executive Necip Sayiner said in a statement.

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