Daily Market Commentary for June 9, 2011

Wall Streets six day losing streak - its longest losing stretch of the year so far - could possibly come to an end today.
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European markets ended their six-session losing streak today with the assistance of Wall Street. European Central Bank resident Jean-Claude Trichet signaled that interest rates in the euro zone are headed higher. Trichet said “strong vigilance“ was needed to keep inflation risks at bay, with the central bank ready to “act in a firm and timely manner.” "Strong vigilance” phrase is widely seen as a code signaling that a rate hike is likely to be seen in the following month. The ECB Governing Council, left its key interest rate unchanged at 1.25% - as expected.

Today, the Obama administration halted payments to three of the largest U.S. banks - J.P. Morgan Chase, Bank of America and Wells Fargo - until they make “substantial” improvements to their performance in a mortgage assistance program. The Treasury Department announced that these banks can no longer receive fees from the program known as the Making Home Affordable Program until they make changes to ensure their processes work better. The program - MHAP - seeks to help troubled borrowers avoid foreclosure. MHAP consists of five subsidiary programs with largest being the embattled Home Affordable Modification Program - HAMP. HAMP uses government funds to modify mortgages so troubled home borrowers can avoid foreclosure. The Treasury Department found that the three banks are in need of substantial improvements based on the agency’s compliance reviews and program performance results from Q1 2011. Treasury evaluated these banks on how they contacted homeowners, evaluated whether homeowners need assistance and/or their management as well as, governance. In part, banks have treated home borrowers poorly by forcing them to repeatedly submit paperwork again and again, leaving the home borrower in limbo for months, as they continued to struggle to make their mortgage payments. In many cases, the banks ultimately denied hundreds of thousands of families the opportunity to avoid foreclosure. These three banks received $24 million in taxpayer-funded payments in May from the program and still, treat home borrowers so poorly.

Comments from Charles Plosser, President of the Philadelphia Fed, “Such soft patches are not that uncommon,” Plosser said, pointing out that “temporary factors” such as the disaster in Japan, political events in the Middle East and higher food and energy prices have all had an impact. He added that the U.S. economy experienced a similar “bump in the road” last year after which it picked up momentum to finish with a 2.9% growth rate. “My forecast is for the economy to continue to expand at a moderate pace and for inflation to move back down from its current level as oil prices stabilize,” Plosser said in a speech to business economists in London. “My predilection is to normalize faster, rather than slower,” he said. “Given the large amount of liquidity present in the U.S. banking system, it is reasonable for the public to be concerned about inflation,” said Plosser. “We must be willing to act – that is, undertake the necessary and difficult policies to ensure that medium- to longer-run inflation expectations remain stable and our credibility remains intact,” he added. “The drama being played out in Congress over debt and spending has provided yet another source of uncertainty for the economy,” he said. “It would be nice if we got away from the debate about the short term and really focused on the long term.”

Vertex Pharmaceuticals (NasdaqGS: VRTX) shares fell 10% after results from a mid-stage study of experiment treatments for cystic fibrosis, were released.

Forestar Group (NYSE: FOR) shares were higher by 12% after announcing cancellation of planed sale of private offerings.

Titan Machinery (NasdaqGS: TITN) was hosting a gain of over 7% on the session after reporting Q1 results to beat street expectations.


Economic data released today:

Trade Balance: March Trade Balance Revised to Deficit $46.82B from Deficit $48.18B; April Exports $175.56B, +1.3%; April Imports $219.24B, -0.4%; U.S. April Trade Deficit $43.68B vs. Consensus Deficit $48.3B.

Initial Jobless Claims: U.S. May 28 Week Jobless Claims Revised to 426K from 422K; U.S. Jobless Claims +1K to 427K in June 4 Week vs. Survey -5K

Continuing Jobless Claims: U.S. May 28 Week Continuing Claims -71K to 3,676,000.

Bloomberg Consumer Confidence: U.S. Bloomberg Consumer Comfort Index -45.9 last week.

Wholesale Inventories: U.S. April Wholesale Inventories +0.8% versus expectations of +1.0%.


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