Need To Know News

Equity futures stayed range-bound in the afternoon with the 3 major indices finishing flat to higher. Dow futures were down 4 points, S&P futures were up 0.2%, and Nasdaq futures rose 0.6%. Both financials and energy stocks wound up reversing course, with financials finishing down 0.6%, and Energy finishing up 1.7%.

TSY Secretary Hank Paulson goes to the Middle East this weekend to discuss oil production and sovereign wealth funds. Monday brings the May ISM Manufacturing Index and April Construction Spending data at 10:00am EDT. Atlanta FED President Dennis Lockhart speaks on the economy at 12:20pm.

Bonds went into the weekend on firmer ground following widespread selling that drove yields to their highest levels this year. April Personal Income showed an as-expected 0.2% increase, and Personal Spending rose at the same rate. Core PCE edged up a tame 0.1%.

The 30yr added 20 ticks on the day, driving its yield down to 4.707%. The 10yr added 7 ticks to yield 4.048%, and the 2yr yield came down from 2.68% 2.633% by the close. On the short end, the 4wk bill yield shed 3bps to 1.99%. The 3-month bill yield lost 2bps to 1.88%, while the 6-month edged down 1bp to 2.00%.

Fed fund futures have shifted back to a 100% probability the FED will leave rates unchanged at the June 25 FOMC.

This morning’s decent economic data wasn’t enough to sustain the dollar’s solid week and the greenback surrendered ground on profit-taking into the weekend. EUR/USD touched a high of 1.5569 but eased to 1.5555 as NY trading closed, while USD/JPY reversed course, down 7 pips to 105.43 after shooting as high as 105.74, its highest level in 3 months, in Asian trading.

USD/CHF fell 0.7% to 1.0421, while Cable was up 0.2% at 1.9084. USD/CAD was the exception to the rule, posting strong gains of 0.7% to 0.9945 in a day where Crude edged up 0.8% to $127.60/bbl, well off its highs earlier in the week.

Crude enjoyed a late session rally to finish the day firmly in positive territory and well above yesterday close, up 0.6% to 127.35. Unleaded showed little response to the late session rally in Crude and finished the day marginally higher at 340.90. Heating Oil fell 0.4% to 367.50 and Natural Gas finished the day up 2.15% to 11.717.

Metals retained positive momentum in the afternoon with Gold up 1% to 891 in response to minor rally in EUR/USD. Silver gained 2% to close at 16.865, Platinum increased 1% to 2010 and Copper gained 1.2% to 360.05.

Next week’s FED speaker schedule is light, with only Atlanta FED president Dennis Lockhart scheduled to speak:

MONDAY
12:20pm EDT: Lockhart @ Florida re: the US economy

WEDNESDAY
8:30pm EDT Lockhart @ Atlanta re: Japan

The May ISM Manufacturing Index is expected at 48.4 from 48.5 in April. The May ISM Prices Paid Index is expected at 83.3 from 84.5 in April.

The April New Orders Index was 46.5, the Shipments Index was 49.1, the Employment Index was 45.4, the Deliveries Index was 54 and the Inventories Index was 48.1.

The usual suspects, including deteriorating consumer sentiment, market uncertainty and price pressures should continue to weigh on the ISM Manufacturing Index going forward. The final May UofM Consumer Confidence Index improved to 59.8 from 59.5 in the preliminary data, which was the lowest reading since 1980.

The April ISM Prices Paid Index is expected to show a marginal decrease but will still remain elevated as pipeline price pressures begin to manifest. Price indices from the other major manufacturing surveys suggest upside risks to the ISM prices index — the May Empire State Prices Paid Index reached an all-time high at 69.6; the May Philly FED Prices Paid Index grew to 53.8 from 51.6 in April; and the May Chicago PMI Prices Paid Index came in at 87.5 from 82.9 prior.

Related data:

• May Empire FED Index: -3.2 vs. 0.6 prior
• May Philly FED Index: -15.6 vs. -24.9 prior
• May Chicago PMI: 49.1 vs. 48.3 prior
• May NAPM Milwaukee: 45 vs. 48 prior
• April Durable Goods Orders down 0.5%
• April Industrial Production down 0.7%

Former FED chairman Alan Greenspan, speaking at a conference in Montreal, says Crude prices are high partly due to speculation, but mostly long-term structural demand.

He also said the credit crunch is beginning to impact Asia, and cautioned that stagflation is possible.

An Ontario Superior Court judge has delayed the hearing on the potential for fraud claims going ahead as part of the restructuring of $32bln in frozen non-bank ABCPs until June 3.

The judge’s decision was made to give lawyers more time to get familiar with the suggested conditions of the fraud-shelter proposal, and was extended to the standstill agreement with the banks, which prevents the ABCP holdings from trading. That agreement has been continued till June 4.

The British Bankers’ Association made no change to the Libor-setting panels of USD, EUR and GBP fixes, among others, according to its annual review. It will strengthen oversight, with “details to be published in due course.”

Concerns over the benchmark rate have been stoked by numerous media reports that banks may be reporting artificially lower or higher Libor rates to mask balance sheet woes. The BBA report wasn’t expected to amount to much, but the next set of recommendations from the association could go as far as requiring banks to report actual transaction quotes, rather than estimates, in their Libor fixes.

Meanwhile, the Boston FED’s Rosengren commented this afternoon that the FED’s liquidity actions have helped ease interbank rates.

Merrill Lynch is appointing James Quigley to head its integrated Latin American and Canadian operations. He will oversee the company’s sales and trading business and wealth management in both regions, reporting directly to the company’s president and CEO Greg Flemming.