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US Market Update May 29, 2009 10:35am CST

Dow +1 S&P +1.4 NASDAQ -2.7
- US equity indices are trading sideways this morning as investors contemplate mixed economic data and an imminent bankruptcy filing by GM. The GDP numbers are offering some support for the "getting worse more slowly" theme, while the U of Michigan confidence data was all green shoots. The preliminary Q1 GDP reading was a hair worse than expected at -5.7%, versus expectations for -5.5%, although it was better than the advanced reading of 6.1% back on April 29th. The third and final reading is expected in late June. The second and final University of Michigan May consumer confidence reading was a bit above expectations and a whole percentage point above the preliminary reading two weeks ago, sending the index to levels from last September. However, the May Chicago Purchasing Managers Index indicated no positive trends, coming in significantly below expectations at 34.9 (v 42e) and well below the April's surprisingly strong reading. Front-month NYMEX crude is extending its streak this morning, hitting another six-month high above $66 while gold also makes new multi-month highs nearing $980 as the Greenback remains on the defensive.

- US Treasury prices are experiencing a late week rally after yesterday afternoon's 7-year auction results seem to have calmed the markets. After the sharp move up in rates mid-week, the benchmark 10-year yield has drifted back below the 3.55% level it was trading at ahead of the 5-year auction. The curve has flattened substantially as well with the benchmark spread narrowing more than 15 basis points from the all time highs made Wednesday afternoon. Markets seem be taking some solace in reports the Fed was not nearly as concerned about this week's rate spike as many other were. The WSJ reported that Fed officials saw the move up in rates as more a factor of an improving economy and that they remain comfortable with the currently historically low level of interest rates.

- Morgan Stanley and Citi are outperforming the other tier-1 financials this morning as investors react favorably to recent bond sales. BoA/Merrill Lynch commented on Goldman Sachs overnight, saying they believe Goldman is headed for a strong Q2 as the firm benefits from weaker competitors. The analysts also said that only JP Morgan has improved competitive position relative to Goldman in the quarter. In a development that would affect the financials across the board, the FT reported there are growing concerns that triple-A-rated mortgage backed securities could face a "cascade" of rating downgrades following remarks from S&P that it may downgrade tens of billions of dollars in triple-A-rated securities backed by real estate loans.

- In earnings, PC powerhouse Dell reported Q1 results that were largely in line with expectations. CEO Michael Dell said indicators of global IT demand remain mixed, and the broader environment is still challenging, while the CFO said he does not believe IT spending has seen a bottom. Luxury retailer Tiffany's also met estimates, and also reaffirmed its 2009 forecast in line with analysts. On the conference call, Tiffany executives said they are seeing cautious consumer spending across sales units across the board, with high-end jewelry encountering largest declines. Elsewhere in retail J. Crew blew out analyst estimates for the quarter and said it sees a modest profit next quarter (versus an expectations for a loss).

- In currencies, traders continued to see the long-term dollar outlook at a critical technical level in the New York session, with the greenback showing more weakness against the major pairs, emerging market pairs and commodity-related pairs. Concerns that major central banks and large government-backed agencies might diversify away from the dollar weighed on sentiment. Overnight comments earlier from South Korea's Pension Fund that it was looking to diversify away from the dollar and more fallout from Thursday utterance from a Brazilian minister fueled the sentiment in today's session. Attempts by US officials to downplay USD depreciation have not calmed feelings. The Fed's Fisher commented during the Asian session that the AAA sovereign rating of the United States was not at risk. Dealers are noting that USD/RUB broke below 31.00 level, triggering fresh buying in the EUR/USD pair. The EUR/USD was moving toward the 1.4150 level as the NY morning ended.