June 1, Recap

The Dow Jones Industrial Average ended down 112.61 points, or 1.1%, at 10024.02 on the first day of the month. It seems like the concern on the slowdown of the global economy and its potential for growth is still persisting from May into June. Commodity prices of copper, iron, lead have been falling along with the decrease in global demand. Although some indicators reveal that the decrease in demand is caused by China’s move on tapping of its own commodity reserves, worries on the worsening of the economy is still apparent. In addition to that, oil fell by -0.42 or 0.-58% to 72.16 on the concern about possible fallout for the oil industry as a repercussion of the BP spill, which is a sour indicator for possible bearish position of oil for the end of Q2. Although Germany and UK posted economic gains lead by strong manufacturing, the economy of euro-zone remains uncertain as ECB reported a warning that euro-zone banks face a possible $240 billion in write-downs this year and the next, which might lead to clogging on lending.

After the first day of June, the unfavorable situation with the unemployment still persists as firms lead by HP, Morgan Stanley, Massmart Holdings and Citigroup announced plan to reduce the number of their work force. Hewlett-Packard, the largest information-technology company, plans to cut about 9K Jobs in the near future and Massmart Holdings up to 1.5K. Although layoffs have short-term benefits, they might create huge costs for the firms down the road, especially when organizations decide that they need to rehire employees. Firing employees might also lead to negative psychological effects on the remaining employees, which can ultimately lead to additional costs for the companies. Nevertheless, the recent layoffs do indicate that the firms expect the economy to be bearish in the near future, at least for the next 10-12 months. This is something we should take in consideration as we chose our stand in the market.

Luong Hai
Summer Analyst
Analyze Capital LLC
email: luong.hai@gmail.com