Stocks Opening Higher - Refocus on Recovery, Dollar Softer, Gold Continues to Look Attractive

February 28, 2011 – Stocks are set to open higher this morning as the Street refocuses on U.S. economic recovery and GDP growth, with expectations that Washington is going to be able to avoid shutting down the government.

 In terms of key economic data, consumer spending increased by 0.2% in January (expectations were for 0.4%), while incomes increased by 1%. (expectations were for 0.4%).  Other key economic data on tap today include PCE Prices for January, the Chicago PMI for February and Pending Homes Sales for December. Tomorrow we will get Construction Spending for January, ISM Index for February and Auto Sales. On Wednesday we will get the ADP Employment data for February, weekly crude inventories and the Fed’s beige book for March. On Thursday is weekly jobless claims, Productivity for Q4 (revised) and ISM Services for February. On Friday will be the Nonfarm Payrolls for February, Unemployment Rate for February and Factory Orders for January.

The National Association for Business Economics (NABE) is forecasting the U.S. economy to expand by 3.3% this year, up from November’s estimate of 2.6% expansion, and higher than 2.9% growth in 2010. For 2012 it expects 3.4% growth. Meanwhile, it expects the unemployment rate to average 9.3% in Q111 and declining to 9% by Q411. It expects the unemployment rate to continue to decline to 8.2% by the Q412.

The dollar is softer against the euro this morning, with the euro trading at $1.3842. Fed Chairman Bernanke is set to address the Senate, where he is expected to indicate plans to keep interest rates near zero while the European Central bank is meeting to address interest rates this week. The ECB President Jean-Claude Trichet is expected to increase borrowing costs. Gold prices are up $2.90 to $1,412.90.

Gold has been rallying amidst the unrest in the Middle East, but it still isn’t really pricing in increasing systemic risk in the U.S. economy as a consequence of its debt issues and a gridlocked, partisan Congress showing a lack of commitment and cooperation towards reducing the country’s debt.

Oil prices are down $0.73 to $97.15. Despite continued unrest in Libya, and increasing instability in Oman, traders appear to be more comfortable with production levels this morning.

On the corporate/sector front,

·         Alternative Energy – Solar – GT Solar (Nasdaq:SOLR) received an order valued at over $41 million dollars for its advanced sapphire crystallization furnaces. This is GT Solar’s fourth order for its sapphire crystallization furnaces in recent months. JinkoSolar (NYSE:JKS) reported FY10 revenues of $705.2 million compared to $231.1 million for FY09, with gross margins of 29.1% and 14.7%, respectively. FY10 net income was $126.6 million, or $1.65 per diluted share.

Total solar product shipments for the full year 2010 were 480.3MW, consisting of 155.7MW of silicon wafers, 56.0 MW of solar cells and 268.6 MW of solar modules, compared with total shipments for FY09 of 222.1MW, consisting of 180.4 MW of silicon wafers, 27.3MW of solar cells and 14.4MW of solar modules. In the fourth quarter of 2010, Jinko expanded its in-house annual silicon wafer, solar cell and solar module production capacities from approximately 600MW, 300MW and 450MW, respectively, as of September 30, 2010, to approximately 600MW, 600MW and 600MW, respectively, as of December 31, 2010.  

In terms of guidance, for Q111 it expects total solar module shipments to be in the range of 155MW to 160MW. Total revenues are expected to be in the range of US$280 million to US$290million. It expects to increase its in-house annual silicon wafer, solar cell and solar module production capacities to approximately 900MW each by the end of Q111.

For FY11, total solar module shipments are expected to be in the range of 950MW to 1,000MW. Total revenues are expected to be in the range of US$1.4 billion to US$1.5 billion. It expects to increase its in-house annual silicon wafer, solar cell and solar module production capacities to approximately 1,500MW each, as compared to its original guidance of 1,000MW each by the end of 2011.

·         Energy Storage – Ballard Power (Nasdaq:BLDP) said it has been conditionally awarded up to C$7 million by Sustainable Development Technology Canada (SDTC), which will be used to extend the operating life and lower the product cost of FCgen(TM)-1300, the fuel cell power plant that powers Ballard's CLEARgen(TM) distributed generation system. It added that the first application of the new lower cost distributed generation solution is expected to be a 6MW CLEARgen(TM) system at the ERCO Worldwide (ERCO) sodium chlorate plant in North Vancouver, British Columbia.

In terms of what we expect in today’s session, look for stocks to open higher as the Street looks for ‘value’ after last week’s selloff. But this is going to be a volatile week, with events in the Middle East sure to play a role as well as a lot of key economic data. We continue to think that stocks are overbought, all things being equal. There is just too much systemic risk out there, and building to buy into valuations which are already toward the historically high end of ranges.