OVERVIEW
· Equities Desk Update - The SP500 opened in the red on back of last night’s discount rate
increase, but the selling was very mild and the desk saw buy interest on the weakness; the
tone from the desk continues to improve as the aggressive selling from back in Jan exhausts
itself and dips get bought again. Shorts increasingly reluctant to lay out fresh exposure and
are using any dips to cover while larger vanillas are starting to nibble on the long side.
Volumes/conviction levels are still on the light side and investors preferring ETFs/indices vs.
single stocks for the moment; the strength has as much to do w/a sellers strike as it does
w/high-conviction long buying. Technically, we finally closed above 1100 Thurs and are now
battling the 50day MA (which stands at 1108-1109 on the sp500 cash). Despite all the noise
around last night’s discount rate action, the consensus thinking seems to be that monetary
policy will remain accommodative for some time, an outlook that Bernanke will prob.
emphasize during next week’s HH testimony.
· Equity Sectors – tech is flat on the day and underperforming the tape; a lot of the weakness
stems from a ~7% drop in DELL (following its earnings). AMAT is also extending its
weakness from Thurs. That said, away from hardware there is more buy interest – INTU is
up 8% after earnings and JNPR rallies 3% ahead of its analyst meeting next week. Health
care stocks are also under pressure (flat-to-dwn on the day) as the HMOs come under
continued pressure (the group is down 1% today on more worries on Washington pushing
back against rate increases). Energy is flattish, w/big moves occurring in oil field services
stocks (SII is up 13% on back of the WSJ article while SLB dips ~4%). The capital
goods/industrial stocks continue to have a decent bid to them (something that has been in
place for most of this week) – PCP, BA, GD, CMI, HON all climb more than 1% (HON had a
pos. earnings update this morning). Solar stocks are getting hit after the earnings updates
from CSIQ and FSLR. Financials outperforming slightly w/pretty broad strength (banks,
insurers). The transports index climbs more than 1% on the day and outperforms (FDX,
UNP, UPS, NSC are all up >1%).
· Commodities: Commodities are mostly higher today despite the Fed raising the discount
rate last night. Oil rallied off its lows and is now up 60c, nearing $80. Gold is flattish on the
day at $1118 after trading as low as $1102 overnight. Copper continues to climb, up another
2% for its eighth day in nine. Natural gas is off over 10c today, now sitting just above $5.05.
· FX: USD (DXY) is up 0.8% although it is well off its highs of the day. The dollar is down 0.2%
against the Euro after trading higher most of the morning. The dollar is up 0.55% against the
Pound, and flattish against the Yen. The Euro is up 0.3% on the Yen today as well.
· Corp Credit: Corp credit is sharply outperforming the market, acting as well as it has in a few
weeks. IG spreads have narrowed 4.75 bps and HY gained 1 pt.
· Treasuries: Treasuries sold off sharply today following the Fed funds hike last night. 2s now
yield 93 bps and 10s are yielding 3.81 pct. The 2-10 year spread saw a moderate flattening
although it still sits near an all time high at 288 bps.
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