Afternoon Update on Whats moving the Market

OVERVIEW

· Market Update – there are a bunch of earnings-related situations that are pressuring the broader tape. The strong short-covering that helped so much on Mon and Tues not repeating today. The problem is that outside of short covering, we aren’t really seeing vanillas stepping in on weakness to add to long positions. That said, we aren’t seeing the across the board selling/shorting that hurt so much late last week. Some fundamental items weighing on the tape today: 1) eco headlines - the ADP “beat” the St, but still showed private sector job losses; a separate survey from Challenger revealed a sharp uptick in layoffs. Meanwhile, the service sector continues to suck wind (as evidenced by today’s non-manufacturing ISM). 2) a few earnings situations pressuring major groups (like MET in financials and PFE in health care). 3) new sovereign worries in Europe – focus on Portugal and Spain – see below. Looking at technicals, 1105 is near-term resistance (we hit 1102 this morning) while 1095 is support (approx. the lows of the session so far).

· Equity Sector Update – red across the board but financials and health care are weakest performing groups. Within financials, the regional banks fall more than 2% on the day as this group sees profit taking for a second consecutive session (note its still up >7% YTD, one of the best groups, but has been for sale over last 24 hrs +; capital raising hurting sentiment). Life insurers are also for sale on back of MET’s earnings (MET is off 4%). Health care drops >1% on the session, w/PFE falling 2%+ on back of earnings. The HMOs are also weak (reports that Congress next week will vote on ending the industry’s anti-trust immunity hurting sentiment). Tech is flattish on the day, one of the better groups (JDSU, LXK, GOOG, WFR, AAPL all helping the space while VRSN and WU dip 6% after earnings). The transports fall 1.7% and are one of the weaker groups (R falls 9% and CHRW is off 6% - both on earnings). Energy is off ~0.5%, w/coal stocks strong (MEE earnings helping) while refiners are weak (TSO dwn 5% post earnings). In the materials, paper stocks coming for sale after IP earnings (IP falls 7% on the session today). Media is one of the market’s best performing groups today (NWSa is up 6% after earnings although TWX dips 1.5%).

· Best Performing SP500 stocks (from Bloomberg): NWS, LXK, SKW, BDK, NOV, ROP, CBS, PCS, MEE, JDSU

· Weakest performing sp500 stocks (from Bloomberg): R, RL, WU, VRSN, IP,MI, CHRW, TSO, WAG, ZION

· Sovereign CDS - European sovereign CDS tightened in the last 48 hrs in anticipation of a successful Greek budget review from the European Commission……that review came this morning and spreads are actually widening back out. There are worries now that Greece won't be able to achieve its budget goals -Greece’s General Confederation of Greek Workers, the country’s largest labor group, proposed a general strike for Feb. 24 and said its representatives would quit a committee set up by the government for talks on pension reform after the announcement of plans to raise the retirement age. Away from Greece, some of the other "PIIGS" are in the headlines - Portugal's debt agency IGCP cut its planned T-bill placement to 300 million euros from the planned 500 million as yields spiked versus January's placement - this caused spreads to widen. Also - The Spanish government Wednesday upped its forecast for the 2010 budget deficit, but reiterated its commitment to reducing the deficit to 3% of gross domestic product in 2013

· Commodities: Commodities are mostly weaker today as the dollar strengthens. Oil is off 20c to $77 after a mixed inventory report. Natural gas is flat at $5.45 Gold is off $5 to $1113, trading at its lows of the day. Copper is tanking today, falling over 3% amid continued concerns in China.

· FX: USD (DXY) is 0.4% today and at its highs of the session. The dollar jumped 0.4% against the Euro and Pound, and gained 0.8% on the Yen. The Euro was up 0.4% against the Yen.

· Corp Credit: Corp credit is outperforming the tape today as IG spreads narrow ¼ of a bp and HY gains 1/8 of a pt.

· Treasuries: Treasuries sold off slightly today as 2s move up 1 bp to 86 bps and the yield on 10s moves higher to 3.67 pct. The 2-10 year spread steepened a bit to 281 bps. Treasury auction size announcement today was inline w/forecasts; will auction $40 billion in three-year notes on Feb. 9, $25 billion in 10-year notes Feb. 10 and $16 billion in 30-year bonds Feb. 11 (Bloomberg).