Tuesday, February 2, 2010

Mid Day Front Check---02.02.10

· Stocks extend their rally for the second consecutive session (first time SP500 has been up back-to-back days since 1/13-14). A handful of pos. earnings releases (see LXK, DHI, EMR, CMI), along w/developments around the “Big 3” overhangs (see below) helping sentiment. Encouragingly, whereas Mon’s strength for the most part came on the back of short covering, today the buying participating is broadening a bit (so a bit more vanillas picking spots on the long side). That said, similar to Mon, its mostly a “sellers strike” that is permitting stocks to levitate (i.e. the large vanilla sellers and shorts that hit the market last week haven’t showed up Mon and so far Tues).
· Some clarity/developments on three of the market’s 3 biggest overhangs: 1) Greece – the EU tomorrow morning is expected to bless the Greek budget proposal; investors think this could remove Greece as a major sovereign risk story ; 2) Washington – people feeling a bit more comfortable w/headlines out of DC. The Obama budget laid on the table much of president’s policy proposals for the next year, removing this as an overhang. The 15bp bank tax is still being pushed, although adjustments are being made in response to industry feedback (i.e. exempting repos, as was discussed in the FT this morning). The “Volcker Rules” will be discussed at a hearing today (2:30pmET), but the market is starting to think this will be the worst case scenario and any final law will prob. be more watered down than what is currently being talked about (also – given Volcker already published an oped and his views on this are well known, there prob. won’t be anything too incremental this afternoon). The Geithner budget testimony (has been ongoing all morning) has been more conciliatory in tone. Away from Washington but in a similar vein, the decision in Australia this morning (when the RBA unexpectedly stayed on hold) is relieving some market worries that central banks would embark on a tightening campaign irrespective of market events. 3) China – there continues to be reporting out of China each morning about actions taken by the government to engineer a cooling in economic growth, but the market is hoping for this headline risk to cease w/the Chinese New Year (the week long holiday starts 2/14).
· Equity Sectors – health care, capital goods, energy, and telecom services climb 1% and lead the market; utilities, materials underperforming (but both still in the green); financials trading inline w/SP500 but SP Bank index flat-to-dwn. SP500 Industrials are the market’s best acting group, up >1% (within that, capital goods are up 1.5%). EMR +8% and CMI +7% after earnings and leading the group higher. Homebuilders are up >4% on back of DHI’s earnings (DHI is up 9%). Within transports, airlines are strong, up 2% (CAL kicked off monthly RASM reporting last night – CAL is up 2%). Energy stocks extend their rally from Mon, w/the group up another ~1% (DNR is up 5% and best performing stock in the group). Materials are lagging – AA climbs 2% on the Citi upgrade but DOW is off 2% after earnings….DOW is well off its lows though). Tech lagging (but still up on the day) as strong moves in LXK, WFR are offset by declines in AMD, CPWR, QCOM. Financials are pacing inline w/the SP500, but the SP Bank Index is actually flat-to-down (for the first time in a while, the regionals are for sale as money rotates into the larger money centers/brokers).

· Best Performing SP500 stocks (From Bloomebrg): DHI, LXK, EMR, CMI, WHR, PHM, EK, S, DNR
· Weakest performing sp500 stocks (from Bloomberg): DOW, ETFC, JEC, MEE, PCS, CNX, BTU, AMZN, CBS, WYNN


· Commodities: Commodities are stronger across the board as equities move higher and the dollar weakens. Oil is up over $2, nearing $76.50 and trading at its highs of the day. Natural gas is also stronger, up about 1 pct to $5.50. Gold is up over 1%, near $1118 and at its highs of the day. Copper is lagging today, up just 0.2% and near its lows of the day amid continued worries out of China.
· FX: USD (DXY) is off 0.25% today and trading at its lows of the session. The dollar is off 0.2% to the Euro, flattish against the Pound, and off -0.2% against the Yen. The Euro is flattish against the Yen.
· Corp Credit: Corp credit is performing slightly below the tape as HY gains 7/16 of a pt and IG spreads narrow ¾ of a bp.
· Treasuries: Treasures are little changed today as 2s yield 85 bps and 10s stay at 3.65 pct. The 2-10 year spread stayed unchanged at 280 bps.

Economics Headlines
· Pending home sales increased 1.0%m/m in December after plunging 16.4% in November. The pending home sales index leads existing home sales by one to two months, and it implies that existing home sales will be little changed between December and January. Existing home sales were 5.45 million, annualized, in December, down 16.7% from November. A Reinhart

Catalysts to Watch
· The Senate Banking Committee will be hosting 2 hearings to discuss bank prop trading (Paul Volcker will be testifying at the first hearing on 2/2 and execs from GS and others, will be speaking at a separate hearing on 2/4). Volcker’s testimony today is due to start at 2:30pmET.
· Small business lending - Obama will roll out a proposed $30 billion small business lending program Tuesday; Obama will detail at an appearance in Nashua, NH (WSJ)
· Geithner – will testify before the Senate Banking Committee @ 10amET this morning. Will discuss the president’s budget.
· Sales – auto sales come Tues and retail same-store-sales come Thurs morning.
· Central Banks - In Europe, both the BoE and ECB will hold meetings with interest rate decisions (Thurs morning)
· The Treasury will announce quarterly sales of long-term debt Feb. 3.
· There is a G7 Finance Ministers meeting Feb 5-6 in Canada
· Greece - The European Commission expects to give an assessment of the Greek budget plan on Feb. 3.
· NY Fed will hold a meeting this week to discuss efforts to improve trading in the tri-party repo market. DJ

Corporate Events
· Tues Feb 2: Earnings after the close (DHX, WBSN, ADS, FISV, RVBD, ACE, MET, VRSN, TSO, BRE, MYGN, AJG, MEE, AFL, MTW, MWA, PXD, SGI, JDSU, QSFT, AMX, UMC, UNM, NWS, CHRW, RVBD, IRF). Auto sales for the month of Jan will be reported.
· Wed Feb 3: earnings before the open (CMCSA, DBD, HW, WU, ITG, HNT, OIIM, IP, TWX, CVLT, SVVS, LAZ, SSTI, TMO, R, SLAB, MKTX, SPIL, Electrolux, Autonomy, CKSW, NOV, ARW, PFE, BDK, Toyota, Roche, AOL, RL). Earnings after the close (AKAM, MHO, WFR, NVLS, CDNS, IEX, BRCM, V, YUM, RNOW, ONNN, CBG, STLD, DLB, THQI, EFX, FNF, AVB, OPNT, INSP, DCP, CSCO, THG, WSH, KIM, Lenovo). Analyst meetings (AXP).
· Thurs Feb 4: earnings before the open (CI, SLE, UFS, CINF, BG, AGN, LZ, MKSI, POWI, NCR, HOT, HSP, CME, BKC, TEN, MGI, UIS, MCO, SNA, SBH, BCE, BR, Deutsche Bank, Santander, GSK, VOD, BR, BHE, MA, DO, CLX, NOC, RAI, BDC, RDS, UN/UL, MF, PENN, KLIC, K). Earnings after the close (PBI, SUN, MCHP, IN, CNW, HLIT, SIMG, PWAV, N, VRTX, FIS, DNB, SNCR, BLKB, MFLX, MCRS, SRCL, EW, SFLY, SFSF). Retailers will report their Jan sales on Thurs 2/4. Analyst meetings (EK, WFR).
· Fri Feb 5: earnings before the open (AET, AIV, WY, YRCW, AON, SPG, BPO, PPL, LEA, BZH, BRKS, G, TSN, Panasonic, AXL). Analyst meetings (EMR, STJ, GLW). Shareholder meetings (TSN, XRX, ACS).

Economics Calendar
· Tuesday, Feb. 2nd: US (Pending Home Sales, ABC Consumer Confidence, Auto Sales)
· Wednesday, Feb. 3rd: US (Challenger Job Cuts, MBA Mortgage Applications, ISM Non-Manufacturing); Eurozone (UK Consumer Credit, German PMI Services, Eurozone PMI Services, Eurozone Retail Sales); Other (New Zealand Unemployment Rate).
· Thursday, Feb. 4th: US (Non-Farm Productivity, Jobless Claims, Factory Orders, Retail Sales); Eurozone (BoE Interest Rate Decision, ECB Rate Decision, German Factory Orders); Other (Australia Retail Sales, Reserve Bank of Australia Quarterly Monetary Policy Statement, Canada Building Permits, Swiss Trade Balance, Canada PMI).
· Friday, Feb. 5th: US (Monthly Jobs #, Unemployment Rate, Consumer Credit); Eurozone (UK PPI, German IP); Other (Japan Leading Index, Canada Employment figures).


· Discount brokers getting hit on the Fidelity pricing cuts; AMTD, SCHW, ETFC are all off a few % on the day (although moving off their lows as AMTD’s CEO tells DJ that he sees no need to cut trading commissions).
· Advisory firms – EVR shrs are off ~1.9% after earnings. Peers are all higher (GHL and LAZ both in the green….LAZ is up 4%)
· Asset managers – the group had a strong run on Mon and is more mixed today; BLK falls 1.8% and underperforms. JNS and TROW off small on the day. AMG extends its rally from Mon (recall the co had earnings Mon morning that were received well by the St). In the alt manager space, BX up another 3% (extends rally from Mon, which came on a pos. Morgan Stanley initiation) and OZM is up 3% too (they released Jan returns in an 8K this morning).
· Banks – larger money centers/brokers in the green (BAC, C, GS, MS, etc) while regional banks come for sale today (BXS, CMA, FITB, PNC, MI, RF, STI, HCBK, etc, are all in the red today). recall that for most of ’10 so far the regionals have been to buy while the larger banks came for sale…..for today at least, this trend is reversing. Not all regionals are lower – KEY is up 1.6% and outperforming.
· Cards – very strong action in the credit cards; COF is up 2.7%, AXP is up ~1.8%, and DFS climbs 3%. Upgrades of the space from BoA/Merrill helping.
· Insurance – very busy night of earnings in focus – we will get #s from ACE, AFL, AJG, MET, and UNM after the bell tonight. RGA shares are down 1.6% today after reporting last night.
· Best Performing SP500 Financials (from Bloomberg): DFS, GNW, HIG, NYX, AIV, COF, MMC, KEY
· Weakest performing sp500 financials (from Bloomberg): ETFC, BK, SCHW, JNS, HCBK, FITB, FHN, CME, PNC, TROW

· Hardware – LXK the big highlight of the day (stock up 9% after earnings this morning). Other names are flat-to-down (inc. AAPL, DELL, EMC, IBM). HPQ outperforming on back of the LXK earnings (HPQ reports 2/15).
· Software – the group is trading in the red for the most part; MSFT, CA both flattish while BMC, QSFT, CPWR are dwn 1% (QSFT reports tonight). ORCL is a notable outperformer, up 1.6% on the day.
· AXE is down 3.5% after earnings; BGC and BC are off small in sympathy.
· Semis – WFR leading the SOX into its earnings Wed night. Memory – stocks are acting well today – SNDK, STEC, MU all up 1-2%. AMD – stock off 2% after Goldman added the stock to its Conviction Sell list. Semi equipment stocks (AMAT and KLAC) are sluggish (Credit Suisse was cautious this morning on AMAT and KLAC).
· Networking – EXTR shrs are up 8% after earnings; all eyes are on CSCO’s earnings coming Wed after the close. Other names are mixed – ADCT, ADTN, CTV, JNPR, SONS are all off small. ALU outperforms (stock up ~1%+).
· Internets – AMZN extends its weakness, falling another 3% today. AOL shrs up 1% ahead of its earnings tomorrow morning.
· Best Performing SP500 Tech Stocks (from Bloomberg): LXK, WFR, NOVL, SNDK, TER, NTAP, MU, ORCL, GLW, NVDA
· Weakest performing sp500 tech stocks (from Bloomberg): AMD, CPWR, VRSN, QCOM, BMC, LSI, KLAC, FIS, CRM, SYMC

Consumer & Retail
· Consumer up with the tape. Household Products outperforming on the Staples front with TUP +6% after earnings (NWL rallying 5.5% in sympathy) and AVP +4% on positive sell-side comments….Beverages up slightly post-PBG earnings which featured NA volumes that were relatively inline with expectations…Ag products outperforming post-ADM and CPO earnings beats….In Food, HSY getting a lift post earnings and DOLE is down 3% after preannouncing Q4 adjusted ebitda below the street…..PM bouncing back from recent weakness as USD moves off highs (+2%).
· Autos up ~1% across the board ahead of a slew of earnings this week and Jan Auto sales today. In Restaurants, BKC is underperforming on 1) DJ article citing internal company slide deck saying $1 Double Cheeseburger promotion boosted sales 3.4% @ co-owned stores and 3.9% @ Franchised locations in the Q to be reported Thursday. The presentation shows that the promotion lost steam the longer it ran. Recall that BKC plans to run the promo through April. 2) Competitor out neg on stock today (lowered #s) and a slew of recent downgrades.
· In Retail, Specialty names outperform following ANN's upside preannouncement (Stock +15%). BKS trading up 6% (was up 18% earlier) after Burkle asked BKS to waive a provision preventing unwanted takeovers and allow him to acquire as much as 37% of the shares.

· Industrials: The momentum is far greater than the early morning short squeezes that we saw last week. The weird thing is we are NOT seeing any real vanilla's adding. We realize we should give it time b/c they typically wait for a few days of positive momentum to be comfortable adding further, thereby chasing the momentum. Given yesterday s action + today's trajectory.... this could happen. So, what do we do with the likes of EMR & CMI...? This time last week they'd already be down on the day. Momentum however is still strong and those that shorted them early have quickly covered and continue to play the game. The same is true in DHI.
· Transports: Transports are lagging as UPS is sort of a "so what,” better places to be than a low beta, highly visable EPS story. Truckers are all off today as capacity issues continue to weigh on the space. Rails are a relative outperformer in the space as the group claws back a bit after getting slammed last week. Airlines are also outperforming following a positive January RASM release from CAL.
· Materials: Materials are lagging the tape a bit as investors take some profits following yesterday’s short covering-driven rally. Earnings out of DOW are weighing on the chemicals space. Metals have rallied off their lows to perform mostly in line with the tape, although steel stocks are lagging. Paper and packaging stocks are outperforming today on the heels of CCK’s earnings release this morning.
· Energy: Energy is performing in line with the tape as spikes $2, moving towards $76.50. Integrateds are stronger with the exception of MRO and BP following their earnings releases this morning. Servicers and drillers are also stronger with the higher price of oil. E&Ps are stronger today as natural gas jumps 8c to $5.50. Coal stocks are much weaker today after a weak earnings report from PCX this morning.

Industrials/Materials/Energy Outliers
· DHI is up 9% after a very good earnings report, lifting the rest of the homebuilders up 3-7% in accord.
· CMI is up close to 7% after beating earnings and guiding FY10 revenues higher.
· EMR is up close to 8%, breaking its 52-week high after beating earnings, revenues, and guiding FY10 EPS higher than the st. IR is up over 3% in accord.
· TKR is up around 1.5% after beating earnings and revenues this morning.
· GE is up around 3% today. Recall last week it was one of the stocks that held its ground, making this a very favorable relative long as of late.
· HON and MMM are lagging again as investors move out of the low-beta names and into the higher beta plays.
· MAN is up over 3% after beating on the top and bottom line this morning.
· CAL is up close to 3% after reporting Jan RASMs ahead of the st. The rest of the airline space is up 2-4% in accord.
· WHR is up over 6% after beating on earnings, revenues, and guiding higher than the street.
· DOW is off over 3% as earnings missed after stripping out a one time tax gain.
· ADM is up over 3.5% after beating earnings estimates this morning.
· CCK is up close to 8% after giving positive guidance for FY10.
· BP is off over 3.5% following a disappointing earnings / guidance report.
· PCX is off close to 4% after earnings this morning.

Media & Leisure
· The profit taking and underperforming in large cap media stocks comes before NWSA’s earnings AMC, with many doing their selling in CBS (down ~1.6%) The cable stocks are outperforming the content providers, as CMCSA as strengthens ahead of their earnings tomorrow. More buyers are moving into that name as opposed to TWC, as their earnings have come and gone - leaving many to take profits. Newspapers are trading mostly in line this morning after falling yesterday after GCI’s earnings.
· Within telecom, the news yesterday that LEAP hired an adviser to potentially help sell itself [WSJ] caused many to rush to cover their shorts heading into the bell. We have seen buyer rotating into the other wireless stocks, notably S (Sprint) – whose prepaid business may benefit with one less competitor in the space. Q was upgraded this morning at Piper Jaffray and is up 4.5%; the stock may also be benefiting from fewer traders moving into the towers as many feeling that that trade is over.
· Within leisure we are seeing a rotation out of the Macau centric stocks (who ripped yesterday off of Macau revenues) and into the regional gamers. MPEL reported slightly light earnings, but expectations were low and the stock may be still feeling a slight boost with news (from a few days ago) that Harrah’s may be looking to buy Crown Ltd.’s stake in the casino. [Bloomberg]
· Lodging stocks are trading mostly in line, but cruise lines are trading higher than the tape. With the sp500 continuing to rally from yesterday, the dollar continues to weaken and with crude still below $76, cruise lines have outperformed; RCL is up ~3.35% and CCL is up ~1.2%.

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