Thursday, February 4, 2010

Quick Update on Whats Marinating Today 02/04/2010

 ·         sentiment on the desk - tone similar to late last week….vanillas selling and shorts more comfortable laying out positions; buyers are on strike; the short covering that helped so much Mon/Tues not around today; dip buyers on the sidelines and not really stepping in to defend.  Technicals increasingly precarious: people watching to see if we can hold last week’s lows (@ 1071 – we broke through it already to briefly); beyond that, people watching 1063 (Oct ‘07 downtrendline).

·         The Fundamental items weighing on stocks: 1) sovereign worries front-and-center in Europe still….spreads wider on a bunch of the PIIGS…..Greek's largest union voted today to strike on 2/24 (in response to the budget cuts just enacted) – raising worries the budget cuts won’t be achieved.  There is a vote in Portugal occuring today that could ramp up spending.  A Spanish debt auction had a strong bid/cover but the size was cut and yields.  The ECB press conf today didn’t reveal anything too incremental about dealing w/these fiscal problems; 2) neg. eco headlines: German manufacturing orders fell 2.3%m/m in December (J.P.Morgan: +0.8%, consensus: +0.2%), a move which offset most of the gain seen in the previous month; meanwhile, jobless claims in the US were worse than expected (which is raising worries ahead of tom's BLS reading) – see below for details; 3) US government actions – two disconerting headlines hit around the same time today (~11amET) – the Cuomo BoA lawsuit and the Boxer/Webb bonus tax bill.

Economic Headlines
·         Initial jobless claims rose to 480,000 in the week ending January 30 from 472,000 in the week ending January 23 and a recent low of 432,000 in the week ending December 26. The latest figures are clearly concerning, as they raise the possibility that claims are stabilizing at a high level. The current level of claims could be consistent with small employment gains, and indeed we continue to expect that there was a 20,000 rise in nonfarm employment in January. However, claims would need to continue dropping to be consistent with larger payroll gains, which are essential for bringing down unemployment.  Abiel Reinhart

·         Nonfarm business productivity continued to surge in 4Q, rising 6.2%q/q, saar, and 5.1%oya. This was the third straight quarter in which productivity grew at a fast pace, and the increase in productivity over the last three quarters is the greatest in any such length of time since the mid-1960s. Robust productivity growth has allowed US economic output to recover without there being a corresponding increase in employment.  Abiel Reinhart

·         Factory orders – came in better at +1% (vs. St +0.5%).
·         German manufacturing orders fell 2.3%m/m in December (J.P.Morgan: +0.8%, consensus: +0.2%), a move which offset most of the gain seen in the previous month. In 4Q as a whole, orders were up only 2.6% at an annual rate, after rising more than 30%ar on average in 2Q and 3Q. The weaker orders trajectory weighs on the outlook for industrial production growth, which looks set to slow in coming months.  Nicola Mai

·         Equity Sectors – every market sub-sector is in the red today.  The weak euro/strong US$ is one of the factors hitting materials - the materials are down >3% on the day and are now off >7% YTD (the #2 weakest major group behind telecom services).  Also hurting the space are weak earnings (STLD the latest today) and worries about China engineering a slowdown (FT had another article talking about this today).  Retail sales were fine, but expectations were high already.  Like tech for the most part, the good news is being sold into (although few names act well, like ANF, M, and GPS).  Within tech, CSCO doing its best to stay green (up 1% now), but the rest of tech is for sale….SOX off >4% and is now down 13% YTD (the weakest group in the market – both today and YTD).  Financials fall more than 3% - more worries about capital raising and the Cuomo BoA action are weighing (banks are down close to 4%).  Lodging stocks act OK on back of the HOT earnings (HOT shrs are up 4.5%

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