Monday, March 1, 2010

03.01.10 Market Update


·         Market Update – stocks hold their gains into the close, ending the first session of Mar up nearly ~1% (coming on heels of best Feb in 12 yrs).  Pretty quiet afternoon, w/the sp500 spending most of the session hanging out at ~1115.  Stocks caught a bid this morning, in large part due to: 1) reports of a Greek aid package (mentioned in the WSJ and London Telegraph); 2) M&A (there were a bunch of large strategic deals on the tape this morning – in total ~$47B worth of deals were unveiled this morning); 3) earnings optimism (the SOX climbs ~3% after SNDK and SWKS raise their guidance).  Volumes/conviction levels still aren’t too high although the sp has climbed ~6.7% from the recent intra-day low at 1044 and the risks are increasingly viewed as being to the upside.  Large vanillas nibbling on the long side but not chasing; shorts increasingly looking to cover outstanding positions and are very reticent to lay out fresh exposure.  SP ends up north of its 50day MA (which was 1108) to a 1.5 month high and is just ~3% from its recent highs at 1150.  The strength has come despite some tepid eco readings (inc. last week’s US housing, Sun’s China PMIs, and this morning’s US ISM) as investors are taking a Goldilocks view of the data (its either due: 1) to poor weather or 2) will allow the Fed to stay accommodative for longer). 

·         Equity Sectors – strength pretty broad today.  Tech, health care, industrials, discretionary, energy, utilities, and materials all climb ~1%+.  The big story of the day was the semi vs. bank trade.  The SOX climbed more than 3% and broke up above its 50day MA, one of the best performing groups in the market, helped by strong SIA Jan sales and upside preannouncements from SWKS/SNDK.  The banks however came for sale (esp. the regional banks) – banks were the weakest market sub-sector.  Materials climbed 1.5% and energy was up ~1% despite a decent bid to the dollar today and sub-par PMI readings out of China overnight.  Media ended up ~1.7% as IPG extended its strong rally from Fri and DISH surged 7% (post its earnings).  Staples and telecom services underperformed although both were still up ~0.6%.  The HMOs sold off intra-day from their highs (but still ended up ~1.5% on the day) – note that JPMorgan (J Rex) hosted a conf call at ~12:30pmET where the speaker discussed the odds being higher than expected that the House would pass the Senate’s health care bill. 

·         Best Performing SP500 Stocks: SNDK, MIL, IPG, MU, NYT, JDSU, PCLN, AMZN, GCI

·         Weakest performing sp500 stocks: AES, QCOM, BBT, KEY, HCBK, PCS, SLM, DPS, RF, ZION

·         Disconnects in the market today: 1) Euro sinks despite European sovereign spreads tightening on optimism of a Greek bailout package; 2) Treasuries continue to trade higher despite there being a decent bid to risk assets (inc. equities). 

·         Commodities:  Despite the dollar selling off in the afternoon, commodities also moved off their highs.  Copper outperformed due to the earthquake in Chile,  although it came off its highs (it was up as much as 5% overnight) to finish up 1.9%.  Gold continued to trade flat in the afternoon and finish just below $1119. Oil rolled over around 1pm – but was able to strengthen a bit into the bell and finish at $78.75, down 89C. Similar to Oil, Natural Gas also rolled over -- and continued to sell off to close at $4.68, down 13C.

·         FX:  The dollar gained today, but came off its afternoon highs to finish up .48%. The dollar was up .5% vs. the Euro, although off its highs. The dollar traded flat against the pound in the afternoon -- finishing up 1.61%, also well off its highs (the pound had been down ~2.5%+ at one point overnight against the buck).  The dollar finished up .12% vs. the Yen, again coming off its highs. The Euro finished down .36% vs. the Yen.

·         Corp Credit: Corp. Credit was mixed as IG spreads narrowed 3.5bps (ended near their tights) while HY underperformed a bit, gaining just 5/16 of a pt.

·         Treasuries:  There wasn’t much change in Treasuries from the afternoon, as the 2s rallied slightly to 80bps (yields down ~2bp on the day) while the 10s were unchanged at 3.61%.  The 2-10 year spread steepened slightly to 2.81bps (10bps below last Monday’s high)


Calendar of events to watch coming up

·         Central Banks - The ECB holds a meeting on Thurs and China’s National People’s Congress starts Mar 5.  There will also be meetings from the RBA and BOE. 

·         Health Care – Obama will make an announcement this week about the "way forward" on health care following the bipartisan meeting last week; new revised HC outline to be released

·         There are a couple mid-Q updates (ALTR) and important Feb sales releases (auto companies release throughout the day on Tues and people will be looking for share shifts given the Toyota recall headlines and retailers will hit Thurs morning). 

·         There have been reports that Greece could launch a bond sale in the coming week and unveil additional budget reduction initiatives (Greece’s PM will be traveling to Germany on Fri 3/5).  Greek Prime Minister George Papandreou has called a cabinet meeting for Wednesday to "take decisions about the economy" (Reuters).  The WSJ reported that Germany and France were working on a EU20-30B bond sale deal w/Greece whereby state-backed German and French banks would take down half the issue w/the private markets taking the other half. 


Economics calendar – daily view

·         Tuesday, Mar. 2nd: US (Auto Sales, ABC Consumer Confidence); Eurozone (Eurozone CPI); Other (Australia Retail Sales, RBA Interest Rate Meeting & Decision, Switzerland GDP, Bank of Canada Interest Rate Decision).

·         Wednesday, Mar. 3rd: US (MBA Mortgage Applications, Challenger Job Cuts, Fed Beige Book); Eurozone (UK Nationwide Consumer Confidence, German PMI, Eurozone Retail Sales); Other (Australia GDP).

·         Thursday, Mar. 4th: US (ISM Non-Manufacturing, ADP Employment number); Eurozone (BoE and ECB meeting and interest rate decisions, Eurozone GDP); Other (n/a).

·         Friday, Mar. 5th: US (Monthly non-farm payrolls/unemployment rate, Consumer Credit); Eurozone (German Retail Sales); Other (n/a).


Corporate events calendar

·         Mon Mar 1: Earnings after the close(TNS, MR, MDR, CMS, MBI, DBRN).  Analyst meetings (BEAV, CAB, PCG). 

·         Tues Mar 2: earnings before the open(AIB, BYD, Persimmon, Informa, BPI, FDP, GSL, CTB, AZO, TECD, SPLS, BMO, DPZ). Earnings after the close (CHDN, PAY, INAP, PAY, NC, HOV, CT, EGLE, RHB, DMND).  Auto companies will report Feb sales.  Analyst meetings (CHS, SD, APC, BP, WBSN). 

·         Wed Mar 3: earnings before the open(Adidas, Standard Chartered, Taylor Wimpey, VRS, NNI, HSNI, NZ, JOYG, COST, PGR, URS, Adecco, RY, DIN).  Earnings out after the close (FL, FNSR, TTWO, CBEY, DIVX, PETM, SINA, SIGM, BELM).  Sales releases (WAG, HOTT).  Analyst meetings (NYX, SWY, MYGN, TAP, VRSN).  Mid-Q updates  (ALTR) 

·         Thurs Mar 4: earnings before the open(Aviva, BUD, WRN, WEN, TYPE, STP, TK, CIEN, TD).  Earnings after the close (MENT, MOVE, EVC, SLW, GA, ARST, ALSK, MRVL, COO).  Retail companies will report their Feb sales before the open.  Analyst meetings (A, PRGS, ENTG, BMY). 

·         Fri Mar 5: earnings before the open(AYR, BBGI).  Analyst meetings (GAS, THI). 



·         Real consumer spending got off to a reasonable start in 1Q, with the personal income and outlays report showing real spending increasing 0.3%m/m in January. This leaves consumption on track to grow 2.0%-2.5% annualized this quarter, which is close to our current forecast for a 2.0% gain.  Reinhart

·         Core inflation was soft in January, as the core PCE deflator rose only 0.01%m/m, the smallest increase in just over a year. The year-over-year rate declined to 1.4% in January from 1.5% in December, and we expect that it will fall further over the course of this year.  Reinhart 

·         Income - The real disposable personal income figure looked weak on the surface, although the details paint a more mixed picture. Total real DPI declined 0.6%m/m, which is a fairly large drop for this series. However, nominal wage and salary disbursements actually rose a decent 0.4%, the most since last April.  Reinhart. 

·         Construction spending fell 0.6%m/m in January as all major categories declined except for the volatile home improvements category. New residential construction spending declined 1.8%m/m, new private nonresidential construction fell 2.1%, and public spending dropped 0.7%. There were also downward revisions which imply that 4Q GDP growth will be cut from a high-side 5.9%q/q rate to a low-side 5.8% rate.  Reinhart  

·         ISM Manufacturing - The February ISM manufacturing report moved down to 56.5 from 58.4 the previous month. The decline was not a complete surprise, as the January report looked exceptionally strong compared to the regional manufacturing surveys. New orders moved down to 59.5 from 65.9, production slipped to 58.4 from 66.2 and inventories edged up from 46.5 to 47.3.  M Feroli.


Fed Headlines 

·         Fed Vice Chairman Kohn announced he will resign this June, which is also when his current four-year term as Vice Chair expires.  We wouldn't interpret the resignation or its timing as having some hidden signal about Fed politics.  Kohn is situationally dovish. Kohn is not a perma-dove, at some points in past business cycles he has been quite hawkish, but in the current situation he has been steady in advocating the need for monetary policy to remain growth-supportive.  It almost goes without saying that its unclear who will be nominated to replace Kohn.  Before Bernanke was reappointed as Chairman last August, some names thrown around for that position were Larry Summers, Christina Romer, Janet Yellen, and Roger Ferguson.  The Fed Board is already short-staffed with only five sitting Governors out of seven seats.  Feroli. 

·         Late in trading on Mon, the WSJ reported some headlines citing Fed’s Plosser.  According to the Journal, Plosser thinks the "extended period" phrase should be removed from FOMC language.  recall in the last statement (out 1/27), Fed's Hoenig dissented, prefering instead more hawkish language that dropped "extended period".  Note that Plosser isn't currently an FOMC voting member so his views werent expressed in the last statement.  One the whole this prob. isnt a big deal, esp. given that Bernanke just reiterated "extended period" during his HH testimony last week

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