Thursday, March 4, 2010

Afternoon Overview of the Market $ROST

·         Equities are doing their best to stay green for the day, although continue to exhibit some signs of fatigue (sp500 cash has been higher for the last 5 consecutive sessions and 10 of the last 13).  The same-store-sales releases today are helping sentiment, as is the jobless claims release (although it was just inline, it had been inching higher over the last couple weeks and investors were worried it could deteriorate further).  The pending home sales number for Jan is the latest in a string of neg. housing releases although investors are increasingly chalking this up to weather and anticipating better trends into the Spring.  All things considered today (the weaker housing #, the stronger dollar, the big catalyst tom morning w/BLS, overbought conditions), the performance in equities is actually impressive and demonstrates continued resiliency.  The desk is pretty quiet w/longs increasingly reluctant to chase stocks higher; larger vanillas still on the sidelines for the most part. 

·         Equity sectors – the financials are leading on the upside today, led higher by the big money center/capital markets banks as fears around the “Volcker Rules” abate.  On the downside, we are seeing some of the commodity-linked groups come for sale on back of a stronger dollar (energy and materials).  AKS is a notable outperformer in materials – the stock is up ~4% on takeover spec (mentioned on Bloomberg).  Health care stocks also remain pressured – recall this group underperformed on Wed and that is carrying over into today.  The increased rumblings on Capital Hill around reconciliation is weighing on the group (the HMOs are off 1%+ today although are well off their lows).  The retail index climbs close to 1% today on back of a stronger-than-expected series of same-store-sales (ANF, FDO, ROST, BIG, SHLD, TGT, etc, are all among the best performing retailers).  Pretty quiet in tech land – the group is lagging a bit due to the weak CIEN earnings, disappointment w/the ALTR update, and worry around lost output/capacity due to the Taiwan earthquake. 

·         Best Performing sp500 stocks: ANF, FDO, AKS, AIG, ROST, MDP, NYX, GS, VRSN, BIG

·         Weakest performing sp500 stocks: IGT, SWN, NEM, UNH, MWV, AVY, CNX, ISRG, LEN, MU

·         Jobs - All eyes are on the BLS labor number tom (the consensus at the moment is for a 63K loss; JPMorgan is forecasting a 90K loss; the desk thinks the market could absorb ~150K loss and not be too worried given the weather).  Its interesting today though that the 2yr TSYs are as weak as they are (these are most sensitive to Fed rate expectations) and the dollar is bid – this combination could be signaling a potentially strong number tomorrow.

·         Europe – a lot of headlines today.  The BOE and ECB decisions are being received as non-events – the actions and language were pretty much consistent w/market expectations.  Greece is in the market w/a 10yr bond sale that is being received well (the book built all the way up to EU16B for a EU5B issue and the bond was trading higher in the grey market according to Bloomberg).  However, both French and German officials are talking down the potential for a rescue package (recall this was talked about in the WSJ and elsewhere last weekend). 

·         Commodities: Commodities are down across the board as the dollar strengths. Oil is down on the day, but off its lows and is trading at $80.15; down 1.10% today. Gold is down trading near its lows at $1130; down 1.25%. Natural Gas sold off sharply, and is trading just under $4.60; down 3.5%. Copper is also down around 2.2%, near its lows.

·         FX: USD (DXY) is trading near its highs at $80.60; up around 0.80% on the day. The dollar is trading near its highs vs. the Euro and is up 1%. The dollar is up 0.5% vs. the pound, again near its highs. The dollar is trading near its highs vs. the Yen, up 0.6%. The Euro has come off its highs vs. the Yen, and is now down. 0.35%

·         Corp Credit: Corp. Credit is flat – with IG spreads widening less than 1bp, while HY gain 1/32 of a point.  Interesting that while financial equities are bid today, financials credit is actually slightly wider on the day. 

·         Treasuries: With stocks trading slightly higher, TSYs have been mixed. The 2s have sold off and are yielding 85 bps, and the 10s have rallied a bit to yielding 3.60bps. The 2-10 year spread has narrowed 2bp to the tightest levels since late Jan. 

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