Friday, March 5, 2010

Afternoon Updates-Equity Sector Trends - Commodities-FX-Corp. Credit $TLT $AA $X

·         Markets Update – equities extend their rally to 6 consecutive sessions (the sp has been up for 11 of the last 14 days) and are now just ~1.5% from recent highs; sp500 up 11 points/0.9% on the day as of 12:20.  The obvious catalyst for the move higher today is this morning’s brighter labor reading (BLS revealed a 36K loss, better than the print consensus 68K loss and much better than some fears of 150K+ loss due to the snow storms).  Also helping - the China People’s Congress address this morning is calming worries that growth will be ratcheted back meaningfully in that country (the extra emphasis on inflation being received well amid market worries about run away prices).  The strong Greek debt auction is also aiding risk appetites – not only was demand strong but the issue has been trading well in the secondary market (which contrasts to the prior auction a few weeks back which sold off a few days after pricing).  Greek 5yr CDS are trading sub 300 as of noon on Fri, down ~80bp+ from last Fri and down >100bp from the 2/8 peak at 421.  The Greek debt sale is aiding other sovereigns (Spain 5yr CDS fell under 100bp for the first time since early Jan).  Despite the strong US labor number, the dollar isn’t running away on the upside (the DXY is off small).  2yr TSYs, which are most sensitive to Fed rate expectations, are lower on the day, but the yields are about flat on the week (while the jobs number was better-than-expected, people don’t think its strong enough to rally move the Fed’s thinking meaningfully). 

·         Equity Sector Trends – strength across the board.  Financials, tech, industrials, discretionary, energy, and materials are all up 1%+ on the day.  Telecoms is the only group in the red (telecoms are already down 10% YTD, by far the worst performing group); other “safer havens” are also lagging today (staples and health care).  Retail is performing inline w/the tape, following a strong showing on Thurs (following the same-store-sales results); on the week, the sp500 retail index is up ~3%.  Internets are pacing about inline w/the broader tape today but are up ~6% on the week (this has been the best performing group this week).  The bank stocks also extend their impressive gains – larger money centers and the regional banks are still seeing buy demand (the BKX is up 13% now on a YTD basis).  The BKX continues to inch towards the upper-end of its months-long trading range (the next big catalyst to watch for the financials will be the company updates at the Citi Financial Services Conf next week).  The SOX is up more than 1% today despite MRVL’s disappointment last night (MRVL is well off its lows); the SOX is up ~3.6% this week (w/most of the gain coming Mon on back of the SIA #s and the SNDK upside preannouncement) but is still down on a YTD basis (SOX is one of the weaker groups YTD).  Materials are being aided by a rally in the metals (TIE, AA, X, ATI, etc). 

·         Commodities: Commodities are higher off the positive jobs number. Copper is up 1.3%, although off its highs. Gold initially sold off on the jobs data, but has rallied on the dollar weakening and is trading near $1138, up 0.45%. Oil is trading around $81.55, up 1.5%, coming off its highs. Natural gas has been trading flattish. $4.60, up 0.6%.

·         FX: USD (DXY) is trading flattish heading into the afternoon. The dollar has come off its lows vs. the Euro and is down 0.2%. The dollar is down 0.5% vs. the pound, again its lows. The dollar has come off its highs vs. the Yen but is still up 1.5% (the yen is under pressure off the Nikkei article talking about the BOJ ramping up its QE process). The Euro is up 1.6% vs. the Yen, also off its highs.

·         Corp. Credit: Corp. Credit is much stronger as IG spreads have outperformed, tightening 2.75 bps while HY spreads have traded in line, gaining 31/32 of a point.

·         Treasuries: TSYs sold off on the jobs data. 2s were lower and are yielding 90 bps and 10s have weakened to 3.68bps. The 2-10 year spread has tightened a bit to 2.78bps.  here

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