· Market Update – stocks picking up where they left things off on Mon – slow steady grind higher. Flow from the desk remains consistent – there isn’t a lot of chasing or panicked buying occurring on the upside, but there is a strong reservoir of buy demand on weakness. Shorts pretty inactive and not laying out fresh exposure given the strength; long sellers also not doing much. Breadth remains decent and we continue to see “rolling rallies” (i.e. tech was the big story of late ’09 while financials really started to outperform for most of early ’10; health care caught a bid last week and cap goods/industrials leading on the upside today). Investors viewing the calendar of being essentially clear until the 4/2 BLS report and the 4/12 AA earnings season kick-off. Bunch of headlines on the tape from the Geithner FNM/FRE testimony and re Greece, although nothing too incremental and it all seems like noise.
· Equity Sectors - industrials very strong, up ~0.6% overall w/capital goods up 0.85% and leading the market high. Seeing strength in likes of DE, CAT, CMI, JEC, etc. AOS, a small industrial (not really heavy industry but in the broader "industrial" umbrella), had an upside preannouncement this morning (AOS up ~5%). EMR had monthly orders out this morning and showed further improvement (stock up ~1%). Health care is flattish today and taking a bit of a breather following strong run of last few days (a group of US attorney generals just filed suit against the HC legislation). Retail is a laggard today - not a whole lot going on…the space is off 0.4% on the day (despite RCL and CCL both trading well after earnings). Tech is trading inline for the most part, up 0.3% on the day….once again semis are leaders (SOX up 1.5%+)….the SOX is (finally) setting fresh highs for this rally. Financials are trading inline w/the St although the larger money center banks are pretty strong (while regionals see profit taking). Energy stocks remain sluggish – they lagged on Mon and are underperforming again today (the energy space is off on a YTD basis, one of the weakest groups in the market). Materials are up ~0.6% and outperforming, being helped higher for a lot of the same reasons that the cap goods/industrials are trading well (demand optimism, ore pricing, etc).
· Best Performing SP500 stocks: TIE, CLF, ETFC, S, LXK, JCP, HAR, X, DELL, ATI
· Weakest performing: NBR, LH, STI, EXPE, AIG, PHM, CVH, DHI, YHOO, WLP
· Commodities: With the dollar weakening, all commodities are trading near their highs after the morning. Natural Gas is trading near $4.13, up 1.1%. Oil has fluctuated a bit, but is up ~0.75%. Copper has come off its morning lows and is up 0.3%. After failing $1100, earlier in the morning – Gold surged and is now trading near $1104.50, up 0.45%
· FX: USD (DXY) has come off its morning highs and is trading around $80.65 – flat into the afternoon. Dollar getting hit from its best levels as risk assets catch a bid and on back of this Bloomberg headline: “Germany, France Agree on IMF Aid for Greece, Official Says”
· Corp. Credit: Corp Credit is mixed with IG outperforming and HY in line (similar to yesterday. The 14 IG spreads are in 1 ½ bps while HY has gained 1/8 bps.
· Treasuries: Treasuries are mixed with the 2s outperforming ahead of the $44B auction @1pm and Yellen’s comments later today (Yellen, who is considered among the lead candidates to replace Kohn, is expected to give a relatively dovish update). The 2s have rallied to 95 bps while the 10s are unchanged from yesterday at 3.66%. The 2-10 year spread has steepened to 271 bps.
Catalysts to Watch
· Greece - EU Heads of State Hold a summit on 3/25. It seems like Europe will simply reiterate what they have been saying – that a plan is in place to give assistance should it be needed but at the moment no such aid is required and no details will be provided to the marketplace.
· China and the yuan - House holds a hearing on the yuan Mar 24.
· Treasuries - This week, the Treasury will sell $44 billion in two-year notes (Tues), $42 billion in five-year notes (Wed) and $32 billion in seven-year securities (Thurs).
· In commodities, the CFTC will hold a meeting on Mar 25 to start examining if speculators in the base- and precious-metals markets should be subject to trading limits.
· UK budget due out on Wed
· Israeli Prime Minister Benjamin Netanyahu is scheduled to meet with U.S. President Barack Obama on March 23 (Stratfor)
· Fed’s Yellen (many think is the lead candidate to replace Kohn as the Fed’s vice chair) to speak today @ 3:35pmET.
Economics calendar – daily view
· Wednesday, Mar. 24th: US (Durable Goods, MBA Mortgage Applications, New Home Sales); Eurozone (German – PMI Manufacturing, IFO, Eurozone PMI Manufacturing); Other (New Zealand GDP, Japan Trade Balance).
· Thursday, Mar. 25th: US (Jobless Claims); Eurozone (German Consumer Confidence, UK Retail Sales); Other (Australia Conference Board Leading Index, Japan CPI).
· Friday, Mar. 26th: US (Third/Final Q4 GDP, PCE, Michigan Confidence); Eurozone (n/a); Other (Switzerland KOF Institute Economic Forecast).
Corporate Events Calendar
· Tues Mar 23: Earnings after the close (SONC, PRGS, DRI, ADBE, JBL). Analyst meetings (PEP, CPO, RMBS).
· Wed Mar 24: earnings before the open (CMC, Li & Fung, China Unicom, LEN, GIS, Q-Cells, Sainsbury, Man Group); earnings after the close (RHT, CKR, PAYX). Analyst meeting (COP).
· Thurs Mar 25: earnings before the open (CAG, CONN, UTIW, BBY, MKC, SolarWorld). Earnings after the close (WTSLA, ACN, TIBX, ORCL, SMOD, SNX, FINL, SABA). Analyst meetings (SI, SRE).
· Fri Mar 26: analyst meetings (HS, EAT)
Economics Headlines
· Existing home sales for February held up better than expected in light of the sharp decline in January pending home sales. Existing home sales edged down 0.6% to 5.02mn (consensus 5.00, JPMorgan 4.80). February existing home sales reflect closings based on purchase contracts signed in prior months, so February snowstorms should not have affected the results. This is apparent in the details; sales increased in the Northeast and Midwest. The supply of homes on the market (reported nsa) did rise 9.5% and the months' supply rose from 7.8 in January to 8.6 months in February. Mellman.
· US Richmond Fed survey came in a bit ahead of expectations at 6 (vs. the St at 5)
· EU Summit/Greece Update - It looked as if the Greek crisis would reach some sort of climax at this week's EU summit: either the German position would soften and a concrete proposal for Greek support would be put on the table, or the Greeks would go to the IMF. In fact, as we approach Thursday's meeting, the outcome could be somewhat different. Essentially it looks as if the Germans are sticking to their position, which means that no detailed plans will be revealed this week. In theory, the Greeks could follow through with their threat to go to the IMF, but given the more assertive German position we doubt that they will do so. The onus will then be on the Greeks to continue with the fiscal consolidation at a higher borrowing cost than they would ideally like, but in the expectation that as the deficit narrows so will spreads. Mackie.
Europe : With the sp500 flat, Europe is trading higher than the US across the board.
· The FTSE traded a bit higher than the SX5E - Financials has been one of the best performing sectors in each index.
· The Spanish IBEX and the Dutch AEX led Europe, gaining roughly 1% each. Best performing stocks in the IBEX included: Tecnicas Reunida and Aebnoga. Best performing stocks in the AEX included: TNT NV, and ASML holding
· The Swiss SMI had the most modest gain in Europe, as financials lagged
· The CAC traded in line with the FTS, as health care underperformed and tech leading
Sectors
Tech/Telecom
· Hardware – quiet for the most part. DELL and LXK are outperforming (both up ~2% on the day). EMC, HPQ, NTAP are both weaker. AAPL flattish.
· Semis – the SOX is up more than 1% (finally breaking to new highs today – one of the big complaints about the rally had been the inability of the SOX to hit new highs). ATHR, MRVL, AMAT, SNDK, LRCX, TER, KLAC, NVLS are leading semis on the upside. Once again memory and equipment are outperforming. Seeing some pockets of weakness – AMCC, BRCM, LLTC, XLNX. ISSI is up 19% after its upside preannouncement.
· Disk drives – STX and WDC are both up ~2-3% and outperforming.
· EMS stocks are outperforming ahead of the JBL earnings tonight – FLEX, SANM, JBL, CLS all up ~3-5%. BHE is one of the few underperforming names in the group.
· SYNA – stock is down ~5% following a downgrade from Needham
· Solars – bouncing a bit today after a couple wks of underperformance. ENER shrs are off 2.5% on its CFO announcement.
· Software stocks – somewhat mixed action, although ORCL is up ~0.6% and extending its gains. SWI, TIBX, NOVL all outperforming too.
· Internets – red across the board; YHOO, AMZN, EBAY, GOOG are all off 1%.
· Best Performing SP500 tech stocks: LXK, SNDK, WDC, AMAT, DELL, KLAC, NVLS, TER, JBL, NVDA
· Weakest performing sp500 tech stocks: GOOG, YHOO, EBAY, APH, MFE, CPWR, CTXS, EMC, INTU, SAI
Financials
· Financials: Group slightly lags the broader tape following the SBC's passage of the Dodd bill last night and as Treasury Secretary Tim Geithner speaks in front of the HFSC regarding housing. Large cap banks are outperforming regionals, capital market-related names and insurance. Flows remain balanced, with vanillas starting to come back to life in the group after being relatively inactive over the past four trading days. We're starting to see more directional accounts skew bias to the sell-side, with more shorts being applied in addition to long-selling. In banks, we're seeing heavy sell pressure in the southeast names with flows going into more defensively capitalized banks. Shorts are being placed in the trust names. In life insurance, we're seeing HFs two ways in the group (some increasing exposure while others short into recent strength).
· Brokers – ETFC is bouncing ~4% after getting hit on Mon on the CEO announcement and reserve stock split. MS and GS are off small.
· Asset managers – this group continues to have a decent bid to it (has been the case for last few days). AMG, AB, BLK, EB, BEN, LM all higher today.
· Life insurance – the group is mixed. AFL is down ~1%+ on back of the Bernstein downgrade. The other majors are flattish-to-down small.
· Banks – strength in the month centers today (all the Big 4 money center banks are higher today; C is up another 1%+). Regionals however are seeing some profit taking after a strong run. The bigger regionals off ~1% on average (STI is the weakest at dwn ~2.5%).
· PMI – the stock is up 16% after FRE said it was an eligible MI.
· AIG – the stock continues to come for sale (has been weak since it was revealed that former CEO Greenberg sold out of his remaining position in the company).
· Best Performing SP500 financials (from Bloomberg): ETFC, GNW, JPM, C, PFG, LM, PGR, WFC, UNM, BEN
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