Wednesday, March 31, 2010

Market Equity sectors – Update - Corp. Credit Economics Headlines $SPY

·         SPX: 1169.44, (0.33%) NASDAQ: 2397, (0.53%) Russell 2000 (0.77%)
·         Market Update – very quiet session for the most part; investors main goal was to run out the clock on Q1 w/o a lot of fireworks (sp500 ends off 3.8 points to 1169; range today 1174-1165).  Equities remain resilient, shrugging off the weak ADP # and renewed worries around Greece, as buyers came in on this morning’s weakness.  That said, really not a lot of conviction or volume today; the holidays have thinned out attendance and hurt liquidity (this will prob. be worse tomorrow).  The tape drifted lower at around 2:30pm (no apparent major reason). 
NEW YORK - OCTOBER 07:  A bronze statue of a b...·         Equity sectors Energy was the only sector to stay in the green other than financials as oil shrugged off a larger than expected inventory build and rallied higher. Oil was pretty much unaffected as it was able to stay above $83 and was even as high as $83.80. Servicers and drillers helped lead energy higher on news that Obama plans to expand offshore drilling in the United States. Financials finished up slightly, led by the banks (BKX index was up 0.3% and ~21% for Q1). Utilities, healthcare, and telecoms were mostly off with the market. Discretionary, staples, industrials, materials, and tech weighed on the market as all were off 0.5-0.8% on the day. Investors will be focused on RIMM/MU for tech and MOS for materials as all three are set to report earnings after the bell.
·         Best Performing SP500 stocks: GNW, JDSU, DO, RDC, RF, PDC, DTV, NOVL, FITB, EXPE
·         Weakest performing sp500 stocks: SAI, AN, LEN, CEPH, MU, LSI, DE, OMC, MWW
·         Commodities:  Oil came off its afternoon highs, selling off into the bell to close around $83.25, up ~1%. Natural Gas sold off to close around $3.87, down ~2.6%. Gold came off its morning highs to close around $1113.50, down ~up 0.7%. After selling off in the morning, copper rebounded and finished the day down ~0.4%.
Wall St·         FX: USD (DXY) traded flat for much of the afternoon, strengthening a bit into the close, ending a bit above $81, down ~0.5%, The dollar came off its lows a bit vs. the Euro to finish down ~0.7%, The dollar held on to much of its gains vs. the Pound ending up ~0.7%. The dollar finished near its highs vs. the Yen, up ~0.8%. The Euro also finished near its highs vs. the Yen, trading flat into the bell, closing up ~1.5%
·         Corp. Credit: Corp. Credit continued to underperform equities – IG 14 finished out 2 bps while HY 14 lost ¾ of a pt.
·         Treasuries: Treasuries continued their rally from the afternoon – the 2s finished yielding 102 bps while the 10s ended up yielding 3.83%. The 2-10 year spread steepened a bit to 281 bps.
·         Sovereign CDS – Greece actually tightened a bit by the end of trading in NY (just a couple BP but protection had been a few BP wider earlier).  CDS is still much wider than it was just a few weeks ago (protection bottomed in Mar at ~281 and ended Fri @ ~339.  The co’s bond sale from earlier in the week continues to trade poorly in the secondary market and this morning Moody’s downgraded 5 Greek banks.  A Bloomberg article earlier today sums up the current consensus thinking: “Greece May Be Heading Back to ‘Square One’ on Aid as Bonds Fall”. 

Catalysts to Watch
·         JPMorgan is hosting a REIT conf on Thurs Apr 1.
·         Treasuries – we will hear about the size of the next round of coupon sales on Thurs Apr 1.  The next coupon sales are: 10yr TIPS Mon Apr 5, 3yrs Tues Apr 6, 10s Wed Apr 7, and 30s on Thurs Apr 8.  
·         C, PRI – Primerica expected to price after the close on Wed according to the FT   
·         Auto sales due Thurs; Industrywide deliveries may have risen to an annualized rate of 12 million light vehicles, the average of eight analysts’ estimates compiled by Bloomberg. Toyota said yesterday its sales climbed as much as 35 percent (Bloomberg) 
Economics calendardaily view
·         Wednesday, Mar. 31st: Overnight: China PMI Manufacturing & HSBC Manufacturing PMI, Japan Tankan Survey. 
·         Thursday, Apr. 1st: US (Challenger Job Cuts, Jobless Claims, ISM Manufacturing/Prices Paid, Construction Spending, Auto Sales); Eurozone (German Retail Sales, UK PMI Manufacturing); Other (Australia Trade Balance, Switzerland SVME PMI).
·         Friday, Apr. 2nd: US (Monthly Labor #s, Unemployment Rate); Eurozone (n/a); Other (n/a).  The jobs number will hit on Fri morning despite equities markets being closed for Good Friday; note that the TSY market will be open for a half session on Fri.  JPMorgan’s B Kasman will be hosting a conf call Fri at 10amET to review the jobs report. 
Corporate Events Calendar
·         Wed Mar 31: Earnings after the close (XRTX, MU, RIMM, MOS, RECN, GPN, DMAN). 
·         Thurs Apr 1: earnings before the open (WOR, KMX, SCHL).  sales (the nation’s auto companies will release their sales results for the month of Mar).  Analyst meetings (HIG). 
·         Fri Apr 2: most major markets closed for Good Friday (US, Germany, Greece, UK, Hong Kong, France, etc). 

Economics Headlines
·         US jobs - Private payrolls contracted 23,000 in March, according to the ADP employment report. There are two caveats in drawing inference for Fridays' employment report. First is the usual unreliability of ADP for forecasting private payrolls in the BLS number. While ADP has had a strong run over the last three months, with an average miss of just over 10,000, one only has to go back to November to get a 151,000 miss on ADP. Second, the effect of the February blizzards and subsequent bounceback in March are likely to be more muted in the ADP employment report than in the BLS number.  Feroli. 
·         Chicago PMI – the reading came in at 58.8, which was light of St expectations of 61
·         Factory Orders – the reading came in +0.6%, which was slightly ahead of the St’s +0.5%; the prior month was revised meaningfully higher, from +1.7% to +2.5%. 
·         European inflation - The flash release of Euro area HICP was out today, showing inflation rising to 1.5%oya in March, after 0.9%oya in February. The number is well above Consensus expectations of 1.1%oya, as well as our upwardly revised expectations of 1.3%oya.  Marta Bastoni
·         Europe employment - After holding steady at 9.9% for three consecutive months, the Euro area unemployment rate nudged up by one tenth to 10.0% in February, as expected. Unemployment rose by 61,000 in February, which compares to a peak monthly gain of over 500,000 in January 2009.  Greg Fuzesi 


·         Hardware – pretty quiet for the most part today; AAPL, HPQ, IBM dip small; DELL outperforms (although still up less than 1%). 
·         Smartphone stocks – RIMM has been off for most of the session (dwn less than 1%) ahead of its earnings tonight after the close. 
·         Software – mixed action in the group.  NOVL up ~3% and outperforming (the co’s recent UNIX case victory continues to help).  CA, QSFT, ORCL, SWI all in the green.  MSFT a notable laggard today (off >1.5%)
·         Drives – mixed action, w/STX making gains and WDC falling (neither moving more than 1% in either direction).  XRTX making small gains ahead of its earnings tonight. 
·         Semis – the SOX falls small on the day; MU dips ~3% ahead of its earnings after the close today (one of the weakest performing stocks).  On the upside, AMAT is up ~0.5% after its analyst meeting Tues (although the stock is well off its highs).  AMAT helping the other equipment stocks to outperform. 
·         JDSU – the stock climbs ~5% following pos. Weisel comments. 
·         Best Performing sp500 tech stocks: JDSU, NOVL, RHT, ORCL, TLAB, MA, XRX, FLIR, DELL, AMAT
·         Weakest performing: SAI, MU, LSI, MWW, MOT< CSCO, JBL, TSS, MSFT, NVDA

·         Banks – the group continues to outperform although ends a bit off its best levels; the regional banks outperform the larger money centers (FITB, PNC, RF, STI, ZION, BBT among the best performing).  C falls another 1% (C has been lower every day of this week although was up ~10% last week). 
·         Mortgage insurance – big rally in this group today following pos. release of industry data this morning (U.S. February Private Mortgage Insurance Defaults Fell 30.3% M/M)….MTG up ~8%, PMI up ~19%, GNW up ~5%, RDN up ~7%. 
·         Brokers – pretty quiet for the most part.  MS outperforms today (ends up small).  SCHW was hit earlier in the day following a court decision but rallied off the lows. 
·         Asset manager – OZM up ~6% on back of an upgrade from William Blair. 
·         Exchanges – ICE shrs outperform on back of pos. Morgan Stanley comments. 
·         Life insurance – the group has had a bid all day.  PL, LNC, PFG, PRU, MET all outperform.    
·         Best Performing SP500 financials (from Bloomberg): GNW, RF, FITB, LNC, STI, ICE, PNC, HIG, PRU, NTRS
·         Weakest performing: LM, PLD, DFS, MCO, SPG, KIM, STT, COF, VNO

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