Friday, March 19, 2010

Market Update -Equity sectors – Treasury desk color - Sovereign CDS

· Market Update – the sp500 dips ~6-7 points and is on pace for its first back-to-back decline since 2/22-23. Volumes/activity picking up today vs. what we have seen over the last couple weeks – this is def being helped by the quad witch/rebalance, but even aside from that volumes are higher today. The desk is noting some more interest in profit taking/locking in gains today than we have seen in recent weeks; that said, still very mild selling and the dip today is more an issue w/buyers being on strike than selling pressure being very heavy (similar to what we saw yesterday). Some of the "negatives" being cited for the weakness today: the India surprise rate hike, the fact that HC increasingly looks like will get passed this Sunday (although note that the HMOs, which are arguably most senstive to HC reform, are up 3% today and up ~9% on the week alone as investors look forward to having clarity on this issue), and the fact that its looking like the EU Summit next week will still not resolve the Greek issue (European sovereign CDS spreads are wider today).

· Equity sectors – most major groups are for sale today. Commodity-linked groups are weakest (energy is down 1.4% and has actually turned negative on a YTD basis now vs. the SP still being up 4%). Oil services in particular are weak. Materials are down 0.8% and also lagging. Financials dip ~0.7% although the weakness is pretty mild given the run this space has had; the banks are still up ~20% YTD. Tech dips close to 1% on broad-based weakness (the SOX is off 1.7% and underperforming). Solars are getting hit after SPWRA earnings disappoint (the TAN is off more than 2%). The industrials were higher in the morning although have turned slightly negative as of noon; some strength in the aerospace stocks after BA bumped up its production schedule (PCP, COL, TXT, GR, HON, BA are all up >1% on the day). Health care is up small while the HMOs surge ~3% (investors are looking forward to receiving clarity on the HC front).

· Color from the derivatives desk: A lot of SPX gamma expired on the open today... so we are not going to see nearly as much buying as the market sells off today.

· Best Performing SP500 stocks: CI, AET, GENZ, PCP, COL, TIE, UNH, CVH, WLP, ROST

· Weakest performing sp500 stocks: NBR, SWN, COG, BHI, ETFC, CAM, HAL, TSO, JDSU, BJS

· Treasury desk color - The mkt has found some footing after an early bout of front end selling pushed 2s to the brink of trading thru 1%. Interestingly the bulk of the early selling was real $, a concerning sign as real $ has long been viewed as a backstop bid to 2s at 1%. Since then we've seen spec short covering in 2s, but the bulk of the rally has been driven by the long end (we've seen some insurance buying and there has been buying of USM in the mkt). The crv has ground flatter all session w/ some specs adding to flatteners in swaps.

· Sovereign CDS: Greek CDS ~15bp wider this morning to 325…..these are out from 281 back on 3/8; Spain, Portugal, Italy, Ireland, etc, are all wider today

· Corp credit – wider/weaker along w/the selling in equities; HY is off ~1/2 while IG is out 2bp. Financials are only mildly wider (BAC, C, WFC, GS, MER, MS all out ~3bp today).

· Commodities: Commodities (with the exception of Natural Gas) have sold off with the dollar rallying. Crude has and is trading near its lows around $80.20, down ~2.5%. Natural gas has rallied off its morning lows and is trading near $4.14, up ~1.35%. Both copper and got sold off sharply, and are trading near their lows, down 0.9% and 2% respectively.

· FX: USD (DXY) has rallied this morning, and is trading near its highs just shy of $80.80, up ~0.7% (dollar close to hitting fresh highs for this rally). The dollar is also trading near its highs vs. the Euro and the Pound, up ~0.6% and ~1.45% respectively. The dollar has fluctuated vs. the Yen, it recently came off its highs, but is up ~0.1% The Euro is trading near its lows vs. the Yen, down ~0.5%.

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