· Markets Update – stocks pullback from Tues’ new highs, weighed down by renewed sovereign worries (Portugal) and some cautious headlines out of a Fed official (Fed’s Hoenig said its “highly unlikely that US banks have recognized all their financial losses…loan performance continues to deteriorate”). On the whole though, despite the neg. headlines, there isn’t really aggressive selling today. Flows remain very quiet. There is still interest in buying stocks on pullbacks – weakness viewed as an oppy to expand long exposure (but buyers aren’t chasing on the upside). Most interesting activity occurring outside of equities today – TSYs very weak and 2yr yields are up ~8bp on the day to 1.06% (the first time they have been north of 1% since early Jan). Meanwhile, the dollar/DXY is up 1%+ on the day and at the highest level since May (while all the focus is on Portugal and the dollar being strong b/c of a safety trade, the market indicators suggest the trade today could driven by expectations for Fed tightening/brighter eco outlook).
· Equity Sectors – the financials are eking out small gains on the day (off their highs and about flat) as the banks see some buy interest (BAC is up 2% and one of the best acting large banks). In addition to the banks, capital goods stocks extend their rally – the sp500 capital goods index is up ~13% YTD and is the 3rd best performing group in the market (behind banks, which are up close to 20%, and autos, which are up ~28%). Leading cap goods on the upside today: JEC, GE, FLR, HON, BA, UTX, PCAR, CMI. Tech is trading about inline w/the sp500, although the SOX dips ~1% and underperforms (PLD stocks XLNX and ALTR are weakest). Health care falls 0.8% and the group lags (GENZ dips ~5% after this morning’s regulatory update). Retailers are off >1% and underperforming (this space has been lagging for two sessions now). Staples, utilities, and telecoms are all dwn ~0.7-0.9% (within telecoms, S is an outperformer w/a 5% rally). The homebuilders are up 1% today despite the sluggish new home sales as LEN’s earnings prompts buying. Transports getting hit today, off ~1% (rails for sale – NSC, NSX, and UNP are the weakest rails). On the upside in transports, DAL and CAL both outperform.
· Best Performing sp500 stocks: S, LEN, GNW, ADBE, CLF, KEY, MEE, JEC, BAC, CME
· Weakest performing: JBL, GENZ, IPG, THC, XLNX, NYT, ADM, SRCL, ALTR, ADI
· Commodities: Commodities are trading lower in the face of the strong dollar. Crude inventories rising 7.25M vs. expected 1.65 million barrels [Bloomberg] caused an initial sell –off, but crude rebounded shortly after; it’s trading near $80.70, down ~1.5%. Natural Gas has come of its highs and is trading near $4.10, down ~0.6%. Gold has weakened heading into the afternoon and is trading near its lows around ~$1091, down around ~1.1%. Copper has come off its lows a bit, but is still down ~0.95%
· FX: USD (DXY) has strengthened throughout the morning, and is trading near its highs around $81.75, up ~1.1%. The dollar has also rallied vs. the Euro/Pound/Yen trading near is highs against each, up ~1.1%, ~0.9% and 1.6% respectively. The Euro has come off its overnight lows vs. the Yen and has traded flat during the morning, up ~0.5%. Aiding the buck today? the Portugal news and continued Greece uncertainties are certainly helping, although if it was really a “flight to quality trade”, than Treasuries wouldn’t be as weak as they are. Instead, the sell-off in 2s and the dollar rally is signaling more a Fed tightening trade (some of the items sparking this: Hoenig, the lone dissenter to the last two FOMC decisions, is on the tape this morning; also there are rising expectations ahead of next Fri’s 4/2 BLS report – the St is now in print @ 200K but some think this could head higher). The Euro is weak despite a bunch of decent eco readings out (the strong #s could actually be weighing on the euro if the market thinks that the Eurozone economy is picking up but sovereign concerns will keep the ECB easier for longer).
· Corp. Credit: Corp. Credit continues to be mixed. IG 14 is out 1 ¾ of a pt while HY is in line with equities, losing 9/32 of a pt.
· Treasuries: Treasuries are weaker across the board today. The 2s and 10s have sold off (yielding 1.06% and 3.76%, respectively). The 2 -10 years spread relatively unchanged at 270bps. All eyes are on the 5yr auction @ 1pmET today.
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