Wednesday, May 12, 2010

Market Update; Euro Zone GDP Coming in Better

· Market Update - Risk assets had a bid since the open, w/encouraging news out of Europe overnight providing the main impetus for the strength: 1) Eurozone Q1 growth came in better (see details below); 2) Portugal had a successful bond sale; 3) Spain unveiled further austerity measures.  Also – Greece received the first EU5.5B of the EU/IMF bailout today according to Reuters and the country is increasingly expected to meet next week’s bond payment.  In response to the Sun night announcement out of Europe, CDS spreads on peripheral European sovereigns have collapsed over the last few days, giving a boost to sentiment; meanwhile, European bank stocks have rallied substantially (these are the two gauges being watched by investors to determine if the Sun announcement is working to calm capital markets).  In the US, the bullish INTC and IBM analyst meetings in the last 24 hrs are refocusing investor attention back on the very strong Q1 earnings season (both stocks are up 3-4%+ today and helping drive tech up >2%).  M&A activity remains a tailwind for this tape, w/the FIS deal appearing to still be on track (per Bloomberg this morning) and SAP considering a $6B deal to buy SY (per Bloomberg late in trading today).  On the desk, flows are better to buy, although tone is hesitant and short-term focused.  Europe appears to be healing, but investors want to see calm markets for a couple weeks before declaring all clear.  Meanwhile, the plunge of last Thurs still hasn’t been adequately explained and the SEC/CFTC is apparently working on new rules that could come at any time (CNBC says they may involve standard rules for breaking trades and individual stock circuit breakers).  Regulatory headline risk isn’t going away, w/the WSJ this morning reporting that MS is being looked at by the SEC over its CDO practices while C Gasparino on Fox Business during trading today said C and DB are being scrutinized.  Technicals are a big focus and most will remain distrustful of any rally that can’t close meaningfully through the 1170-1175 range.  Meanwhile, the action in gold is disconcerting to many (gold was up again today, setting fresh highs, and kept a bid into the close despite the equity rally).  On the calendar, we are heading into a busy couple weeks of tech (CSCO starts off Apr-end earnings season tonight while the JPMorgan tech conf kicks off this Mon) while the Dodd bill could get done by the end of this week.  Bottom Line – encouraging action as stocks do a good job putting the carnage of last week behind them.  But still range bounce and desk hasn’t seen a lot of real-money long-onlys chasing stocks on the upside. 

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