Monday, May 17, 2010

Whats Percolating in the The MArket

· May 17, 2010 1:17pm

Equities tried to bounce at the open but came back for sale, extending the move lower that we have been seeing for most of last week (ex out Mon’s massive short-covering rally).  For a change, the big focus isn’t so much on the situation in Europe (although this remains a concern), but instead on the broader macro growth outlook (if anything, there is some talk today about an allocation into European equities, esp. big exporters like Daimer, as a play on the weaker euro; note that Europe went out flattish today, off its highs, but outperforming the US).  Demand-levered commodity prices (copper, crude) continue to slump and are sending negative signals to investors – copper is off another 5% today and hitting multi-month lows (it broke under the 200day on Friday) while crude also slumps (breaking under $70 and also hitting new lows).  Chinese equities were under considerable pressure overnight (off 5%), based in part on worries that growth in the country is slowing (see the Conference Board report out today as well as comments from Chinese officials indicating that exports are being impacted by the weak euro).  On the US data/earnings front, there wasn’t a ton today, but what has hit the tape isn’t helping.  The Empire Manufacturing Survey is the first eco data point for the month of May and it came in well below expectations (the reading is prompting headline like this – from Reuters – “Data hint US recovery pace is moderating”).  LOW kicked off a busy week of retail earnings on a downbeat note as guidance came in a bit disappointing of the St.  In addition to softening demand indications, US financials are one of the weakest groups today, off >1% (and off 11% from the mid-Apr peak).  The Dodd bill is increasingly being a headwind for this group (the credit card amendment from Thurs night is refocusing investor attention on the fact that this bill could wind up being more neg. for the US financials than is generally thought).  Rep Frank today noted in an interview that the current Dodd bill is tougher than what the House passed late last year and that the final bill would prob. mirror the Senate more than House.  Meanwhile, in Europe, sov CDS spreads have been inching back out (although still remain well off the panic wides of a couple weeks ago) while the euro still hasn’t found a ton of support; investors are nervous about the region regardless of what happens (nation’s either won’t implement fiscal austerity plans needed to heal their budgets or they will cut too much and send economic growth plummeting

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