Tuesday, June 8, 2010

Market Update 12:42pm

Market Update – equities trying to rally slightly, but there remains a dearth of real buyers willing to step into this tape.  The macro picture remains too uncertain for most investor’s appetites and any tick higher is being used as a selling opportunity.  There were some quicker trader-type buy demand & short covering as we moved closer to the critical technical level of 1040 (we bounced 2x at 1042 today – recall the 1040 was major support back on May 25 and people view it as a critical point).  The European “bailout” was approved last night by the Eurogroup of finance ministers, but this was really just a cosmetic action as parliamentary approvals had occurred weeks prior; meanwhile, investors continue to doubt whether this mechanism will prove successful.  Investors continue to have doubts about the ability of certain European countries to get their fiscal houses in order while there is a growing fear that cuts are going to wind up being too steep and will tip the region back into a steep downturn (the fact Germany has got onboard the cutting campaign is spooking people who had hoped it would be an offset to tightening occurring at the peripheral).  The seems to be fresh countries each day brought under the budget fear umbrella – it started w/Greece, spread to Portugal, has been hitting Spain of late, encompassed Hungary last week, and this morning EU’s Rehn said there are doubts about Bulgaria’s “statistical performance”.  While continental Europe has been receiving the most attention of late, in the last 24 hours there has been a lot more focus on the UK – new PM Cameron Mon morning said the country’s budget outlook was worse than expected and he introduced steep cuts.  This morning, Fitch said those reductions may not be enough and called the UK’s fiscal challenges this morning “formidable”.  In the US, Bernanke’s comments this morning helped sentiment a bit, but he didn’t really say anything too incremental (and in fact, Fed’s Evans was also on the tape today, although not as widely acknowledged as Bernanke, saying that he thinks the Europe situation will hurt US growth).  In terms of corporate America, the updates from companies at a bunch of sell-side conferences/analyst meetings has been positive – a slew of tech firms (in the last couple days, MXIM, RFMD, ARRS) have said trends remain on track while this morning at the JPMorgan Industrials conf HON and DD both reiterated their guidance (CAT put out a separate press release also reiterating its earnings outlook).  In the Gulf, BP’s containment cap appears to be making more progress, although there were some reports earlier today of a second spill (article on Business Insider).  Why the bounce in equities into the afternoon?  No great reason other than we are bouncing from the technically important ~1040 level (we hit 1042 2x today).  The euro is bouncing (on spec of SNB intervention, although there wasn’t any evidence of this occurring, and on some Greek remarks about it not exiting the euro, although it has said this pretty much every other day for the last few months).  Technically (per M Krauss), we would have to close north of 1071 for bulls to regain control.

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