Friday, June 4, 2010

Market Update- SocGen is getting the most attention; Hungary $SPX

Market Update – the futures were flat at 6:50amET this morning and investors were hoping to finally break up through the 200day MA (on sp cash) and end the week on a positive note.  However, at 6:52amET a few headlines hit the tape, inc. 1) Reuters reporting that SocGen was trading off in Europe due to investor worries about derivatives and 2) Hungary officials telling Bloomberg that the country’s budgetary outlook was “grave”.  Futures were hit further at 8:30amET following the release of a very poor jobs report (private sector adds came in well below forecast although wages and hours worked were both bright spots).  For a lot of the morning session, the consensus view was that we would trend higher throughout the day, but as we head into the afternoon, the condition of the tape is pretty negative.  Critical groups are being sold hard – the transports are off 3% (w/most rails down 4%), materials are down another 2% (w/steels down 4-5% on the price cuts out of Baosteel overnight in China), and the industrials are down ~3%+ (all these groups are the best proxies for the health of the macro economy – all are leading stocks lower).  The head of GE Capital spoke at the Bernstein conf today and while he didn’t make any “new” comments, remarks like “commercial real estate is still not out of the woods” isn’t helping sentiment today and is being used as another excuse to sell.  The euro is cracking to fresh lows for this move lower (4yr lows) for a lot of the same reasons stocks are getting hit (more worries about the health of Europe’s banks – SocGen is getting the most attention today but people remain very worried about Spanish banks too – as well as continued headlines about sovereigns – Hungary has been the focus point over the last two days).  Heading into the weekend, investors don’t have much incentive to stay long (various press reports have signaled that the G20 event will be a relative non-event - i.e. there won’t be any specific action taken to stem the crisis in Europe) and technicals are breaking down (1080 is an important level).  The 1040 test of last Tues (5/25) is still being viewed as an important interim support level, although if these poor trends persist into the afternoon it could undo a lot of the positives from the Wed/Thurs activity.

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