Wednesday, June 9, 2010

Market Update – Trichet press conf was viewed as a big disappointment and crushed stocks both on that Thurs and Fri

Market Update – stocks were strong out of the gate this morning, helped by two main items: 1) the Reuters article about China exports (Reuters reported that China’s May exports came in up more than 50%, much better than St expectations; the official numbers are due out Thurs night); 2) Bernanke’s 10amET testimony (where he hit all the “right” points, remarking that the recovery remains on track, Europe won’t be a problem, and inflation remains subdued).  There were also a bunch of positive corporate announcements (TXN’s raised guidance last night, the MAR RevPAR update boosting the lodgers, the upside AVB guidance, PLL’s earnings, CBS’ strong upfront #s, and buyback/divi announcements from VIA, CAT, TGT, and MON).  So why the market weakness?  It had more to do w/the tentative nature of this morning’s rally – despite all those “positives”, there was never a lot of real high-conviction buyers; the “strength” was more due to short covering or very quick “renting” buys, which were occurring via ETFs for the most part (ETF volume has been running high as a % of total market).  Single stock action was relatively subdued.  Rallies continue to be viewed as selling opportunities (like we saw this afternoon).  There were some negative headlines that crossed this afternoon and weighed on the tape: 1) the GOM stocks fell apart (BP, APC, RIG, etc; worries about expanded liability, dividend cuts, etc all hurt; credit spreads are bursting wider on the space); 2) the financial regulatory reconciliation process could be more neg. for the banks than expected on back of Lincoln’s win last night (she told DJ this afternoon that she would push hard for her amendment to remain in the legislation and Dodd said Lincoln was “on the right track” w/her swaps rule) and keep in mind there have been a bunch of articles in the last 12 hrs (on RTRS and in the FT) talking about the “Volcker” language being strengthened; 3) Germany’s Merkel was on the tape this afternoon discussing how the country should move forward w/its “exit strategy” despite the tepid nature of the Eurozone’s economy (note that JPMorgan’s D Mackie cut his European growth ests pre-open today); 4) ECB – in light of the last ECB meeting (when the Trichet press conf was viewed as a big disappointment and crushed stocks both on that Thurs and Fri), there wasn’t a lot of incentive for people to be long into tomorrow morning.  There were some other catalysts this afternoon (like the 10yr auction at 1pm, which was a bit stronger than expected, and the Beige Book at 2pm, which was sanguine in tone), but they both were relative non-events (although the fact 10s saw such decent demand given their recent strength did hurt risk sentiment a bit).  People are also citing the passage by the UN Sec Council of Iranian sanctions (although this was expected), the Chilean mining tax getting passed (on back of Australia raising worries of other countries following), and the Pennsylvania HMO probe.  The biggest change intra-day came in the financials, which were up ~2%+ at one point early on but fell more than 1% (on back of worries heading into the reconciliation process).

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