Monday, August 16, 2010

12:52pm UpdateEquities trading in a relatively tight range with SPX +1pt ; Equity sectors –Telecom is off slightly on weakness in S. Energy is underperforming

Equities trading in a relatively tight range with SPX +1pt. Stocks opened dn 8pts with a weaker Empire Manufacturing reading (1st Aug. economic datapoint), concerns over global eco growth (i.e. Japan Q2 GDP came in weaker than expected and comes on the heels of negative revisions to US GDP), weakness in the Education stocks (entire sector is dn 10-20%) and a general lack of positive catalyst all weighed early on. Equities bounced off 1070 support on light volumes, mostly HF driven and short covering, to trade back up to the flat line. Trading in LOW post earnings helping sentiment towards July-end reporters as earnings/guidance came in better than feared (shares +2.5%) and July MasterTrust #s continue to show sequential improvement for the most part (there was some concern around the July #s after TGT’s delinquencies showed a small uptick earlier in the month).  Focus through the rest of the week will be on earnings reports, the Treasury/White House conference Tues (Aug 17) to explore the future of Fannie/Freddie and the US mortgage market and the Fed Treasuries purchases starting on Tues (will be the first purchase under the FOMC’s recently announced MBS reinvestment program). 

· Equity sectors – Tech is up close to 0.7% on strength in semis (SOX up 0.9%), EBAY, and a bounce-back in CSCO off of last week’s slide on earnings. Materials are up close to 0.6% and outperforming on strength in base metals / steels and gold stocks as a weaker dollar moves their respective commodities higher. Discretionary is up close to 0.25% on strength in JCI, EK, and LOW (earnings). Financials are trading slightly below the tape, inching slightly higher on strength in SLM. Industrials are also slightly below the tape, underperforming a bit on weakness in defense names and education stocks (see “Industrials” section for more discussion). Staples are slightly below the tape as well amid little news and light trading. Utilities are flattish, underperforming a bit on little news. Telecom is off slightly on weakness in S. Energy is underperforming, moving lower on weakness in E&Ps due to a sharp slide in natural gas, and also weakness in integrateds, services, and drillers on another drop in crude prices. Healthcare is the worst sector in the market, falling on weakness in MHS after it announced it will acquire United Biosource.

· Commodities:  Commodities are mixed with Metals outperforming and Crude/Nat. Gas trading lower. Natural Gas sold off and is dn. 3%. Gold has continued its rally from last week while Copper has gained ~1%.

· FX: USD (DXY) is trading near its lows, dn. 0.7%. The dollar is down against all cross this morning, with the yen up ~1%.

· Corp. Credit: Corp Credit has weakened a bit this morning; HY 14 is dn. ¼ of a pt while IG 14 has widened 1 ¼ of a pt.

· Treasuries: With the Fed ready to buy Treasuries this week (Bloomberg) the 2s and 10s have continued their rally. The 2s yielding 50bps while the 10s are yielding 2.598%; the 2-10 spread is yielding 2.098%.

· Europe:  Europe has pulled back this morning with the Euro Stoxx 50 giving back ~0.5%. The French CAC was one of the weaker sectors, with Dexia, EDF, and BNP Paribas leading the way lower. The German DAX (led by Healthcare and Consumer Goods) posted a modest decline after forecasting 3% growth for the year [AFP]  The Swedish OMX has outperformed, best performing stocks include: Hennes & Mauritz, Investor, and Ericsson.

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