Market Happenings for Tuesday, May 03, 2011

U.S. Stock News

* June S&Ps this morning are trading down -15.70 points. The US stock market yesterday erased early gains triggered by news of the death of Osama Bin Laden and settled lower on concern global economic growth may slow: Dow Jones -0.02%, S&P 500 -0.18%, Nasdaq Composite -0.33%. The Dow and S&P 500 posted 2-3/4 year highs and the Nasdaq rose to a 10-year high, but all the indexes gave up their gains and finished lower. Bearish factors included (1) carry-over weakness from the fall in Chinese stocks after Apr China PMI manufacturing unexpectedly declined (-0.5 to 52.9 versus expectations of +0.5 to 53.9), which fuels concern the Chinese economy may slow and weaken the global economy as well, (2) concerns that the surge in gasoline prices to a 2-3/4 year high will crimp consumer spending and drag the overall economy lower as well, and (3) weakness in energy producers as crude prices fell.

* Bullish factors for stocks included (1) early strength in stocks on the news that Osama bin Laden was killed, which fueled speculation that the terror risk will get smaller for the US, (2) the smaller-than-expected decrease in the Apr ISM manufacturing index (-0.8 to 60.4 versus expectations of -1.6 to 59.6), (3) the larger-than-expected increase in Mar construction spending which rose at its fastest pace in 11 months (+1.4% versus expectations of +0.3%), and (4) increased M&A activity with 8,188 deals announced globally this year that total $823 billion, up +25% from the $657.4 billion in announced deals in the same period in 2010.

* Andarko Petroleum (APC) fell 1% in European trading after its Q1 net income fell to $216 million from $716 million in the prior-year period.

The Markets

* June 10-year T-notes this morning are up +4.5 ticks. T-note prices yesterday shed early losses and closed higher on concern global growth may slow after China’s manufacturing activity unexpectedly slowed in April along with increased safe-haven demand for Treasuries after the stock market erased an early rally: TYM11 +3, FVM11 +0.7, EDU11 +0.5. The 10-year T-note yield fell to a 1-1/2 month low of 3.261%. Bullish factors included (1) the unexpected decline in the Apr China PMI manufacturing index, which signals a slowdown in the Chinese economy that may also slow the global economy, (2) Fed data that shows US banks bought $65 billion of Treasuries in the past 7 weeks, the most in 9 months, due to slower-than-expected economic growth and stagnant loan demand, and (3) the Fed’s action to purchase $7.24 billion of Treasuries as part of its QE2 asset-purchase program. Bearish factors included (1) the smaller-than-expected decrease in the Apr ISM manufacturing index (-0.8 to 60.4 versus expectations of -1.6 to 59.6), (2) inflation concerns after the unexpected increase in the prices paid sub-index of the Apr ISM manufacturing index which climbed to its highest level in 2-3/4 years (+0.5 to 85.5 versus expectations of -2.0 to 83.0), and (3) the larger-than-expected increase in Mar construction spending which rose at its fastest pace in 11 months (+1.4% versus expectations of +0.3%).

* The dollar index this morning is higher with the dollar/yen -0.38 yen and the euro/dollar -0.39 cents. The dollar index yesterday relinquished an early rally and closed little changed as the dollar’s interest rate differentials remain weak on speculation the Fed will keep interest rates at record lows while other central banks raise their rates: Dollar Index -0.188, USDJPY -0.335, EURUSD -0.00142. The dollar index fell to a 2-3/4 year low but erased its losses and closed little changed. Bearish factors included (1) strength in the euro which rallied to a 16-3/4 month high against the dollar on speculation the ECB will continue to tighten monetary policy after French and German PMI manufacturing indexes were unexpectedly revised upward, (2) comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said the euro’s current strength is “not worrying” and won’t hinder growth in the region, and (3) reduced safe-haven demand for the dollar after the S&P 500 climbed to a 2-3/4 year high. Bullish factors included (1) early strength in the dollar after news that Osama bin Laden was killed, which fueled speculation that the terror risk will get smaller for the US, and (2) the stronger than expected Apr ISM manufacturing index, which indicates economic strength and is dollar supportive.

* June crude oil prices this morning are trading down -$1.09 a barrel and June gasoline is -0.52 of a cent per gallon. Crude oil and gasoline prices closed lower but well off of their worst levels as an unexpected decline in Apr Chinese manufacturing activity offset the plunge in the dollar index to a 2-3/4 year low: CLM11 -$0.41, RBM11 -5.05. Jun crude posted a 2-1/2 year high and Jun gasoline rallied to a 2-3/4 year high, but they erased all of their gains and finished lower. Bearish factors included (1) the unexpected decline in the Apr China PMI manufacturing index, which indicates a slowdown in the Chinese economy that is negative for energy demand, and (2) the early sell-off in energy markets on speculation that the death of Osama bin Laden may lead to stability in the Middle East. Bullish factors included (1) incessant dollar weakness after the dollar index sank to a 2-3/4 year low, which boosts investment demand in commodities, (2) the smaller-than-expected decrease in the Apr ISM manufacturing index, which is positive for energy demand and consumption, and (3) fears of reprisals by al-Qaeda that may disrupt crude supplies after the US killed Osama Bin Laden.

Earnings Reports

PFE-Pfizer (BEST earnings consensus $0.58), CMCSA-Comcast (0.34), EMR-Emerson Electric (0.74), MRO-Marathon Oil (1.41), MA-Mastercard (4.09), LVS-Las Vegas Sands (0.44), CTSH-Cognizant Technology Solutions (0.66), DUK-Duke Energy (0.35), ADM-Archer-Daniels-Midland (0.85), MCK-McKesson (1.60), AMT-American Tower (0.23), SE-Spectra Enegy (0.53), PCG-PG&E Corp. (0.80), CBS-CBS Corp. (0.19), HCP-HCP Inc. (0.22), NLY-Annaly Capital Management (0.60), AVP-Avon Products (0.31).

Financial Calendar

0745 ET ICSC (IntÂ’l Council of Shopping Centers) weekly retailer sales.

0830 ET Kansas City Fed President Thomas Hoenig speaks at the Independent Community Bankers of America Spring Policy Summit

0855 ET Redbook weekly retailer sales.

1000 ET Mar factory orders expected +2.0%, Feb –0.1%.

1130 ET Weekly 4-week and monthly 1-year T-bill auctions.

1600 ET Treasury Secretary Timothy Geithner attends a U.S.-China Business Council in Washington, D.C.

1700 ET Apr total vehicle sales expected 13.00 million, Mar 13.06 million. Apr domestic vehicle sales expected 9.88 million, Mar 9.94 million.

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