Market Happenings for Thusday, May 05, 2011

U.S. Stock News

* June S&Ps this morning are trading down -4.50 points. The US stock market yesterday settled lower as weaker-than-expected economic data dampened optimism about the health of the economy: Dow Jones -0.66%, S&P 500 -0.69%, Nasdaq Composite -0.47%. The S&P 500 fell to a 1-week low and the Nasdaq posted a 1-1/2 week low. Bearish factors included (1) the smaller-than-expected increase in the Apr ADP employment change (+179,000 versus expectations of +195,000), (2) the unexpected decline in the Apr ISM non-manufacturing index which matched its lowest level in 14 months (-4.5 to 52.8 versus expectations of +0.2 to 57.5), and (3) weakness in energy and raw-material producers after crude and metals prices plunged.

* Bullish factors for stocks included (1) reduced European sovereign-debt concerns after Portugal’s government announced an agreement on a 78 billion-euro ($116 billion) 3-year loan package, (2) increased M&A activity after ConAgra said it offered to buy Ralcorp Holdings and Applied Materials offered to buy Varian Semiconductor Equipment Associates, and (3) the drop in the 10-year T-note yield to a 1-1/2 month low of 3.206%.

* Con-Way (CNW) gained 3.2% in European trading after the trucking company reported Q1 net income of 12 cents a share, better than analysts’ estimates of 4 cents.

* Whole Foods (WFMI) rose 4.3% in European trading after the company boosted its full-year earnings projection to $1.90 a share in 2011 from an earlier estimate of $1.80 a share.

* Freeport-McMoRan (FCX) fell 1.4% in pre-market trading after copper prices tumbled to a 5-month low.

The Markets

* June 10-year T-notes this morning are up +4 ticks. T-note prices yesterday rallied to a 1-1/2 month high on weaker-than-expected economic data along with dovish Fed speak: TYM11 +6.5, FVM11 +1.5, EDU11 +1.0. The 10-year T-note yield fell to a 1-1/2 month low of 3.206%. Bullish factors included (1) the smaller-than-expected increase in the Apr ADP employment change (+179,000 versus expectations of +195,000), (2) the unexpected decline in the Apr ISM non-manufacturing index which matched its lowest level in 14 months (-4.5 to 52.8 versus expectations of +0.2 to 57.5), and (3) dovish comments from Boston Fed President Rosengren who said “with significant slack in labor markets, stable inflation expectations, and core inflation well below our longer run target, there is currently no reason to slow the economy down with tighter monetary policy.” Bearish factors included (1) supply pressures ahead of the Treasury’s auctions of $72 billion in T-notes and T-bonds in next week’s quarterly refunding, and (2) the prediction from Principal Global Investors that “the economy is on a sustainable recovery” and the yield on the 10-year T-note will climb to 3.75% by year-end.

* The dollar index this morning is weaker with the dollar/yen -0.80 yen and the euro/dollar +0.04 cents. The dollar index yesterday sank to a 2-3/4 year low on weak US economic data along with strength in the euro which rallied to a 17-month high against the dollar on speculation ECB President Trichet will signal further rate increases when he speaks on Thursday: Dollar Index -0.109, USDJPY -0.311, EURUSD +0.00017. Bearish factors included (1) weaker-than-expected US economic data on Apr ISM non-manufacturing and Apr ADP employment, which may prompt the Fed to keep interest rates at record lows and further weaken the dollar’s interest rate differentials, (2) speculation that ECB President Trichet will signal further interest rate increases when he speaks at Thursday’s monthly press conference, and (3) dollar negative comments from Boston Fed President Rosengren who said he sees “no reason” to raise interest rates amid higher oil prices. Bullish factors included (1) increased safe-haven demand for the dollar after the equity market tumbled, and (2) the weaker-than-expected Mar Euro-Zone retail sales, which is euro negative.

* June crude oil prices this morning are trading down -$2.40 a barrel at a 2-week low and June gasoline is -6.25 cents per gallon. Crude oil and gasoline prices yesterday retreated after US crude inventories climbed to a 6-month high and weaker-than-expected economic data raised demand concerns: CLM11 -$1.81, RBM11 -0.69. Jun crude fell to a 2-week low and Jun gasoline posted a 1-week low. Bearish factors included (1) weaker-than- expected US economic data on Apr ISM non-manufacturing and Apr ADP employment, which raises concern a slowdown in economic growth will also curb energy demand, (2) the larger-than-expected increase in weekly crude inventories which climbed to a 6-month high (+3.42 million bbl to 366.5 million bbl versus expectations of +1.9 million bbl), and (3) weakened fuel demand after US gasoline demand in the week ended Apr 29 fell -2.2% w/w to 8.94 million barrels a day. Bullish factors included (1) the fall in the dollar index to a 2-3/4 year low, which boosts investment demand in commodities, (2) the larger-than-expected decline in weekly gasoline inventories which fell to a 1-3/4 year low (-1.05 million bbl to 204.5 million bbl versus expectations of -500,000 bbl), and (3) the unexpected decline in weekly distillate inventories (-1.40 million bbl versus expectations of a +500,000 bbl increase).

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) KFT-Kraft Foods (BEST earnings consensus $0.47), V-Visa (1.20), AIG-American International Group (0.12), GM-General Motors (0.91), CVS-CVS Caremark (0.55), DTV-DirecTV (0.71), EOG-EOG Resources (0.55), PCLN-Priceline.com (2.46), CTL-CenturyLink (0.70), PSA-Public Storage (0.77), EL-Estee Lauder (0.57), WMB-Williams Companies (0.36), PEG-Public Service Enterprise Group (0.76), PPL-PPL Corp. (0.72), ED-Consolidated Edison (1.01), EP-El Paso (0.28), CI-CIGNA (1.09), FLR-Fluor (0.76).

Financial Calendar

0830 ET Weekly initial unemployment claims expected -19,000 to 410,000, previous +25,000 to 429,000. Weekly continuing claims expected +9,000 to 3.650 million, previous 68,000 to 3.641 million.

0830 ET Q1 U.S. nonfarm productivity expected +1.1% Q4 +2.6%. Q1 unit labor costs expected +0.8%, Q4 –0.6%.

0830 ET USDA weekly export sales.

0915 ET Chicago Fed President Charles Evans delivers welcoming remarks at the Chicago FedÂ’s conference on Bank Structure and Competition.

0930 ET Fed Chairman Ben Bernanke speaks at the Chicago FedÂ’s conference on Bank Structure and Competition.

1030 ET Apr ICSC chain store sales, Mar +2.0% y/y.

1315 ET Minneapolis Fed President Narayana Kocherlakota delivers a speech on “Some Contingency Planning for Monetary Policy” to the Santa Barbara Economic Summit.

1630 ET Weekly money supply report and Fed balance sheet.

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