Market Happenings for Tuesday, May 17, 2011

Pre-market conditions look ready to open down. Movers of the day include VFC, AEP, JCP, URBN, and CCL to the upside and HPQ, DELL, TJX, WMT AND JDSU to the downside.

U.S. Stock News

* June S&Ps this morning are trading up +2.90 points. The US stock market yesterday closed lower after weak economic data and increased concern over Europe’s sovereign-debt crisis pressured prices: Dow Jones -0.38%, S&P 500 -0.62%, Nasdaq Composite -1.63%. The Dow fell to a 1-week low and the S&P 500 and the Nasdaq slumped to 3-week lows. Bearish factors included (1) carry-over weakness from a slide in European equity prices on concern the European sovereign-debt crisis may worsen as European leaders and the IMF met in Brussels to discuss additional aid to Greece, (2) the weaker-than-expected May Empire manufacturing index (-9.8 to 11.9 versus expectations of -1.7 to 20.0), and (3) the unexpected stagnation in the May NAHB housing market index (unchanged at 16 versus expectations of +1 to 17).

* Bullish factors for stocks included (1) strength in bank stocks after Fifth Third Bancorp rallied when Sandler O’Neill upgraded the company to “buy” from “hold,” (2) the action by UBS to raise its 2011 earnings estimate for combined profit by companies in the S&P 500 to $101 a share from $96 and to $108 a share from $104 next year, citing better-than-forecast profit from energy and technology companies, and (3) a rally in raw-material producers as a weak dollar prompted a rebound in commodity prices.

* Urban Outfitters (URBN) rose 1.1% in pre-market trading after the clothing retailer reported Q1 revenue of $524 million, higher than analysts’ estimates of $522.5 million.

* Hewlett-Packard (HPQ) slid 4% in European trading after CEO Apotheker told top executives that he’s bracing for “another tough quarter” in the July period and urges deputies to “watch every penny and minimize all hiring.”

The Markets

* June 10-year T-notes this morning are down -2 ticks. T-note prices yesterday finished higher on weaker-than-expected economic data and on increased safe-haven demand as the stock market fell on concern over Greece’s solvency: TYM11 +8, FVM11 +6.7, EDU11 +1.0. Bullish factors included (1) comments from Atlanta Fed President Lockhart who said it’s too early to consider an exit from record stimulus until the recovery becomes “more clearly sustainable,” (2) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen as European leaders and the IMF met in Brussels to discuss additional aid to Greece, (3) the weaker-than-expected May Empire manufacturing index (-9.8 to 11.9 versus expectations of -1.7 to 20.0), and (4) the unexpected stagnation in the May NAHB housing market index (unchanged at 16 versus expectations of +1 to 17). Bearish factors included (1) concern that foreign demand for US Treasuries way wane the longer that US legislators play political games with the extension of the US debt ceiling, and (2) the weaker-than-expected Mar net long-term TIC flows, which shows reduced foreign demand for US dollar assets, including Treasuries.

* The dollar index this morning is lower with the dollar/yen +0.80 yen and the euro/dollar +0.40 cents. The dollar index yesterday retreated from a 1-1/4 month high and closed lower on concern the economy is slowing and after global demand for dollar assets weakened in March: Dollar Index -0.287, USDJPY +0.011, EURUSD +0.00392. Bearish factors included (1) the smaller-than-expected increase in the Mar net long-term TIC flows, which rose at the slowest pace in 14 months and signals weakened foreign demand for US dollar assets, (2) weaker-than-expected US economic data on May Empire manufacturing and the May NAHB housing market index, which is dollar negative as it suggest a possible slowdown in the US economy that may prompt the Fed into maintaining its overly easy monetary policy, and (3) the increase in Apr Euro-Zone CPI to +2.8% y/y, its fastest pace in 2-1/2 years, which boosts pressure on the ECB for further interest rate hikes. Bullish factors included (1) increased safe-haven demand for the dollar on concern the European sovereign-debt crisis may worsen as European leaders and the IMF met in Brussels to discuss additional aid to Greece, and (2) a possible increase in safe-haven demand for the dollar after Moody’s Investors Service warned that a Greek default would be “highly destabilizing” for banks and undermine global capital markets as it would cause losses that “far exceed” the size of banks’ loans and investments there.

* June crude oil prices this morning are trading down -1 cent a barrel and June gasoline is +1.05 cents per gallon. Crude oil and gasoline prices yesterday closed lower after the opening of a Louisiana spillway reduced concerns that refiners along the Mississippi will be forced to close along with demand concerns after the release of weaker-than-expected US economic data: CLM11 -$2.28, RBM11 -14.33. Jun gasoline fell to a 2-month low. Bearish factors included (1) concern the European sovereign-debt crisis may worsen and slow the global economy and energy demand as European leaders and the IMF met in Brussels to discuss additional aid to Greece, (2) weaker-than-expected US economic data on May Empire manufacturing and the May NAHB housing market index, which signals a possible slowdown in the US economy that may curtail fuel demand, (3) reduced concerns that refineries along the Mississippi River delta will be forced to close after flood gates on the Morganza floodway in Louisiana were opened to reduce pressure on the Mississippi River system, and (4) the prediction from the global head of research at Bank of America-Merrill Lynch that oil prices will fall in the second half of this year as current high prices begin to cause “demand destruction.” Bullish factors included (1) the reversal in the dollar index which retreated from a 1-1/4 month high and closed lower, and (2) concern that the worst flooding of the Mississippi River in 75 years may force refiners located near the Mississippi Delta region to close, which would disrupt US gasoline supplies.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) WMT-Wal-Mart Stores (BEST earnings consensus $0.95), HD-Home Depot (0.50), DELL-Dell Inc. (0.43), TJX-TJX Cos. (0.80), ADI-Analog Devices (0.68), DKS-Dick’s Sporting Goods (0.29), ABH-AbitibiBowater (-0.85), TSL-Trina Solar Ltd. (1.08), SKS-Saks (0.16), PWRD-Perfect World (0.59), MNRO-Monro Muffler Brake (0.24), QRM-Quantum (0.04).

Financial Calendar

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

0830 ET Apr housing starts expected +3.5% to 568,000, Mar +7.2% to 549,000. Apr building permits expected +0.9% to 590,000, Mar +9.6% to 585,000.

0855 ET Redbook weekly retailer sales.

0915 ET Apr industrial production expected +0.4%, Mar +0.8%. Apr capacity utilization expected +0.2 to 77.6%, Mar +0.5 to 77.4%.

1130 ET Weekly 4-week T-bill auction.

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