Market Happenings for Monday, May 23, 2011

Pre-market, futures are down with stocks set to slide on Eurozone worries. Winners include AKS,NSM and ETFC. Losers include MIMI, PBCT, SWN and GNW.

U.S. Stock News

* June S&Ps this morning are trading down -12.20 points on heightened European sovereign-debt concerns. The US stock market last Friday closed lower on concern the European sovereign-debt crisis will worsen and after retailers sank when GAP cut its full-year profit forecast: Dow Jones -0.74%, S&P 500 -0.77%, Nasdaq Composite -0.71%. Bearish factors for stocks included (1) carry-over weakness from a decline in European stocks on concern the European debt crisis will worsen after Fitch Ratings cut Greece’s credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, and (2) a slump in retailers after GAP cut its full-year profit forecast because of higher costs and Aeropostale forecasted weaker-than-expected Q2 profits.

* Bullish factors included (1) data from the US Labor Department that showed payrolls grew in 42 states in Apr, while the unemployment rate fell in 39 states, which signals strength in the labor market, (2) comments from Dallas Fed President Fisher who said the recovery “is gathering steam” and that “underlying fundamentals” of the US economy are better than recent data may indicate, and (3) strength in energy producers after crude oil shook off early losses and moved higher.

* United Continental (UAL) fell 3.2% in pre-market trading after Britain’s weather agency warned that an ash plume from the Grimsvotn chamber, Iceland’s most active volcano, could threaten trans-Atlantic air traffic with ash reaching the UK as early as tonight.

* Alcoa (AA) slipped 1% in pre-market trading as industrial metals prices fell on demand concerns after a Chinese manufacturing index fell to a 10-month low.

The Markets

* June 10-year T-notes this morning are up +15 ticks on increased safe-haven demand as global equity markets slump. T-note prices last Friday moved higher on increased safe-haven demand after the stock market tumbled on concern Europe’s sovereign-debt crisis is getting worse: TYM11 +6.5, FVM11 +3.7, EDU11 -0.5. Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis is getting worse after Fitch Ratings cut Greece’s credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, (2) concerns that the global economy may begin to slow after Germany’s Bundesbank said in its monthly bulletin that Germany’s economy will lose momentum, and (3) comments from Chicago Fed President Evans who said that “slow progress” in the economy justifies “substantial policy accommodation.” Bearish factors included (1) data from the US Labor Department that showed payrolls grew in 42 states in Apr, while the unemployment rate fell in 39, which signals strength in the labor market, and (2) comments from Dallas Fed President Fisher who said the recovery “is gathering steam” and that “underlying fundamentals” of the US economy are better than recent data may indicate.

* The dollar index this morning is higher and at a 1-1/2 month high with the dollar/yen +0.09 yen and the euro/dollar -1.41 cents at a 2-month low. The dollar index last Friday closed higher as European sovereign-debt concerns fueled an increase in the safe-haven demand for the dollar: Dollar Index +0.312, USDJPY +0.090, EURUSD -0.01512. Bullish factors included (1) increased safe-haven demand for the dollar after Fitch Ratings cut Greece’s credit rating one notch to B+ from BB+ and said the country could face a further reduction in its creditworthiness, (2) comments from ECB Council member Weidmann who said the ECB may not be able to accept Greek sovereign debt as collateral if the bond maturities are extended, and (3) the Bundesbank’s monthly bulletin that stated economic growth in Germany “is likely to ease somewhat in the foreseeable future.” Bearish factors included (1) dollar negative comments from Chicago Fed President Evans who said that “slow progress” in the economy justifies “substantial policy accommodation,” and (2) strength in the yuan after PBOC Governor Xiaochuan said that inflation remains “high” and China needs to strike a balance between economic growth and consumer prices, which fueled speculation of further tightening measures by China.

* July crude oil prices this morning are trading down -$2.40 a barrel and July gasoline is -4.29 cents per gallon. Crude oil and gasoline prices last Friday fell early on the stronger dollar but then rallied and closed higher after the API reported the US fuel consumption increased in April: CLN11 +$1.17, RBN11 +1.63. Bullish factors included (1) data from the US Labor Department that showed payrolls grew in 42 states in Apr, while the unemployment rate fell in 39, which signals broad-based strength in the labor market that may lead to increased economic strength and fuel demand, and (2) data from the API that said US fuel consumption as measured by deliveries of petroleum products, rose in Apr by +5.2% to 19.9 million barrels a day from a year earlier. Bearish factors included (1) strength in the dollar, which reduces investment demand in commodities, (2) the statement from Germany’s Bundesbank that growth in Germany, Europe’s largest economy will probably slow because growth in Q1 was “overstated,” and (3) the slump in the equity market which reduces confidence in the economic outlook and energy demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) CPB-Campbell Soup (BEST earnings consensus $0.52), TECD-Tech Data (1.05), SFL-Ship Finance International Ltd. (0.42), SOLR-GT Solar International (0.35), PWRD-Perfect World (0.59), LFT-Longtop Financial Technologies (0.45), CMRE-Costamare (0.35), VRGY-Verigy Ltd. (0.01), CISG-CNinsure (0.23).

Financial Calendar

0830 ET Apr Chicago Fed National Activity Index expected -0.06 to 0.20, Mar +0.10 to 0.26.

1130 ET Weekly 3-mo and 6-mo T-bill auctions.

2010 ET St. Louis Fed President James Bullard speaks on the state of the U.S. economy and monetary policy in Park Hills, MO.

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