Market Happenings for Wednesday, June 01, 2011

Looks like a slow start for June! Pre-market, futures are down. Winners this morning include SEE, M, CNP, BLK and PEP. Losers include MRO, HNZ, MU, TIF and TE. Light Crude is down -0.69%.

U.S. Stock News

* June S&Ps this morning are trading down -1.60 points. The US stock market yesterday strengthened throughout the day and settled sharply higher on speculation the European Union will provide additional aid for Greece: Dow Jones +1.03%, S&P 500 +1.06%, Nasdaq Composite +1.37%. The S&P 500 and the Dow posted 1-week highs while the Nasdaq climbed to a 2-week high. Bullish factors for stocks included (1) a rally in financial companies on carry-over strength from a rally in European bank stocks on speculation European leaders will provide sufficient aid to help Greece avoid default on its debt after Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a “total restructuring” of Greece’s debt, (2) gains in energy and raw-material producers as dollar weakness prompted a broad-based rally in most commodities, and (3) reduced interest rate concerns after the yield on the 10-year T-note fell to a 5-3/4 month low of 3.04%.

* Bearish factors included (1) the weaker-than-expected Mar S&P/CaseShiller composite-20 home price index which fell -3.6% y/y, weaker than expectations of -3.4% y/y and the biggest annual decline in 16 months, (2) the unexpected drop in May US consumer confidence which tumbled to a 6-month low (-5.2 to 60.8 versus expectations of +1.1 to 66.5), and (3) the greater-than-expected drop in the May Chicago purchasing managers index which expanded at its slowest pace in 1-1/2 years (-11.0 to 56.6 versus expectations of -5.3 to 62.3).

The Markets

* September 10-year T-notes this morning are down -1 tick. T-note prices yesterday erased an early decline after mid-morning and finished higher on concern the economy is slowing: TYU11 +4.5, FVU11 +4.2, EDZ11 unchanged. Sep T-notes posted a 5-3/4 month nearest-futures high and the 10-year T-note yield fell to a 5-3/4 month low of 3.04%. Bullish factors included (1) the larger-than-expected decline in home prices after the Mar S&P/CaseShiller composite-20 home price index fell -3.6% y/y, weaker than expectations of -3.4% y/y and the biggest annual decline in 16 months, (2) the unexpected drop in May US consumer confidence which tumbled to a 6-month low (-5.2 to 60.8 versus expectations of +1.1 to 66.5), and (3) the greater-than-expected drop in the May Chicago purchasing managers index which expanded at its slowest pace in 1-1/2 years (-11.0 to 56.6 versus expectations of -5.3 to 62.3). Bearish factors included (1) reduced safe-haven demand for Treasuries after global stock markets rallied when Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said that EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a “total restructuring” of Greece’s debt, and (2) comments from former Fed Chairman Volcker who said the Fed may raise interest rates “soon” as the US budget deficit and interest rate close to zero will eventually lead to “inflationary problems.”

* The dollar index this morning is little changed with the dollar/yen -0.17 yen and the euro/dollar +0.06 cents. The dollar index yesterday slid to a 2-1/2 week low and settled lower as optimism European officials will approve additional aid for Greece boosted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.335, USDJPY +1.157, EURUSD +0.00941. Bearish factors included (1) the rally in the euro to a 3-week high against the dollar on reduced European debt concerns after Jean-Claude Juncker, leader of the Euro-Zone finance ministers, said that EU leaders will decide on a new aid package for Greece by the end of June and that EU officials have ruled out a “total restructuring” of Greece’s debt, and (2) weaker-than-expected US economic data on May consumer confidence, May Chicago purchasing managers, and Mar S&P CaseShiller home prices, which suggests economic weakness and is dollar negative. Bullish factors included (1) weaker-than-expected European economic data on Apr German retail sales and Apr French consumer spending, which is euro negative, and (2) weakness in the yen against the dollar after Moody’s Investors Service put Japan’s debt rating on review for a downgrade, citing faltering growth prospects and “a weak policy response” that may hinder government efforts to cut the nation’s debt burden.

* July crude oil prices this morning are trading down -19 cents a barrel and July gasoline is -1.12 cents per gallon. Crude oil and gasoline prices yesterday rallied to 2-week highs and finished sharply higher as the dollar slumped and after TransCanada shut its 591,000 bpd crude pipeline to the US after a leak: CLN11 +$2.11, RBN11 +1.90. Bullish factors included (1) the slide in the dollar index to a 2-1/2 week low, which boosts investment demand in commodities, (2) the action by TransCanada to shut its 591,000 bpd Keystone crude pipeline that sends Canadian oil to the US after “an issue with a fitting” caused a leak, and (3) comments from Qatar’s oil minister who said there’s “no noticeable urgency” for OPEC to raise its oil quotas when it meets next week. Bearish factors included (1) the weaker-than-expected US economic data on May Chicago purchasing managers, May US consumer confidence and Mar S&P/CaseShiller composite-20 home prices, which indicates economic weakness that is negative for energy demand and consumption, and (2) weaker-than-expected European economic data on Apr French consumer spending and Apr German retail sales, which may limit economic expansion and fuel demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) VIP-VimpelCom Ltd. (BEST earnings consensus $0.35), DG-Dollar General (0.50), CPRT-Copart (0.70), SNDA-Shanda Interactive Entertainment (0.44), ESL-Esterline Technologies (1.10), VRA-Vera Bradley (0.27), GAME-Shanda Games Ltd. (0.19).

Financial Calendar

0700 ET Weekly MBA mortgage applications, last market index +1.1% with purchase mortgage sub-index +1.5% and refinancing sub-index +0.9%.

0730 ET May Challenger job cuts, Apr -4.8% y/y.

0745 ET ICSC (IntÂ’l Council of Shopping Centers) weekly retailer sales (delayed 1 day due to Memorial Day).
0815 ET May ADP employment change expected +175,000, Apr +179,000.

0855 ET Redbook weekly retailer sales (delayed 1 day due to Memorial Day).

1000 ET May ISM manufacturing index expected -2.9 to 57.5, Apr -0.8 to 60.4. May ISM prices paid expected -3.7 to 81.8, Apr +0.5 to 85.5.

1000 ET Apr construction spending expected +0.3%, Mar +1.4%.
1130 ET Weekly 4-week and monthly 1-year T-bill auctions.

1225 ET Cleveland Fed President Sandra Pianalto speaks on “Labor Markets and Monetary Policy” at the Columbus Metropolitan Club Forum.

1700 ET May total vehicle sales expected 12.45 million, Apr 13.14 million. May domestic vehicle sales expected 9.80 million, Apr 10.20 million.

2230 ET San Francisco Fed President John Williams delivers a speech on “Economics Instruction and the Brave New World of Monetary Policy” as part of a national conference on Teaching Economics.

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