Market Happenings for Thursday, June 30, 2011

Pre-market, futures are up. Stocks look to be in rally mode today. Gainers this morning include EBAY, FSLR, TJX, HPQ and FTR. Losers include CF, ZION, AMZN, DE and MA. Light Crude is up +0.42% at 95.17.

U.S. Stock News

*September S&Ps this morning are trading up +1.00 point. The US stock market yesterday rallied for a third day as Greece passed austerity measures and US pending home sales increased more than forecast: Dow Jones +0.60%, S&P 500 +0.83%, Nasdaq Composite +0.41%. The Dow, S&P 500 and the Nasdaq all posted 3-week highs. Bullish factors included (1) a rally in financial companies on reduced European debt concerns after Greek lawmakers passed austerity measures to ensure they receive future aid to avoid a debt default, (2) the larger-than-expected increase in May US pending home sales which rose at their strongest pace in 6 months (+8.2% m/m versus expectations of +3.0% m/m), and (3) strength in energy producers after crude oil climbed to a 1-1/2 week high.

*Bearish factors for stocks included (1) comments from Bank of America chief economist Levy who said that Greece faces an “eventual insolvency problem” and that the passage of the Greek austerity measures buys the country time but “does not resolve the issue,” and (2) the increase in the 10-year T-note yield to a 1-month high of 3.129%.

The Markets

*September 10-year T-notes this morning are up +3.5 ticks. T-note prices yesterday ratcheted lower the entire day and closed lower on reduced safe-haven demand for Treasuries after Greek lawmakers passed an austerity plan to ensure further bailout funds along with supply pressures as the Treasury auctioned $29 billion of 7-year T-notes: TYU11 -1-2.5, FVU11 -24.5, EDZ11 unchanged. The 10-year T-note yield rose to a 1-month high of 3.129%. Bearish factors included (1) reduced safe-haven demand for Treasuries after the Greek parliament passed austerity measures to help it avert a default, (2) the larger-than-expected increase in May US pending home sales which rose at their strongest pace in 6 months (+8.2% m/m versus expectations of +3.0% m/m), and (3) slack demand for the Treasury’s $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 2.62, well below the 12-auction average of 2.89. A bullish factor was the Fed’s purchase of $2.456 billion of Treasuries as part of its QE2 asset-purchase program.

*The dollar index this morning is weaker and at a 2-week low with the dollar/yen -0.33 yen and the euro/dollar +0.41 cents. The dollar index yesterday declined after the passage of austerity measures by Greek lawmakers reduced concerns of a Greek debt default along with a rally in the euro to a 2-week high against the dollar on speculation the ECB will increase interest rates at next week’s policy meeting: Dollar Index -0.372, USDJPY -0.346, EURUSD +0.00638. Bearish factors included (1) reduced safe-haven demand for the dollar after the Greek parliament passed austerity measures needed to ensure future bailout funds, and (2) a rally in the euro on speculation the ECB will raise interest rates at next Thursday’s policy meeting, which will strengthen the euro’s interest rate differentials against the dollar. Bullish factors included (1) comments from ECB Executive member Stark that may boost the safe-haven demand of the dollar when he said that a restructuring of Greek debt would lead to a collapse of the countryÂ’s economy and damage the EU’s reputation and may prompt investors to question the creditworthiness of other Euro-Zone countries, and (2) the larger-than-expected increase in May US pending home sales, which shows economic strength and is dollar supportive.

*Aug crude oil prices this morning are down -15 cents a barrel and Aug gasoline is -1.39 cents per gallon. Crude oil and gasoline prices yesterday rallied after Greek lawmakers passed austerity measures needed to avoid default along with a larger-than-expected drop in weekly DOE crude inventories: CLQ11 +$1.88, RBQ11 +11.93. Aug crude posted a 1-1/2 week high and Aug gasoline climbed to a 2-week high. Bullish factors included (1) the weaker dollar, which encourages investment demand in commodities, (2) reduced concerns that the Greek debt crisis will drag the global economy and energy demand lower after Greek lawmakers voted to approve an austerity plan to stave off a debt default, (3) the larger-than-expected drop in weekly crude inventories (-4.38 million bbl versus expectations of -1.5 million bbl), and (4) the unexpected decline in gasoline stockpiles (-1.43 million bbl versus expectations of +1.05 million bbl). Bearish factors included (1) slack fuel demand after US gasoline demand in the week ended Jun 24 fell -0.6% to 9.26 million barrels a day, and (2) the prediction from JBC Energy GmbH that Saudi Arabia will increase crude output “substantially in the foreseeable future” even after the IEA released oil stockpiles.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) MKC-McCormick & Co. (BEST earnings consensus $0.54), DRI-Darden Restaurants (1.00), APOL-Apollo Group (1.30), STZ-Constellation Brands (0.37), MSM-MSC Industrial Direct (0.94), CZZ-Cosan Ltd. (0.25), WOR-Worthington Industries (0.55), SCHN-Schnitzer Steel Industries (1.22), IRET-Investors Real Estate Trust (0.01), AZZ-AZZ Inc. (0.63).

Financial Calendar

0830 ET Weekly initial unemployment claims expected -9,000 to 420,000, previous +9,000 to 429,000. Weekly continuing claims expected -7,000 to 3.690 million, previous -1,000 to 3.697 million.

0945 ET Jun Chicago purchasing managers index expected -2.6 to 54.0, May -11.0 to 56.6.

1000 ET St. Louis Fed President James Bullard delivers Welcoming Remarks and Thoughts on QE at the St. Louis Feds QE Conference.

1300 ET Kansas City Fed President Thomas Hoenig speaks to the Rotary Club of Des Moines, Iowa.

1630 ET Weekly money supply report and Fed balance sheet.

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