Market Happenings for Thursday, July 14, 2011

Pre-market, futures are headed higher, with the Dow showing +20 at 12,455 even with Moody’s warning of a possible downgrade to U.S. debt. Gainers this morning include COP, YUM, JPM, HUM and SO. Losers include MAR, HIG, GME, FLR and ERTS. Light crude is trading up +0.22% at 98.27.

U.S. Stock News

September S&Ps this morning are trading up +0.30 of a point, as they recovered from sharp losses overnight after President Obama said he is condidering a weekend session with congressional leaders at Camp David. The US stock market yesterday finished with moderate gains after stronger-than-expected Chinese economic data improved global economic growth prospects and Fed Chairman Bernanke said he’s prepared to add additional stimulus to the economy if needed: Dow Jones +0.36%, S&P 500 +0.31%, Nasdaq Composite +0.54%. Bullish factors included (1) the stronger than expected Q2 China GDP (+9.5% y/y versus expectations of +9.3% y/y) and Jun China industrial production (+15.1% versus expectations of +13.1% y/y), which bolsters the outlook for the sustainability of the global economic recovery, (2) comments from Fed Chairman Bernanke who said the US economy warrants low rates for an “extended period” and that the Fed is prepared to provide additional stimulus, if the current economic lull persists, (3) strength in mining companies after gold rallied to a record high, and (4) gains in energy and raw material producers as a weak dollar and strong Chinese economic data boosted most commodities. Bearish factors included (1) increased price pressures after the +13.6% y/y increase in Jun import prices, stronger than expectations of +13.2% y/y and the biggest annual gain in 2-3/4 years, (2) comments from Dallas Fed President Fisher who said “monetary policy has exhausted itself” and he won’t support additional stimulus measures even if the economy stays weak, and (3) comments from House Speaker Boehner who said it’s a “crapshoot” as to whether the federal debt limit will be boosted if an agreement isn’t reached by Aug 2.

Hartford Financial (HIG) declined 2.2% in European trading after the company said Q2 net income plunged on catastrophe claims and the cost of abestos liabilities.

Marriott International (MAR) fell 5% in pre-market trading after the company forecast Q3 earnings won’t be higher than 29 cents a share, below the 30-cent average analyst projection.

Yum! Brands (YUM) climbed 2.3% in European trading after it said Q2 profit rose 10% and it boosted its earnings forecst for the year as customer traffic increased at restaurants in China.

The Markets

September 10-year T-notes this morning are trading unchanged. T-note prices yesterday traded lower early as the stock market rallied on strong Chinese economic data but T-notes erased their losses and moved higher on dovish Fed commentary along with strong demand for the Treasury’s $21 billion 10-year auction: TYU11 +5.5, FVU11 +3.7, EDZ11 +1.0. Bullish factors included (1) comments from Fed Chairman Bernanke who said the US economy warrants low rates for an “extended period” and that the Fed is prepared to provide additional stimulus, including buying more government bonds, if the current economic lull persists, (2) comments from Boston Fed President Rosengren who said the outlook for the US economy is for “very slow improvement,” and monetary accommodation is still needed to help spur growth, and (3) solid demand for the Treasury’s $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 3.17, stronger than the 3.11 average of the past 12 auctions. Bearish factors included (1) reduced safe-haven demand for Treasuries after the stock market rallied after Q2 China GDP and Jun China industrial production were stronger than expected, which bolsters the outlook for the global economic recovery, (2) the +13.6% y/y increase in Jun import prices, stronger than expectations of +13.2% y/y and the biggest annual gain in 2-3/4 years, and (3) supply pressures ahead of the $13 billion auction of 30-year T-bonds on Thu.

The dollar index this morning is higher with the dollar/yen +0.05 yen and the euro/dollar +0.26 cents. The dollar index yesterday closed lower as the stock market rallied and after Fed Chairman Bernanke said the Fed may provide additional stimulus if needed: Dollar Index -0.601, USDJPY -0.250, EURUSD +0.01871. Bearish factors included (1) comments from Fed Chairman Bernanke who said the Fed will provide additional stimulus if needed, which would further weaken the dollar’s interest rate differentials, (2) reduced safe-haven demand for the dollar as the stock market rallied, and (3) dollar negative comments from Boston Fed President Rosengren who said the outlook for the US economy is for “very slow improvement,” and monetary accommodation is still needed to help spur growth. Bullish factors included (1) comments from Japanese Finance Minister Noda which knocked the yen down from a 3-3/4 month high against the dollar when he said that recent currency movements have been “a bit one-sided” and that Japan is on “high alert” on the yen, which may signal possible Japanese currency intervention to stem the yen’s advance, and (2) the weaker-than-expected May Euro-Zone industrial production which is euro negative.

Aug crude oil prices this morning are up +23 cents a barrel and Aug gasoline is -1.81 cents per gallon. Aug crude oil and gasoline prices rallied yesterday as the dollar weakened and after weekly crude and gasoline inventories declined: CLQ11 +$0.62, RBQ11 +5.34. Aug gasoline surged to a 2-month high. Bullish factors included (1) the slump in the dollar, which boosts investment demand for commodities, (2) the larger-than-expected decline in weekly DOE crude inventories (-3.12 million bbl versus expectations of -1.5 million bbl, (3) the unexpected drop in weekly DOE gasoline supplies (-840,000 bbl versus expectations of a +500,000 bbl build, (4) the stronger than expected Q2 China GDP and Jun China industrial production, which is positive for energy demand and consumption, and (5) IEA’s prediction that global crude consumption in 2012 will average 91 million barrels a day, up 1.5 million barrels a day from this year. Bearish factors included (1) slack fuel demand after US gasoline demand in the week ended Jul 8 fell -3.1% from the prior week to 9.016 million barrels a day and (2) the larger-than-expected increase in weekly DOE distillate inventories (+2.97 million bbl to a 2-month high of 145 million bbl versus expectations of +500,000 bbl).

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): GOOG-Google (BEST earnings consensus $7.83), JPM-JPMorgan Chase (1.21), PGR-Progressive (0.39), JBHT-JB Hunt Transport Services (0.53), CBSH-Commerce Bancshares (0.72), VMI-Valmont Industries (1.45), CBST-Cubist Pharmaceuticals (0.53), FCS-Fairchild Semiconductor (0.40), IGTE-iGate (0.19), RECN-Resources Connection (0.09).

Financial Calendar

0830 ET Weekly initial unemployment claims expected -3,000 to 415,000, previous -14,000 to 418,000. Weekly continuing claims expected -1,000 to 3.680 million, previous -43,000 to 3.681 million.

0830 ET Jun PPI expected -0.2% m/m and +7.4% y/y, May +0.2% m/m and +7.3% y/y. Jun PPI ex food & energy expected +0.2% m/m and +2.2% y/y, May +0.2% m/m and +2.1% y/y.

0830 ET Jun retail sales expected -0.1% and unchanged ex-autos, May -0.2% and +0.3% ex-autos .

1000 ET May business inventories expected +0.8%, Apr +0.8%.

1000 ET Fed Chairman Ben Bernanke delivers his semi-annual monetary policy report to the Senate.

1100 ET Treasury announces amount of 10-year TIPS to be auctioned on Jul 21 (previous $11 billion).

1300 ET Treasury auctions $13 billion 30-year T-bonds.

1630 ET Weekly money supply report and Fed balance sheet.

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