Market Happenings for Monday, July 25, 2011

Pre-market, futures are down,Gold is setting new highs and debt talks are also faltering. Gainers this morning include ETFC (+4.19%), ROP, MPC, NFLX and NEM. Losers include THC, SWY, KR, CSC and STI. Light crude is down -0.92% at 98.95.

U.S. Stock News

September S&Ps this morning are trading 9.20 points lower on the lack of a debt ceiling hike agreement as yet. The US stock market last Friday settled mixed as the Nasdaq posted a 10-1/3 year high after technology stocks rallied while uncertainty over a budget deal by US lawmakers kept the broader market under pressure: Dow Jones -0.34%, S&P 500 +0.09%, Nasdaq Composite +0.86%. Bullish factors included (1) carry-over support from a rally in European stocks on reduced European sovereign debt concerns as credit-default swaps (CDS) to insure the government debts of most Euro-Zone nations plunged, with Greek CDS tumbling to a 5-week low, (2) strength in technology companies which sent the Nasdaq to a 10-1/3 year high after Advanced Micro Devices reported better-than-forecast earnings, and (3) overall healthy Q2 earnings results thus far as 83% of the 121 S&P 500 companies that have reported earnings since Jul 11 beating estimates.

Bearish factors included (1) weakness in industrial companies after Caterpillar reported earnings that trailed estimates, (2) uncertainty over a budget deal and the raising of the US debt limit before the Aug 2 deadline, and (3) the statement from Standard & Poor’s that even if Congress raises the debt limit in time to avert a default, it might cut the US sovereign rating to AA+ with a negative outlook if a deal isn’t accompanied by a “credible solution” on the future debt burden.

The Markets

September 10-year T-notes this morning are trading slightly lower by 2.5 ticks. T-note prices today were undercut by the U.S. debt ceiling gridlock and the comment by Pimpco CEO and co-chief investment officer Mohamed A. El-Erian said that the U.S. will be “extremely vulnerable” to losing its AAA rating even if there is a debt ceiling increase. T-note prices last Friday moved higher on optimism US lawmakers are getting closer on a deal to raise the US debt limit along with increased safe-haven demand after Fitch Ratings said that Greece faces a restricted default: TYU11 +10.5, FVU11 +5.7, EDZ11 +1.0. Bullish factors included (1) optimism that Congress is getting closer to an agreement to cut the US budget deficit and raise the borrowing limit, (2) the statement from Fitch Ratings that Greece faces a “restricted default” after Euro-Zone leaders agreed on a new bailout for Greece that would involve contributions from bondholders, and (3) the action by the Fed to purchase $869 million of Treasuries as it invests the principal payments from its debt holdings into Treasuries to help spur the economy. Bearish factors included (1) reduced safe-haven demand for Treasuries after credit-default swaps to insure the government debts of most Euro-Zone nations plunged after European officials agreed to a $229 billion bailout to contain the debt crisis and (2) the statement from Standard & Poor’s that even if Congress raises the debt limit in time to avert a default, it might cut the US sovereign rating to AA+ with a negative outlook if a deal isn’t accompanied by a “credible solution” on the future debt burden.

The dollar index this morning is trading slightly lower by 0.094 cents with the dollar/yen down 0.26 yen and the euro/dollar up 0.12 cents. The Swiss franc is up 2% today due to flight-to-safety demand. The dollar index last Friday settled higher after the euro weakened when Fitch Ratings said Greece faces “restricted default” and after Jul German IFO business climate fell to a 9-month low: Dollar Index +0.186, USDJPY +0.235, EURUSD -0.00669. Bullish factors included (1) the statement from Fitch Ratings that Greece faces a “restricted default” after Euro-Zone leaders agreed on a new bailout for Greece that would involve contributions from bondholders, (2) the larger-than-expected decline in the Jul German IFO business climate which fell to a 9-month low, and (3) the larger-than-expected decline in Jul French business confidence which fell to a 7-month low and is euro negative. Bearish factors included (1) reduced safe-haven demand for the dollar after credit-default swaps to insure the government debts of most Euro-Zone nations plunged after European leaders agreed to a $229 billion bailout to contain the debt crisis and (2) the larger-than-expected increase in May Euro-Zone industrial new orders, which signals economic strength in Europe and is euro positive.

Sep crude oil prices this morning are down $0.96 a barrel and Sep gasoline is down 2.88 cents per gallon. Sep crude oil and gasoline prices last Friday closed higher on optimism that US lawmakers will increase the debt ceiling along with the action by European officials to put forth a plan to resolve the region’s debt crisis : CLU11 +$0.74, RBU11 +3.39. Bullish factors included (1) reduced concern the European sovereign-debt crisis will drag down the global economy and energy demand after European leaders agreed to a $229 billion bailout to contain the region’s debt crisis, (2) optimism that US lawmakers will agree to a deal to raise the nation’s debt limit before the Aug 2 deadline, and (3) data from the API that showed total Jun deliveries of petroleum products, a measure of demand, rose +2.9% y/y to 22.2 million barrels a day. Bearish factors included (1) the stronger dollar, which may limit investment demand for commodities and (2) the larger-than-expected decline in the Jul German IFO business climate which fell to a 9-month low, which signals pessimism that may lead to reduced investment spending and energy demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): BIDU-Baidu Inc. (BEST earnings consensus $0.67), APC-Anadarko Petroleum (0.94), TXN-Texas Instruments (0.59), BHI-Baker Hughes (0.91), KMB-Kimberly-Clark (1.14), BRCM-Broadcom (0.63), HCA-HCA Holdings (0.59), ETN-Eaton (0.95), LO-Lorillard (2.02), NFLX-Netflix (1.23), FTI-FMC Technologies (0.38), RRC-Range Resources (0.18), CNH-CNH Global NV (0.99), ROP-Roper Industries (0.99), PCL-Plum Creek Timber (0.29), JRC-Jacobs Engineerig Group (0.70).

Financial Calendar

0830 ET Jun Chicago Fed national activity index, May +0.19 to -0.37.

1130 ET Weekly 3-mo and 6-mo and monthly 1-year T-bill auctions.

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