Market Happenings for Wednesday, August 31, 2011

Pre-market, futures are up, hopefully giving us a solid end to August. Gainers this morning include OKE, JOYG, DHI, TSO and PHM. Losers include UPS, NWSA, BLK, MWW and TGT. Light crude is down -0.67% at 88.30 and gold is up +0.13% 1832.20.

U.S. Stock News

September S&Ps this morning are trading up +9.90 points. The US stock market yesterday moved lower mid-morning after U.S. consumer confidence fell more than expected, but recovered its losses and finished slightly higher on speculation the Fed may provide additional stimulus to spur the economy: Dow Jones +0.18, S&P 500 +0.23%, Nasdaq Composite +0.55%. The S&P 500, the Dow and the Nasdaq all posted 3-week highs. Bullish factors included (1) comments from Chicago Fed President Evans who said he would “favor more accommodation” to spur the economy, (2) the smaller-than-expected decline in the Jun S&P/CaseShiller composite-20 home price index (-4.5% y/y versus expectations of -4.6% y/y),(3) strength in mining stocks as metals prices rallied and (4) the minutes of the Aug 9 FOMC meeting which stated some Fed members favored a “more substantial” action to spur the economy and lower unemployment, which leaves the door open for additional Fed stimulus measures.

Bearish factors included (1) the larger-than-expected decline in Aug U.S. consumer confidence which tumbled to a 2-1/2 year low (-14.7 to 44.5 versus expectations of -7.5 to 52.0), (2) concerns about the European banking system after the International Accounting Standards Board said some European banks haven’t sufficiently written down the value of Greek government bonds and other “distressed sovereign debt” they own, and (3) comments from Minneapolis Fed President Kocherlakota who said the unemployment outlook is “highly uncertain.”

The Markets

September 10-year T-notes this morning are up +3 ticks. T-note prices yesterday rallied and finished higher after U.S. consumer confidence plunged and Chicago Fed President Evans said he favors more easing of monetary policy: TYU11 +21.5, FVU11 +10, EDZ11 +1.0. Bullish factors included (1) the larger-than-expected decline in Aug U.S. consumer confidence (-14.7 to a 2-1/3 year low of 44.5 versus expectations of -7.5 to 52.0), (2) comments from Chicago Fed President Evans who said “I am somewhat nervous about the economic recovery and where we stand at this point and I would favor more accommodation,” (3) increased safe-haven demand after the International Accounting Standards Board said some European banks haven’t sufficiently written down the value of Greek government bonds and other “distressed sovereign debt” they own, and (4) the minutes of the Aug 9 FOMC meeting which stated some Fed members favored a “more substantial” action to spur the economy and lower unemployment, which leaves the door open for additional Fed stimulus measures. Bearish factors included (1) the smaller-than-expected decline in the Jun S&P/CaseShiller composite-20 home price index (-4.5% y/y versus expectations of -4.6% y/y) and (2) reduced safe-haven demand for Treasuries after the stock market erased early losses and finished higher.

The dollar index this morning is lower with the dollar/yen -0.16 yen and the euro/dollar unchanged. The dollar index yesterday settled higher as the euro weakened on speculation the ECB may be finished raising interest rates along with increased safe-haven demand after the International Accounting Standards Board (IASB) said some European banks haven’t sufficiently written down the value of their sovereign debt: Dollar Index +0.225, USDJPY -0.099, EURUSD -0.00688. Bullish factors included (1) increased speculation the ECB may be finished with its rate-hike cycle after ECB President Trichet on Monday said the bank was reviewing its assessment of inflation risks, (2) the larger-than-expected declines in the Aug Euro-Zone business climate indicator and the Aug Euro-Zone economic confidence to 17-month lows, which is euro negative, (3) increased safe-haven demand for dollars after the IASB said some European banks haven’t sufficiently written down the value of Greek government bonds and other “distressed sovereign debt” they own, and (4) the increase in the 3-month dollar Libor rate for the 25th consecutive day to a 1-year high of 0.32556%, as dollar demand from European banks remains strong. Bearish factors for the dollar included (1) the plunge in Aug U.S. consumer confidence to a 2-1/3 year low and (2) comments from Chicago Fed President Evans who said he would “favor more accommodation” to spur the economy, which would further debase the dollar and weaken the dollar’s interest rate differentials.

Oct crude oil prices this morning are down -$1.17 a barrel and Oct gasoline is -0.01 of a cent per gallon. Crude oil and gasoline prices yesterday settled higher after U.S. home prices fell less than expected along with concern that Tropical Storm Katia may strengthen into a hurricane and disrupt refinery operations in the U.S. Gulf region: CLV11 +$1.63, RBV11 +7.20. Oct crude rose to a 2-week high and Oct gasoline posted a 4-week high. Bullish factors included (1) the smaller-than-expected decline in Jun S&P/CaseShiller home prices, which signals stabilization in home prices that may lead to increased fuel demand, (2) the stronger than expected Q2 India GDP, which indicates strong energy consumption, and (2) concern that Tropical Storm Katia may strengthen into a hurricane and disrupt U.S. refinery operations in the U.S. Gulf region. Bearish factors included (1) the stronger dollar, (2) the plunge in Aug U.S. consumer confidence to a 2-1/2 year low, which may lead to reduced consumer spending and fuel demand, and (3) the larger-than expected fall in Aug Euro-Zone economic confidence to a 17-month low, which may lead to a reduction in fuel demand in Europe. Expectations for Wednesday’s weekly DOE inventory report are for crude oil stockpiles to rise +500,000 bbl, gasoline supplies to fall -900,000 bbl, distillate inventories to increase +900,000 bbl and the refinery capacity rate to fall -0.5 to 89.8%

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): BF/B-Brown-Forman (BEST earnings consensus $0.83), JOYG-Joy Global (1.50), SAI-SAIC Inc. (0.35), COO-Cooper Cos. (1.08), GEF-Greif (1.33), SNDA-Shanda Interactive Entertainment (0.33), TFM-Fresh Market (0.18), GCO-Genesco (0.10), ZUMZ-Zumiez (0.05), OXM-Oxford Industries (0.52).

Financial Calendar

0700 ET Weekly MBA mortgage applications, previous -2.4% with purchase mortgage sub-index -5.7% and refinancing mortgage sub-index -1.7%.

0730 ET Aug Challenger job cuts, Jul +59.4% y/y.

0815 ET Aug ADP employment change expected +100,000, Jul +114,000.

0945 ET Aug Chicago purchasing managers index expected -5.5 to 53.3, Jul -2.3 to 58.8.

1000 ET Jul factory orders expected +1.9%, Jun -0.8%.

1230 ET Atlanta Fed President Dennis Lockhart speaks on the economy to the Lafayette Chamber of Commerce.

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