Market Happenings for Monday, September 12, 2011

Pre-market, futures are down following a sell-off in global markets sparked by fresh eurozone debt worries. Gainers this morning include VFC, WFR, MHP, FSLR and MON. Losers include AKS, PLD, MAS, NYX and UNH. Light crude is down -1.04% at 86.33. Gold is also down -0.80% at 1,844.70.

U.S. Stock News

December S&Ps this morning are trading down sharply by -21.20 points. The US stock market last Friday tumbled on concern Greece may default on its debt and cripple the European banking system along with concern that Congress won’t pass President Obama’s $447 billion plan to boost the economy: Dow Jones -2.69, S&P 500 -2.67%, Nasdaq Composite -2.42%. Bearish factors included (1) concern that Greece may default on its debt as Greek T-note yields surged to record highs and credit default swaps to insure Greek government debt climbed to a record high, (2) weakness in bank and financial stocks on reports that German Chancellor Merkel’s government is preparing plans to shore up banks that face a possible 50% loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, (3) the unexpected resignation of ECB Executive Board member Stark, who opposed the ECB’s bond purchases of distressed European governments and signals a division within the ECB on how to handle the region’s sovereign-debt crisis, (4) pessimism that Congress will be able to muster up partisan support for President Obama’s $447 billion plan to boost the economy, and (5) a sell-off in energy and raw-material producers as a surge in the dollar index to a 6-month high prompted a broad-based plunge in most commodities.

Bullish factors included (1) comments from St. Louis Fed President Bullard who said a chance of a U.S. recession is “only modest” and that the Fed could adjust its balance sheet further if needed to bolster the economy and (2) the decline in the 10-year T-note yield to a record low 1.893%.

Bank of America (BAC) fell 2% in pre-market trading on carry-over weakness from a fall in European bank stocks.

Alcoa (AA) slid 1.6% in pre-market trading as industrial metal prices declined on speculation a worsening of the European debt crisi will crimp demand.

The Markets

December 10-year T-notes this morning are up +0.5 of a tick. T-note prices last Friday rallied to all-time highs on increased safe-haven demand after global equity markets tumbled on concern Greece may default on its debt: TYZ11 +18, FVZ11 +9.2, EDH12 -4.0. The 10-year T-note yield fell to an all-time low of 1.893%. Bullish factors included (1) concern that Greece may default on its debt after credit default swaps to insure Greek government debt climbed to a record high and the 2-year Greek T-note yield surged to an all-time high of 57.08% along with reports that German Chancellor Merkel’s government is preparing plans to shore up banks that face a possible 50% loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, (2) carry-over support from the fall in the 10-year German bund yield to a record low 1.765% after ECB Executive Board member Stark, who opposed the ECB’s bond purchases of distressed European governments, unexpectedly resigned and signals a rift within the ECB over how to handle the European debt crisis, and (3) comments from San Francisco Fed President Williams who said the worldwide financial system is under severe “stress.”

The dollar index this morning is higher and at a 6-1/2 month high with the dollar/yen -0.60 yen and the euro/dollar -0.25 cents. The dollar index last Friday surged to a 6-month high as concerns intensified that Greece may default along with a plunge in the euro to a 6-1/2 month low against the dollar on concern the ECB may be divided on how to handle the European debt crisis after ECB Executive Board member Stark unexpectedly resigned: Dollar Index +0.946, USDJPY +0.094, EURUSD -0.02255. Bullish factors included (1) a surge in safe-haven demand for the dollar as the stock market plunged on fear Greece may default on its debt after credit default swaps to insure Greek government debt climbed to a record high of 3,238 bp and the yield on the Greek 2-year note soared to a record high of 57.08%, (2) the unexpected resignation of ECB Executive Board member Stark, who opposed the ECB’s bond purchases of distressed European governments and signals a division within the ECB on how to handle the region’s sovereign-debt crisis, and (3) solid demand from European banks for dollars as the 3-month dollar Libor rate climbed to a 1-year high of 0.33794%. A bearish factor was the larger-than-expected increase in Jul French industrial production, which is euro supportive.

Oct crude oil prices this morning are down -$1.31 a barrel and Oct gasoline is -3.95 cents per gallon. Crude oil and gasoline prices last Friday tumbled on a lack of confidence in the global economy along with the movement of Tropical Storm Nate away from U.S. oil installations in the Gulf of Mexico: CLV11 -$1.81, RBV11 -11.42. Bearish factors included (1) the surge in the dollar index to a 6-month high, which discourages investment demand in commodities, (2) the fall in the stock market, which curbs confidence in the economic outlook and energy demand, and (3) the movement of Tropical Storm Nate toward Mexico and away from U.S. oil installations in the Gulf of Mexico.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): CZZ-Cosan Ltd. (BEST earnings consensus $0.16), PCYC-Pharmacyclics (-0.13).

Financial Calendar

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

1300 ET Treasury auctions $32 billion 3-year T-notes.

1600 ET Dallas Fed President Richard Fisher speaks at the 2011 National Association of Business Economists annual meeting on ?U.S. Monetary Policy in a Global Context? in Dallas.

2000 ET St. Louis Fed President James Bullard delivers opening remarks at a St. Louis Fed event titled ?Dialogue with the Fed: Beyond Today?s Financial Headlines.?

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