Market Happenings for Thursday, September 29, 2011

Pre-market, futures are up big after Germany’s parliament approved new powers for the eurozone’s bailout fund. Gainers this morning include PCP, JOYG, ATI, HRB and ANR. Losers include AMD, EQ, DVA, BRKB and ACN. Light crude is up +1.31% at 82.27 and gold is down -0.27% at 1,613.70.

U.S. Stock News

December S&Ps this morning are trading up +6.70 points. The US stock market yesterday erased an early advance and settled lower on growing concern European leaders are divided over how to handle Greece’s debt crisis: Dow Jones -1.61%, S&P 500 -2.07%, Nasdaq Composite -2.17%. Bearish factors included (1) carry-over weakness from a decline in European stocks on concern the region’s sovereign-debt crisis may not be resolved after German Chancellor Merkel said policy makers may need to renegotiate the terms of Greece’s second bailout after the troika finishes its latest review of Greece’s finances, (2) a research paper from the New York Fed that states the productivity surge that helped boost U.S. economic growth since 1997 has probably ended with efficiency gains now closer to the +1.5% “low-trend growth” seen during the early 1970′s from the +3.0% productivity increases seen during the “high-trend growth” period that followed, and (3) the slump in energy and raw material producers on concern a slowing economy will diminish demand for commodities.

Bullish factors included (1) the smaller-than-expected decline in Aug durable good orders (-0.1% and -0.1% ex transportation versus expectations of -0.2% and -0.2% ex transportation) and (2) the action by Finland’s parliament to approve an expansion of the 440 billion euro European Financial Stability Facility (EFSF) and expectations that the German parliament on Thursday will also vote to approve enhanced powers for the EFSF, which may bring European governments one step closer to stemming the region’s debt crisis.

JPMorgan Chase (JPM) rose 1.9% in European trading on carry-over support from a rally in European bank stocks after German lawmakers approved an expansion of a the EFSF bailout fund.

The Markets

December 10-year T-notes this morning are up +5.5 ticks. T-note prices yesterday fell to a 1-week low but shed their losses and finished higher after the stock market slumped and the Treasury’s $35 billion 5-year T-note auction was met with strong demand: TYZ11 +35, FVZ11 +2.5, EDH12 -2.5. Bullish factors included (1) increased safe-haven demand for Treasuries after stock prices fell on concern the European debt crisis may linger after German Chancellor Merkel said policy makers may need to renegotiate the terms of Greece’s second bailout after the troika finishes its latest review of Greece’s finances and (2) strong demand for the Treasury’s $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 3.04, stronger than the 12-auction average of 2.79. Bearish factors included (1) the smaller-than-expected decline in Aug durable good orders (-0.1% and -0.1% ex transportation versus expectations of -0.2% and -0.2% ex transportation) and (2) supply pressures ahead of the Treasury’s $29 billion auction of 7-year T-notes on Thu.

The dollar index this morning is weaker with the dollar/yen +0.02 yen and the euro/dollar +0.68 cents. The dollar index yesterday rebounded from early losses and finished higher on concern European leaders lack the resolve to solve the region’s debt crisis: Dollar Index -0.857, USDJPY +0.453, EURUSD +0.00527. Bullish factors included (1) concern that the European debt crisis may linger after German Chancellor Merkel said policy makers may need to renegotiate the terms of Greece’s second bailout after the troika finishes its latest review of Greece’s finances and (2) the increase in the 3-month dollar Libor rate for the 14th consecutive day up to a 13-month high of 0.36856%, a sign of strong European demand for dollars. Bearish factors included (1) the action by the Finnish parliament to approve an expansion of the 440 billion euro EFSF, the ninth Euro-Zone country to ratify its expansion which must be approved by all 17 Euro-Zone members, (2) the action by the European Commission to refute reports that said some Euro-Zone nations are pushing for private Greek bondholders to accept larger writedowns, saying the commission is unaware of discussions among Euro-Zone finance ministers “related to private-sector involvement,” and (3) the unexpected increase in Sep German CPI to a 3-year high of +2.8% y/y, which may keep the ECB from lowering interest rates.

Nov crude oil prices this morning are up +25 cents a barrel and Nov gasoline is +1.32 cents per gallon. Crude oil and gasoline prices yesterday declined and closed lower on concern the European debt crisis may linger after German Chancellor Merkel said policy makers may need to renegotiate the terms of Greece’s second bailout after the troika finishes its latest review of Greece’s finances: CLX11 -$3.24, RBX11 -6.07. Bearish factors included (1) concern that the European sovereign debt crisis will remain unresolved and weaken global growth and energy demand after German Chancellor Merkel hinted that a second Greece bailout may need to be revised after members of the troika review the Greek government’s budget-cutting plans and (2) slack gasoline demand after the DOE reported that weekly gasoline supplies rose +791,000 bbl to an 8-week high of 214.9 million bbl and that the 4-week average for U.S. gasoline demand in the period ended Sep 23 fell -2.4% from a year earlier. Bullish factors included (1) the weaker dollar and (2) the smaller-than-expected decline in Aug U.S. durable goods orders, which hints at economic strength that is positive for fuel demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): MU-Micron Technology (BEST earnings consensus $0.00), AZZ-AZZ Inc. (0.76), XRTX-Xyratex Ltd. (0.19), GY-Gencorp (0.06), DMAN-DemandTec (-0.02).

Financial Calendar

0250 ET Boston Fed President Eric Rosengren speaks on “How Supervision Can Detect Failures Early” at a conference in Stockholm.

0830 ET Weekly initial unemployment claims expected -3,000 to 420,000, previous -9,000 to 423,000. Weekly continuing claims expected +3,000 to 3.730 million, previous -28,000 to 3.727 million.

0830 ET Revised Q2 U.S. GDP expected +1.2% annualized, previous +1.0% annualized. Q2 personal consumption, previous +0.4%. Q2 GDP price index, previous +2.4%. Q2 core PCE deflator, previous +2.2% y/y.

0830 ET Philadelphia Fed President Charles Plosser speaks on the economic outlook at a business leaders forum at the Villanova School of Business.

1000 ET Aug pending home sales expected -2.0% m/m and +6.3% y/y, Jul -1.3% m/m and +10.1% y/y.

1300 ET Treasury auctions $29 billion 7-year T-notes.

1300 ET Atlanta Fed President Dennis Lockhart delivers welcoming remarks at the Atlanta Fed’s “Employment and Education Conference.”

1630 ET Weekly money supply report and Fed balance sheet.

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