Market Happenings for Friday, September 30, 2011

Pre-market, futures are down as we end this really bad quarter with the latest reading on European inflation sparked a sell-off in overseas stocks that is spilling over into U.S. markets. Gainers this morning include YHOO, FTR, EIX, RHT and JDSU. Losers include IR, MU, CELG, RF and CF. Light crude is down -0.89% at 81.41 and gold is up +0.34% at 1,622.80.

U.S. Stock News

December S&Ps this morning are trading down -13.10 points. The US stock market yesterday shot higher early after stronger-than-expected U.S. economic data and after the German government approved changes to a European bailout fund along, but prices shed their gains and finished mixed as losses in technology and consumer retail stocks undercut prices: Dow Jones +1.30%, S&P 500 +0.81%, Nasdaq Composite -0.43%. Bullish factors included (1) strength in financial stocks after the German parliament approved an expansion of the EFSF, which may help contain the sovereign-debt crisis, (2) the larger-than-expected decline in weekly U.S. initial unemployment claims which fell to their lowest level in 5-1/2 months (-37,000 to 391,000 versus expectations of -3,000 to 420,000), (3) the larger-than-expected upward revision to Q2 U.S. GDP (+1.3% annualized versus expectations of +1.2% annualized as Q2 personal consumption was revised up to +0.7% from +0.4%), and (4) the better-than-expected Aug U.S. pending home sales (-1.2% m/m and +13.1% y/y versus expectations of -2.0% m/m and +6.3% y/y).

Bearish factors included (1) comments from Fed Chairman Bernanke who said that unemployment in the U.S. is a “national crisis,” (2) weakness in technology stocks after Advanced Micro Devices plunged when it reduced its forecasts for Q3 sales and profitability because of manufacturing glitches, and (3) a slump in retailers on concern about slower economic growth in China.

Exxon-Mobil (XOM) fell 1.5% in pre-market trading as crude oil prices fell on signs a slowing global economy will diminish fuel demand.
Bank of America (BAC) fell 1.6% and JPMorgan Chase (JPM) fell 1.5% in pre-market trading on carry-over weakness from a fall in European bank stocks.

The Markets

December 10-year T-notes this morning are up +2.5 ticks. T-note prices yesterday were under pressure early on reduced safe-haven demand after German lawmakers approved an extension of a Euro-Zone bailout plan along with stronger-than-expected U.S. economic data, but strong demand for the Treasury’s $29 billion 7-year T-note auction along with an afternoon retreat in stocks lifted T-note prices into positive territory: TYZ11 +10, FVZ11 +1.7, EDH12 -2.0. Bearish factors included (1) reduces safe-haven demand for Treasuries when German lawmakers approved an expansion of the Euro-Zone rescue fund, (2) the larger-than-expected decline in weekly U.S. initial unemployment claims which fell to their lowest level in 5-1/2 months (-37,000 to 391,000 versus expectations of -3,000 to 420,000), (3) the larger-than-expected upward revision to Q2 U.S. GDP (+1.3% annualized versus expectations of +1.2% annualized), (4) the unexpected upward revision to the Q2 core PCE deflator to its fastest pace of increase in 3-years (+2.3% y/y versus expectations of unchanged at +2.2% y/y), and (5) the better-than-expected Aug U.S. pending home sales (-1.2% m/m and +13.1% y/y versus expectations of -2.0% m/m and +6.3% y/y). Bullish factors included (1) comments from Fed Chairman Bernanke who said that unemployment in the U.S. is a “national crisis,” (2) strong demand for the Treasury’s $29 billion auction of 7-year T-notes that had a bid-to-cover ratio of 3.02, higher than the 12-auction average of 2.85, and (3) a slump in stock prices which boosted safe-haven demand for Treasuries.

The dollar index this morning is higher with the dollar/yen -0.01 yen and the euro/dollar -1.02 cents. The dollar index yesterday settled little changed as the euro gained when German lawmakers approved an expansion of a bailout fund for debt-stricken Euro-Zone nations: Dollar Index +0.176, USDJPY +0.226, EURUSD +0.00541. Bearish factors included (1) reduced safe-haven demand for the dollar after the German parliament approved an expansion of the EFSF, which may help contain the sovereign-debt crisis, (2) the larger-than-expected drop in Sep German unemployment along with the unexpected fall in the German unemployment rate to 6.9%, the lowest since German reunification began two decades ago, and (3) dollar negative comments from Fed Chairman Bernanke who said that unemployment in the U.S. is a “national crisis.” Bullish factors included (1) the unexpected downward revision in Sep Euro-Zone consumer confidence to a 2-year low, which is euro negative, (2) the larger-than-expected upward revision to Q2 U.S. GDP, and (3) the increase in the 3-month dollar Libor rate for the 15th consecutive day up to a 13-month high of 0.37211%, a sign of strong European demand for dollars.

Nov crude oil prices this morning are down -40 cents a barrel and Nov gasoline is -1.04 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as a stronger dollar offset a stronger than expected upward revision of Q2 U.S. GDP and reduced European debt concerns after German lawmakers approved an expanded European bailout fund: CLX11 +$0.93, RBX11 -1.67. Bullish factors included (1) the action by German lawmakers to approve an expansion of the EFSF bailout fund, which may help resolve the European debt crisis, (2) the larger-than-expected upward revision to Q2 U.S. GDP, which indicates increased fuel consumption, and (3) the plunge in weekly U.S. initial unemployment claims to a 5-1/2 month low, which signals economic improvement that may benefit fuel demand. Bearish factors included (1) the stronger dollar, which discourages investment demand in commodities, (2) the unexpected downward revision to Sep Euro-Zone consumer confidence to a 2-year low, which may curtail European consumer spending and energy demand and (3) comments from Fed Chairman Bernanke who that unemployment in the U.S. is a “national crisis,” which may undercut economic growth and energy demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): MSCI-MSCI Inc. (BEST earnings consensus $0.45), CRAI-CRA International (0.41).

Financial Calendar

0830 ET Aug personal spending expected +0.2%, Jul +0.8%. Aug personal income expected +0.1%, Jul +0.3%. Aug PCE deflator expected +2.9% y/y, Jul +2.8% y/y. Aug core PCE deflator expected +0.2% m/m and +1.7% y/y, Jul +0.2% m/m and +1.6% y/y.

0945 ET Sep Chicago purchasing managers index expected -1.5 to 55.0, Aug -2.3 to 56.5.

0955 ET Final Sep U.S. University of Michigan consumer confidence expected unchanged at 57.8, previous +2.1 to 57.8.

1100 ET St. Louis Fed President James Bullard speaks at an event in San Diego.

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