Market Happenings for Tuesday, October 25, 2011

Pre-market, futures are down as investors remain cautious ahead of a key summit on Europe’s debt crisis, and mull over an onslaught of earnings. Gainers this morning include DGX, SCHW, XRX, NOV and MOLX. Losers include NFLX (-35%) , AKS, CMI, MMM and TLAB. Light crud is up +3.40% at 94.37 and gold is up +0.33% at 1,657.80.

U.S. Stock News

December S&Ps this morning are up 6.20 points (+0.50%) on continued optimism about Wednesday’s European summit cominbed with the recent better-than-expected U.S. economic data and comments by several Fed officials about the possible need for additional support measures. The US stock market on Monday extended last Friday’s sharp rally: Dow Jones +0.89%, S&P 500 +1.29%, Nasdaq Composite +2.35%. Bullish factors included (1) the 1.2 point rise in China?s flash Oct purchasing managers index from HSBC/Market to 5-month high of 51.1 from 49.9 in September, (2) the +2.4% y/y rise in Japanese Sep exports, stronger than expectations of +1% and just below August?s +2.8% y/y gain, (3) a 5% rally in Caterpillar on positive earnings news, which bode well for global demand, (4) the comment by NY Fed President William Dudley that the Fed wants to keep mortgage rates down and that QE3 is “possible,” and (5) continued optimism that Europe will get a deal done to address the debt crisis.

The Markets

December 10-year T-notes this morning are trading -6 ticks on the continued decline in safe-haven demand with the rally in stocks. T-note prices on Monday closed lower: TYZ11 -10, FVZ11 -4.75, EDH12 +1.5. The main bearish factor was the continued rally in the U.S. stock market and reduced safe-haven demand tied to expectations for a European deal on the debt crisis. However, the T-note market received support from NY Fed President William Dudley’s comment that the Fed wants to keep mortgage rates down and that QE3 is “possible.” That was the third Fed official in as many business days mentioning further easing moves. Fed Vice Chairman Janet Yellen last Friday said that a third round of quantatitive easing might become warranted and Fed Governor Daniel Tarullo last Thursday said the Fed should consider a program of buying mortgage securities.

The dollar index this morning is trading down -0.139 points with USDJPY +0.04 yen and EURUSD +0.20 cents. The dollar continued to be undercut by reduced safe-haven demand. The dollar index on Monday continued lower due to the continued rally in the stock market and waning safe-haven demand: Dollar Index -0.367, USDJPY 0.19, EURUSD +0.0033. USDJPY on Monday consolidated mildly above last Friday?s record low of 75.82 yen and failed to get a significant boost from implicit threats from Japanese officials about intervention. The euro continues to rally on expectations that Eurozone leaders are moving towards a deal at their summit on Wednesday that includes bank recapitalization, expansion of the EFSF fund, and a larger haircut for Greek bond holders.

Dec crude oil prices this morning are up $2.60 but Dec gasoline is down 1.24 cents. Crude oil is higher on improved optimism about global demand while gasoline is lower on expectations for reduced seasonal demand. Crude oil and gasoline prices on Monday rallied with Dec crude oil breaking out out to a new 2-1/2 month high: CLZ11 +$3.87, RBZ11 +0.0121. Bullish factors included (1) the drawdown in inventories at Cushing, Oklahoma, the pricing hub for the WTI contract, (2) the 1.2 point rise in China?s flash Oct purchasing managers index from HSBC/Markit to 5-month high of 51.1 from 49.9 in September, which sparked expectations for increased Chinese fuel demand, (3) the rally in U.S. stocks and the improved perception of the U.S. and global economy.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): AMZN-Amazon (BEST earnings consensus $0.54), UPS-United Parcel (1.05), MMM-3M (1.61), DD-DuPont (0.56), SPG-Simon Property (0.68), NOV-National Oilwell Varco (1.16), ACE- ACE Ltd (1.78), ITW-Illinois Tool Works (0.98), RAI-Reynolds (0.73), BRCOM-Broadcom (0.77), ESRX-Express Script (0.76), CMI-Cummins (2.25), MCK-McKesson (1.39), COH-Coach (0.70), PCAR-Paccar (0.70), TROW-T Rowe Price (0.74), BXP-Boston Properties (0.36), CHRW-CH Robinson (0.70).

Financial Calendar

0745 ET ICSC (Int’l Council of Shopping Centers) weekly retailer sales.

0855 ET Redbook weekly retailer sales.

0900 ET Aug S&P/CaseShiller composite-20 home price index expected +0.1% m/m and -3.5% y/y, Jul +0.1% m/m and -4.1% y/y.

1000 ET Oct U.S. consumer confidence expected +0.6 to 46.0, Sep +0.2 to 45.4.

1000 ET Aug FHFA U.S. house price purchase index expected +0.2% m/m, Jul +0.8% m/m.

1000 ET Oct Richmond Fed manufacturing index expected +7 to 1, Sep +4 to -6.

1130 ET Weekly 4-week T-bill auction.

1300 ET Treasury auctions $35 billion in 2-year T-notes.

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