Market Happenings for Monday, October 31, 2011

Happy Halloween!

Pre-market, futures are a down a bit as investors reacted to Japan’s intervention in global currency markets and remain cautious ahead of a week chock-full of economic events. That said, the Dow is up 12% in October, while the S&P 500 and Nasdaq have surged more than 13%. Gainers this morning include NBR, HRB, HUM, CLX and CTXS. Losers include ITT, ETFC, FSLR, AIV and AKS. Light crude is down -1.35% at 92.69 and gold is down -0.55% at 1,738.10.

U.S. Stock News

December S&Ps this morning are trading down by -11.00 points. The US stock market last Friday traded in the red most of the day and settled mixed as concern EU leaders haven’t done enough to stem the region’s debt crisis offset an increase in consumer confidence: Dow Jones +0.18%, S&P 500 +0.04%, Nasdaq Composite -0.05%. Bullish factors included (1) reduced labor costs with the smaller-than-expected increase in the Q3 U.S. employment cost index which posted its smallest gain in 10 months (+0.3% versus expectations of +0.6%), (2) the smaller-than-expected increase in the Sep PCE core deflator (unchanged m/m and +1.6% y/y versus expectations of +0.1% m/m and +1.7% y/y), (3) the as-expected +0.6% increase in Sep personal spending, which shows consumer spending remains relatively healthy, and (4) the larger-than-expected increase in the final Oct U.S. University of Michigan consumer confidence which climbed to a 3-month high (+3.4 to 60.9 versus expectations of +0.5 to 58.0).

Bearish factors included (1) carry-over weakness from a slide in European stocks after weak demand for an Italian bond auction drove up 10-year Italian bond yields 15 bp, (2) the statement from Fitch Ratings that the European agreement on a 50% haircut on Greek bonds “would be viewed by the agency as a default event under its Distressed Debt Exchange criteria,” and (3) the smaller-than-expected increase in Sep U.S. personal income, (+0.1% versus expectations of +0.3%), which may prompt a decline in consumer spending as income growth remains stagnant.

Chevron (CVX) slipped 1.3% in pre-market trading as crude oil fell and after Bank of America cut the stock to “neutral” from “buy.”

The Markets

December 10-year T-notes this morning are up +11.5 ticks as stocks slide. T-note prices last Friday settled higher on reduced price pressures along with an increase in safe-haven demand on concern European officials may need to take further steps to stem the region’s debt crisis: TYZ11 +25, FVZ11 +12, EDH12 +3.0. Bullish factors included (1) the smaller-than-expected increase in the Q3 U.S. employment cost index which posted its smallest gain in 10 months (+0.3% versus expectations of +0.6%), (2) the smaller-than-expected increase in Sep U.S. personal income (+0.1% versus expectations of +0.3%), which may prompt a decline in consumer spending as income growth remains stagnant, (3) the smaller-than-expected increase in the Sep PCE core deflator (unchanged m/m and +1.6% y/y versus expectations of +0.1% m/m and +1.7% y/y), and (4) increased demand for Treasuries after Fitch Ratings said that part of the European plan to stem the region’s debt crisis amounts to a Greek default. Bearish factors included (1) the as-expected +0.6% increase in Sep personal spending, which shows consumer spending remains relatively healthy and (2) the larger-than-expected increase in the final Oct U.S. University of Michigan consumer confidence which climbed to a 3-month high (+3.4 to 60.9 versus expectations of +0.5 to 58.0).

The dollar index this morning is stronger with the dollar/yen +2.07 yen and the euro/dollar -1.40 cents. The yen plunged to a 2-3/4 month low against the dollar following Japan’s intervention in the currency market to stem the yen’s strength. The dollar index last Friday settled slightly higher as the euro weakened after an increase in Italian borrowing costs raised concern EU leaders haven’t done enough to stem the region’s debt crisis: Dollar Index +0.188, USDJPY -0.153, EURUSD -0.00416. Bullish factors included (1) a weaker-than-anticipated Italian bond auction after only 7.93 billion euros out of a maximum target of 8.5 billion-euros were purchased, (2) weaker-than-expected Sep French consumer spending, and (3) the weaker than expected Sep Japan industrial production, which is yen negative. A bearish factor was the weaker-than-expected Sep U.S. personal income, which may inhibit growth as weak income growth prompts consumers to cut back on spending.

Dec crude oil prices this morning are down -68 cents a barrel and Dec gasoline is -1.14 cents per gallon. Crude oil and gasoline prices last Friday settled lower on global economic growth concerns along with dollar strength: CLZ11 -$0.64, RBZ11 -5.98. Bearish factors included (1) the -4.0% m/m decline Sep Japan industrial pr0duction, nearly double the decline that was expected and an indication of weak energy demand in the world’s third-largest oil consumer and (2) the stronger dollar, which diminishes investment demand for commodities. A bullish factor was the larger-than-expected increase in the final Oct U.S. University of Michigan consumer confidence, which may signal that consumer spending and fuel demand may be sustained.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): APC-Anadarko Petroleum (BEST earnings consensus $0.66), L-Loews (0.54), HCP-HCP Inc. (0.48), ALL-Allstate (0.09), HUM-Humana (2.03), AVB-AvalonBay Communities (0.48), CNA-CNA Financial (0.10), HLF-Herbalife Ltd. (0.76), FMC-FMC Corp. (1.35), BWP-Boardwalk Pipeline Partners LP (0.24), UDR-UDR Inc. (-0.11), SM-SM Energy (0.69), SBAC-SBA Communications (-0.24), PRE-PartnerRe Ltd. (1.45), MDU-MDU Resources Group (0.37), CCO-Clear Channel Outdoor Holdings (0.05).

Financial Calendar

0945 ET Oct Chicago purchasing managers index expected -1.4 to 59.0, Sep +4.1 to 60.4.

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

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