Market Happenings for Tuesday, November 08, 2011

Pre-market, futures are up ahead of a parliamentary confidence vote for Italian Prime Minister Silvio Berlusconi. Gainers this morning include PCLN, CCL, HON, BAC, MS, CNX, ANR, FLS and RF. Losers include PXD, URBN, EXPE, LLY and ETN. Light crude is up +0.66% at 96.15 and gold is down -0.07% at 1,789.90.

U.S. Stock News

December S&Ps this morning are trading up +4.30 points. The US stock market yesterday traded lower early on concern Europe’s most indebted countries may struggle to manage their debt levels, but prices recovered and settled higher after ECB Council member Stark said the European debt crisis will be controlled: Dow Jones +0.71%, S&P 500 +0.63%, Nasdaq Composite +0.34%. Bullish factors included (1) data from the U.S. Conference Board that showed its Employment Trends Index in Oct rose +0.72 to 101.92 and is up 5% from the same month a year ago, which indicates improvement in the labor market, (2) comments from Boston Fed President Rosengren who said the Fed should act to bring down “stubbornly, and unacceptably high” joblessness, which signals he favors additional stimulus measures to spur economic growth, (3) the stronger-than-expected Sep U.S. consumer credit (+$7.386 billion versus expectations of +$5.150 billion), and (4) short-covering in stocks after comments from ECB Executive Board member Stark who said he expects the Euro-Zone debt crisis to be “under control” within 2 years at the latest.

Bearish factors included (1) carry-over weakness from a slide in European stock markets after the yield on Italy’s 10-year bond surged to a record 6.68% on concern Italian Prime Minister Berlusconi may be forced to resign if he can’t pass austerity measures through Italy’s parliament that it needs in order to receive continued support from the IMF and the ECB, (2) , which may limit European and global economic growth prospects until then, and (3) weakness in financial and industrial companies on concern contagion of the European sovereign-debt crisis will diminish their earnings prospects.

The Markets

December 10-year T-notes this morning are down -6.5 ticks. T-note prices yesterday moved higher on increased safe-haven demand on concern Italy may struggle to reduce its debt burden after Italian borrowing costs rose to their highest level in at least 14 years: TYZ11 +9.5, FVZ11 +1.7, EDH12 -1.5. Bullish factors included (1) increased safe-haven demand for Treasuries as global equity markets tumbled after the yield on Italy’s 10-year bond rose to 6.68%, the highest since at least 1997, which will make it harder for Italy to finance its debt of 1.6 trillion euros of bonds outstanding, more than the liabilities of Spain, Portugal and Ireland combined, and (2) dovish comments from Boston Fed President Rosengren who said “Given the very weak labor market conditions and the low expected inflation rate, the Fed should continue to take action to aggressively try to reduce the stubbornly high U.S. unemployment rate,” which suggests he favors QE3 or other forms of Fed stimulus to help stimulate economic growth. Bearish factors included (1) the action by Greece to agree to form a new government, which may help it to pass austerity measures needed to receive aid from the IMF and ECB and reduce the safe-haven demand for Treasuries and (2) supply pressures ahead of the Treasury’s $32 billion auction of 3-year T-notes on Tue.

The dollar index this morning is little changed with the dollar/yen -0.04 yen and the euro/dollar -0.05 cents. The dollar index yesterday settled little changed as a rally in stocks overshadowed concern Italy will struggle to manage its debt: Dollar Index unchanged, USDJPY -0.153, EURUSD -0.00476. Bullish factors included (1) weakness in the euro after the yield on Italy’s 10-year bond surged to a record 6.68% on concern support for Italian Prime Minister Berlusconi is unraveling ahead of Tuesday’s parliamentary vote in Italy on austerity measures that are needed for it to receive continued support from the IMF and the ECB, and (2) weaker than-expected European economic data on Sep Euro-Zone retail sales and Sep German industrial production, which signals economic weakness that is euro negative. Bearish factors included (1) speculation that Greece and Italy may form new governments, which would keep both countries getting aid from the IMF and ECB as they approve additional austerity measures and reduce their chances of default, (2) comments from Boston Fed President Rosengren who said the Fed should act to bring down “stubbornly, and unacceptably high” joblessness, which indicates he favors additional dollar negative stimulus measures to spur economic growth, and (3) the rally in stocks, which reduced safe-haven demand for the dollar.

Dec crude oil prices this morning are up +58 cents a barrel and Dec gasoline is +0.53 of a cent per gallon. Crude oil and gasoline prices yesterday finished higher on the prospect of new leadership in Greece and Italy, which may contain the European debt crisis and keep the global economy and energy demand from sputtering: CLZ11 +$1.26, RBZ11 +6.48. Dec crude posted a 3-month high. Bullish factors included (1) possible new governments in Greece and Italy that may ensure that both continue to receive aid from the IMF and ECB to avoid default, which could keep the European debt crisis from contagion that might limit fuel demand and (2) comments from Boston Fed President Rosengren who said the Fed should act further to bring down the unemployment rate, which indicates he favors QE3 or other forms of stimulus that may boost economic and energy demand. Bearish factors included (1) the stronger dollar, which reduces investment demand for commodities, (2) weak European economic data on Sep Euro-Zone retail sales and Sep German industrial production, which signals economic weakness that is negative for fuel demand and consumption, and (3) the flagging stock market, which reduces confidence in the economic outlook and fuel demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): ATVI-Activision Blizzard (BEST earnings consensus $0.03), ROK-Rockwell Automation (1.21), LINTA-Liberty Interactive (0.15), HFC-HollyFrontier (2.37), FOSL-Fossil (1.04), LCAPA-Liberty Media (0.12), DOX-Amdocs Ltd. (0.62), WTW-Weight Watchers (0.94), ROVI-Rovi (0.61), IGT-International Game Technology (0.23), SINA-Sina Corp. (0.22), IFF-International Flavors & Fragrances (1.05), MKL-Markel (3.87), CHKM-Chesapeake Midstream Partners (0.29), UGI-UGI Corp, (-0.06), ARCC-Ares Capital (0.37).

Financial Calendar

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

0855 ET Redbook weekly retailer sales.

1000 ET Nov IBD/TIPP economic optimism expected +0.7 to 41.0, Oct +0.4 to 40.3.

1130 ET Weekly 4-week T-bill auction.

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

1300 ET Minneapolis Fed President Narayana Kocherlakota speaks at an Economic Outlook Seminar in Sioux Falls, SD.

1330 ET Philadelphia Fed President Charles Plosser receives the 2011 Global Citizen Award and speaks on ?A Policymaker?s Perspective? at an award ceremony in Philadelphia.

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