Market Happenings for November 16, 2011

Pre-market, futures are down as more political developments in the eurozone kept investors on their toes. Gainers this morning include NVLS, TGT, ADSK, WDC and RRC. Losers include ANF, MET, GCI, A and DELL. Light crude is down -0.26% at 99.11 and gold is down -0.62% at 1,771.10.

U.S. Stock News

December S&Ps this morning are trading down -9.80 points. The US stock market yesterday opened lower on European debt concerns but recovered those losses and finished higher on better-than-expected U.S. economic data: Dow Jones +0.14%, S&P 500 +0.48%, Nasdaq Composite +1.09%. Bullish factors included (1) the stronger-than-expected Oct U.S. retail sales (+0.5% and +0.6% less autos versus expectations of +0.3% and +0.2% less autos, (2) the larger-than-expected increase in the Nov Empire manufacturing index which expanded for the first time since May (+9.1 to 0.6 versus expectations of +6.5 to -2.0), (3) reduced price pressures after the weaker-than-expected Oct PPI (-0.3% m/m and +5.9% y/y versus expectations of -0.1% m/m and +6.3% y/y), (4) the weaker- than-expected Sep business inventories (unchanged versus expectations of +0.1%), which may signal that companies may need to boost orders in coming months to meet holiday demand, and (5) comments from Dallas Fed President Fisher who said the U.S. economy is “poised for growth” going into next year.

Bearish factors included (1) carry-over weakness from a slide in European stocks on concern the European debt crisis will worsen after credit-default swaps to insure the government debts of France, Italy and Spain rose to records and Nov German economic sentiment fell to a 3-year low, and (2) concerns over the European banking system after the cost for European banks to fund in dollars rose to a 3-year high.

Dell (DELL) declined 1.4% in European trading after it reported Q3 revenue of $15.37 billion, weaker than analysts’ estimates of $15.70 billion.

The Market

December 10-year T-notes this morning are up +5 ticks. T-note prices yesterday moved higher early on dovish Fed commentary, reduced price pressures, and increased safe-haven demand on concern the European sovereign-debt crisis will worsen but shed their gains and settled lower when stocks recovered: TYZ11 -4.0, FVZ11 -2.0, EDH12 -2.5. Bearish factors included (1) the stronger-than-expected Oct U.S. retail sales (+0.5% and +0.6% less autos versus expectations of +0.3% and +0.2% less autos, (2) the larger-than-expected increase in the Nov Empire manufacturing index which expanded for the first time since May (+9.1 to 0.6 versus expectations of +6.5 to -2.0), (3) comments from Dallas Fed President Fisher who said the U.S. economy is “poised for growth” going into next year and that he sees a declining likelihood the Fed will need to ease further, and (4) the recovery in stock prices which reduced the safe-haven demand for Treasuries. Bullish factors included (1) concern the European sovereign debt crisis may worsen after credit-default swaps to insure the government debts of France, Italy and Spain rose to records, (2) comments from San Francisco Fed President Williams who said “Additional monetary policy accommodation-either in the form of additional asset purchases or further forward policy guidance on our future policy intentions-may be needed to bring us closer to our mandated objectives of maximum employment and price stability,” (3) comments from Chicago Fed President Evans who said the Fed may need to “increase amounts of policy accommodation” to reduce a 9% unemployment rate that’s far above the Fed’s objectives, and (4) reduced price pressures after the weaker-than-expected Oct PPI (-0.3% m/m and +5.9% y/y versus expectations of -0.1% m/m and +6.3% y/y).

The dollar index this morning is stronger and at a 5-week high with the dollar/yen -0.10 yen and the euro/dollar -0.46 cents. The dollar index strengthened yesterday after Nov German economic sentiment fell to a 3-year low along with increased safe-haven demand for the dollar on concern the European sovereign-debt crisis is spreading: Dollar Index +0.303 USDJPY -0.041, EURUSD -0.00937. Bullish factors included (1) euro weakness after the Nov ZEW German economic sentiment fell more than expected to a 3-year low, (2) concern the European debt crisis will worsen after credit default swaps to insure the government debts of France, Italy and Spain rose to records, (3) weakness in the British pound against the dollar after BOE Governor King said inflation could fall more sharply than expected due to spare capacity and “substantial risks” to the global economic outlook, which bolsters the outlook for additional BOE asset purchases, and (4) strong dollar demand from European banks after the 3-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, fell to -117 bp below the euro interbank offered rate, the widest in nearly 3 years. Bearish factors included dollar negative comments from (1) Chicago Fed President Evans who called for “increasing amounts of policy accommodation” to reduce a 9% unemployment rate and (2) comments from and San Francisco Fed President Williams who said the Fed may need to embark on additional asset purchases in the face of stubborn unemployment, moderate growth and undesirably low inflation.

Dec crude oil prices this morning are down -28 cents a barrel and Dec gasoline is +2.93 cents per gallon. Crude oil and gasoline prices yesterday finished higher after Oct U.S. retail sales rose more than expected and bolstered optimism that Q4 economic growth and fuel demand in the U.S. will be strong: CLZ11 +$1.23, RBZ11 +5.04. Dec crude posted a 3-1/2 month high. Bullish factors included (1) the stronger than expected Oct U.S. retail sales and Nov Empire manufacturing index, which signals economic strength that may boost energy consumption, and (2) the warning from SEB AB that oil prices may rally to more than $200 a barrel if tensions over Iran’s nuclear program result in a “full-blown conflict.” Bearish factors included (1) dollar strength that reduces investment demand for commodities, (2) the greater-than-expected fall in the Nov German ZEW economic sentiment to a 3-year low, which may lead weaker economic growth and fuel demand, and (3) concern the European debt crisis will worsen and slow global economic growth after credit default swaps to insure the government debts of France, Italy and Spain rose to records. Expectations for the weekly inventories from the DOE on Wednesday are for crude oil supplies to fall -1.2 million bbl, gasoline stockpiles to drop -1.0 million bbl, distillate inventories to decline -2.35 million bbl and the refinery utilization rate to increase +0.5 to 83.1%.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): TGT-Target (BEST earnings consensus $0.74), TYC-Tyco International Ltd. (0.86), AMAT-Applied Materials (0.19), NTAP-NetApp (0.60), LTD-Limited Brands (0.24), NTES-Netease.com (0.90), PETM-PetSmart (0.48), ANF-Abercrombie & Fitch (0.72), SBH-Sally Beauty Holdings (0.27), TFSL-TFS Financial (0.03), QIHU-Qihoo 360 Technology Co. Ltd. (0.07), YOKU-Youku.com (-0.03), SPB-Spectrum Brands Holdings (0.58), ZOLL-Zoll Medical (0.49).

Financial Calendar

0700 ET Weekly MBA mortgage applications, previous +10.3% with purchase mortgage sub-index +4.8% and refinancing sub-index +12.1%.

0830 ET Oct CPI expected unchanged m/m and +3.7% y/y, Sep +0.3% m/m and +3.9% y/y. Oct CPI ex food & energy expected +0.1% m/m and +2.1% y/y, Sep +0.1% m/m and +2.0% y/y.

0900 ET Sep net long-term TIC flows expected +$54.0 billion, Aug +$57.9 billion.

0915 ET Oct industrial production expected +0.4%, Sep +0.2%. Oct capacity utilization expected +0.2 to 77.6%, Sep +0.1 to 77.4%.

1000 ET Nov NAHB housing market index expected unchanged at 18, Oct +4 to 18.

1115 ET Richmond Fed President Jeffrey Lacker speaks on a panel at the Cato Institute’s annual monetary conference titled ‘Fed Policy and the Allocation of Credit.’

1245 ET Boston Fed President Eric Rosengren speaks to the Boston Economic Club at the Boston Fed.

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