Market Happenings for Thursday, November 17, 2011

Pre-market, futures are mixed as eurozone jitters continued to keep investors sidelined. Gainers include HUM, MOS, GME, RF and PHM. Losers include NTAP, SHLD, AMAT, IGT and LM.

U.S. Stock News

December S&Ps this morning are trading down -9.10 points. The US stock market yesterday traded lower early as ongoing European sovereign-debt concerns overshadowed better-than-expected U.S. economic data, but comments from Boston Fed President Rosengren briefly pulled stocks higher mid-day but they plunged into the close when Fitch Ratings warned that further contagion from Europe’s debt crisis poses a risk to U.S. banks: Dow Jones -1.58%, S&P 500 -1.66%, Nasdaq Composite -1.73%. Bearish factors included (1) concern the European debt crisis will be a drag on global growth after the BOE cut its 2011 and 2012 GDP forecasts for the U.K. and warned that a failure of European officials to end the debt crisis could lead to “significant adverse effects” on the global economy, (2) comments from European Commission President Barroso who said the Euro-Zone is facing a “truly systemic crisis” and that there is “no way out of the crisis” without economic growth in Europe, (3) concerns over the European banking system after the 3-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, widened to 122.5 bp less than the euro interbank offered rate, the most expensive cost since Dec 2008, and (4) the late-day slide in financial and bank stocks after Fitch Ratings warned that U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis worsens.

Bullish factors included (1) benign price pressures after the Oct CPI unexpectedly posted its first monthly decline in 4 months (-0.1% m/m and +3.5% y/y versus expectations of unchanged m/m and +3.7% y/y), (2) he stronger-than-expected Oct industrial production (+0.7% versus expectations of +0.4%), (3) the bigger-than-expected increase in Oct capacity utilization which climbed to its highest level in 3-1/4 years (+0.5 to 77.8% versus expectations of +0.1 to 77.4%), (4) the unexpected increase in the Nov NAHB housing market index which rose to a 1-1/2 year high (+0.3 to 20 versus expectations of unchanged at 18), and (5) comments from Boston Fed President Rosengren who said the European debt crisis might warrant coordinated action by the ECB and the Fed.

Applied Materials (AMAT) fell 2.5% in pre-market trading after the largest producer of chipmaking equipment forecast Q1 profit before certain costs of 8 cents to 16 cents and revenue of $1.85 billion, weaker than analysts’ estimates of 18 cents profit on sales of $2.07 billion.

The Markets

December 10-year T-notes this morning are up +11.5 ticks. T-note prices yesterday moved higher on safe-haven demand from the European debt crisis, benign inflation data and strong foreign demand for U.S. government debt: TYZ11 +5.5, FVZ11 +1.2, EDH12 -5.0. Bullish factors included (1) the weaker-than-expected Oct CPI which unexpectedly posted its first monthly decline in 4 months (-0.1% m/m and +3.5% y/y versus expectations of unchanged m/m and +3.7% y/y), (2) increased safe-haven demand after the BOE cut its U.K. forecast for 2011 and 2012 and warned that a failure of European officials to end the debt crisis could lead to “significant adverse effects” on the global economy, and (3) increased foreign demand for U.S. government debt after the Sep net long-term TIC flows showed foreign holdings of Treasuries rose to a record $4.66 trillion. Bearish factors included (1) the stronger-than-expected Oct industrial production (+0.7% versus expectations of +0.4%), (2) the bigger-than-expected increase in Oct capacity utilization which climbed to its highest level in 3-1/4 years (+0.5 to 77.8% versus expectations of +0.1 to 77.4%), and (3) the unexpected increase in the Nov NAHB housing market index which rose to a 1-1/2 year high (+0.3 to 20 versus expectations of unchanged at 18).

The dollar index this morning is little changed with the dollar/yen -0.03 yen and the euro/dollar -0.22 cents. The dollar index yesterday posted a 5-week high and settled higher as the euro slumped to a 5-week low against the dollar on European debt concerns and as foreign demand for dollar assets in Sep rose by the most in 10 months: Dollar Index +0.144 USDJPY +0.027, EURUSD -0.00761. Bullish factors included (1) euro negative comments from European Commission President Barroso who said the Euro-Zone is facing a “truly systemic crisis” and that there is “no way out of the crisis” without economic growth in Europe, (2) increased foreign demand for U.S. dollar assets after the Sep net long-term TIC flows rose $68.6 billion, stronger than expectations of $54.0 billion and the biggest increase in 10 months, and (3) weakness in the British pound which fell to a 3-week low against the dollar after the BOE cut its GDP forecast for the U.K. for 2011 and 2012 and warned that a failure of European officials to end the debt crisis could lead to “significant adverse effects” on the global economy. A bearish factor was the dollar negative comments from Boston Fed President Rosengren who said the Fed still has the power to boost the U.S. economy through lower interest rates.

Dec crude oil prices this morning are down -$2.20 a barrel and Dec gasoline is -5.78 cents per gallon. Crude oil and gasoline prices yesterday rallied sharply after Enbridge Inc, said it would reverse the direction of the Seaway pipeline, which will draw down excess crude reserves in Cushing, Oklahoma: CLZ11 +$3.22, RBZ11 +4.16. Dec crude posted a 5-1/4 month high. Bullish factors included (1) the announcement by Enbridge Inc. that it will reverse the direction of the Seaway pipeline, which will open an outlet for crude from the central U.S. and Canada to refineries on the Gulf Coast and draw down excess crude supplies in Cushing, Oklahoma, the storage hub for WTI, (2) the larger-than-expected increase in Oct U.S. industrial production and the rise in Oct capacity utilization to a 3-1/4 year high, which indicates increased fuel demand and consumption, and (3) the near-expected drop in weekly DOE distillate inventories to a nearly 3-year low (-2.14 million bbl to 133.7 million bbl). Bearish factors included (1) the rally in the dollar index to a 5-week high, which reduces investment demand for commodities, (2) the action by the BOE to cut its GDP forecasts for the U.K. for this year and next and its warning that a failure of European officials to end the debt crisis could lead to “significant adverse effects” on the global economy, and (3) the unexpected build in weekly DOE gasoline inventories (+992,000 bbl versus expectations of -1.0 million bbl).

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): CRM-Salesforce.com (BEST earnings consensus $0.31), INTU-Intuit (-0.12), ROST-Ross Stores (1.25), GPS-The Gap (0.36), DLTR-Dollar Tree (0.83), MRVL-Marvell Technology Group Ltd. (0.39), SJM-JM Smucker (1.39), SHLD-Sears Holdings (-2.13), HP-Helmerich & Payne (1.05), DCI-Donaldson (0.79), TDG-TransDigm Group (1.24), WSM-Williams-Sonoma (0.38), FMCN-Focus Media Holding Ltd. (0.48), FL-Foot Locker (0.39), DLB-Dolby Laboratories (0.69).

Financial Calendar

0830 ET Weekly initial unemployment claims expected +5,000 to 395,000, previous -10,000 to 390,000. Weekly continuing claims expected +18,000 to 3.633 million, previous -92,000 to 3.615 million.

0830 ET Oct housing starts expected -7.3% to 610,000, Sep +15.0% to 658,000. Oct building permits expected +2.4% to 603,000, Sep -5.8% to 589,000.

1000 ET Nov Philadelphia Fed manufacturing index expected +0.3 to 9.0, Oct +26.2 to 8.7.

1100 ET Treasury announces amounts of 2-year T-notes (previous $35 billion), 5-year T-notes (previous $35 billion) and 7-year T-notes (previous $29 billion) to be auctioned Nov 21-23.

1230 ET Cleveland Fed President Sandra Pianalto speaks on the ?Economic Outlook and Progress of U.S. Households? to the Rotary Club of Lexington, KY.

1250 ET New York Fed President William Dudley speaks on the national economy at the U.S. military academy at West Point.

1300 ET Treasury auctions 10-year TIPS.

1630 ET Weekly money supply report and Fed balance sheet.

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