Market Happenings for Monday, November 21, 2011

Pre-market, futures are down pretty big after political leaders failed to reach an agreement on U.S. budget cuts over the weekend. Gainers this morning include CI while losers include MWW, CBG, TXT, OI and GILD.

U.S. Stock News

December S&Ps this morning are trading sharply lower by -19.20 points. The US stock market last Friday gyrated on both sides of unchanged and finally settled mixed as ongoing European debt concerns overshadowed positive U.S. economic data: Dow Jones +0.22%, S&P 500 -0.04%, Nasdaq Composite -0.60%. The Nasdaq posted a 1-1/4 month low. Bearish factors included (1) a report from Deutsche Presse-Agentur that said that Germany’s Foreign Ministry was considering the possibility of more “orderly defaults” beyond Greece, (2) weakness in bank stocks after the Bloomberg Risk newsletter said that Italy’s 5 biggest banks may need to raise 6.1 billion euros of additional capital as the Italian government bonds they own deteriorate in value, and (3) a slide in energy producer after crude oil prices declined.

Bullish factors included (1) the action by the ECB to purchase the government bonds of Italy and Spain, which drove down their bond yields and eased European debt concerns, (2) the report from Dow Jones Newswires that European officials may start talks with the IMF on a mechanism for the ECB to lend to the IMF for sovereign bailouts, which may help contain the European debt crisis, and (3) the stronger-than-expected Oct leading indicators which posted their biggest increase in 8 months (+0.9% versus expectations of +0.6%).

Walgreen (WAG) slid 2.2% in European trading after Morgan Stanley downgraded the shares to “underweight” from “overweight.”

The Markets

December 10-year T-notes this morning are up +10.5 ticks. T-note prices last Friday settled lower on reduced safe-haven demand after ECB purchases of Italian and Spanish government debt sent their bond yields falling and after a Dow Jones report suggested that European leaders may set up a mechanism for the ECB to lend to the IMF in order to provide the funds for additional bailouts: TYZ11 -17, FVZ11 -7.7, EDH12 +3.0. Bearish factors included (1) the action by the ECB to purchase the government bonds of Italy and Spain, which drove down their bond yields, boosted stocks and reduced the safe-haven demand for Treasuries, (2) the report from Dow Jones Newswires that European officials may start talks with the IMF on a mechanism for the ECB to lend to the IMF for sovereign bailouts, which may help contain the European debt crisis and reduce the safe-haven demand for Treasuries, and (3) the stronger-than-expected Oct leading indicators which posted their biggest increase in 8 months (+0.9% versus expectations of +0.6%). Bullish factors included (1) the Fed’s action to purchase $2.5 billion of long-term Treasuries as part of its Operation Twist program to replace $400 billion in shorter maturities with longer-term debt to keep borrowing costs low and (2) increased safe-haven demand from the European debt crisis after the Bloomberg Risk newsletter said that Italy’s 5 biggest banks may need to raise 6.1 billion euros of additional capital as the Italian government bonds they own deteriorate in value.

The dollar index this morning is higher and at a 1-1/4 month high with the dollar/yen -0.05 yen and the euro/dollar -0.70 cents. The dollar index last Friday settled lower as the euro rose after yields on Italian and Spanish government bonds fell when the ECB bought both nations’ debt: Dollar Index -0.218, USDJPY -0.102, EURUSD +0.00657. Bearish factors for the dollar included, (1) the action by the ECB to purchase the government bonds of Italy and Spain, which drove down their bond yields, boosted the euro and reduced the safe-haven demand for the dollar, (2) the report from Dow Jones Newswires that European officials may start talks with the IMF on a mechanism for the ECB to lend to the IMF for sovereign bailouts, which may stem the debt crisis and is euro supportive, and (3) the rally in the yen to a 2-1/2 week high against the dollar. Bullish factors included (1) increased safe-haven demand for the dollar after a report from Deutsche Presse-Agentur that said Germany’s Foreign Ministry was considering the possibility of more “orderly defaults” beyond Greece and (2) the larger-than-expected increase in Oct U.S. leading indicators, which signals economic strength and is dollar supportive.

Jan crude oil prices this morning are down -$1.39 a barrel at a 1-week low and Jan gasoline is +2.05 cents per gallon. Crude oil and gasoline prices last Friday settled lower on concern the ongoing European sovereign-debt crisis will slow global economic growth and energy demand along with speculation that the reversal of the Seaway pipeline won’t be enough to curb excess crude inventories in the U.S. Midwest: CLF12 -$1.41, RBF12 -2.87. Jan gasoline fell to a 1-1/2 month low. Bearish factors included (1) concern the ongoing European debt crisis will slow global economic growth and energy demand and (2) speculation the recent rally in crude prices due to Enbridge’s announcement that it will reverse the flow of the Seaway pipeline was overdone as it won’t be until Q2 of 2012 at the earliest that the reversal of the pipeline begins to drawdown crude supplies at Cushing, Oklahoma, the storage hub for WTI. Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) API data that showed Oct U.S. fuel demand increased +2.5% y/y to 19.4 million barrels a day, the highest level for an Oct in 3 years.

Today’s U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): HPQ-Hewlett-Packard (BEST earnings consensus $1.14), ADI-Analog Devices (0.63), TSN-Tyson Foods (0.31), BRCD-Brocade Communications Systems (0.10), TECD-Tech Data (1.26), JACK-Jack in the Box (0.39), PSS-Collective Brands (0.50), DY-Dycom Industries (0.30), PWRD-Perfect World Ltd. (0.70), TSL-Trina Solar Ltd. (0.02).

Financial Calendar

0830 ET Oct Chicago Fed national activity index, Sep -0.22.

1000 ET Oct existing home sales expected -2.2% to 4.80 million, Sep -3.0% to 4,91 million.

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

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

1430 ET Atlanta Fed President Dennis Lockhart speaks about the U.S. economy to the Getulio Vargas Business School in Sao Paulo, Brazil.

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