Market Happenings for Tuesday, November 22, 2011

Pre-market, futures are down a bit after a government report showed that the economy grew at a slower pace than expected in the third quarter. Gainers this morning include MDT, ADI, GNW, FFIV and DVN and losers include NFLX, MAR, LEN, CCL and HPQ (Meg Whitman is on CNBC right now).

U.S. Stock News

December S&Ps this morning are trading up +7.40 points. The US stock market plunged yesterday on concern the deficit-cutting congressional supercommittee will fail to reduce the budget deficit along with concern that the European debt crisis may worsen and drag global economy lower: Dow Jones -2.11%, S&P 500 -1.86%, Nasdaq Composite -1.92%. The S&P 500 fell to a 1-1/4 month low, the Dow slipped to a 1-month low and the Nasdaq dropped to a 1-1/2 month low. Bearish factors included (1) concern that the failure of the U.S. deficit-cutting congressional supercommittee to reduce the budget deficit may lead to $1.2 trillion in automatic spending cuts that may slow economic growth and may prompt credit-rating agencies to downgrade the credit rating of the U.S., (2) concern the European debt crisis may worsen after Moody’s Investors Service warned that higher financing costs are increasing fiscal challenges for France that could lead to negative credit implications, and (3) global economic concerns after Oct Japan exports dropped -3.7% y/y, weaker than expectations of -0.3% y/y, and after the Bundesbank cut its 2012 German GDP forecast to 0.5% to 1.0% from a June prediction of 1.8%.

Bullish factors included (1) the unexpected increase in Oct U.S. existing home sales (+1.4% to 4.97 million versus expectations of -2.2% to 4.80 million), (2) increased M&A activity which boosted some pharmaceutical stocks after Gilead Sciences agreed to buy Pharmasset for $11 billion in cash, and (3) upbeat comments from Atlanta Fed President Lockhart who said the probability of the U.S. economy slipping into recession is less than 30%.

Hewlett-Packard (HPQ) fell 2.3% in pre-market trading after the company forecast Q1 profit of 83 cents to 86 cents a share, weaker than analysts’ estimates of $1.11 a share.

The Markets

December 10-year T-notes this morning are down -6 ticks. T-note prices rallied yesterday and settled higher on increased safe-haven demand after stocks plunged when U.S. lawmakers said they may fail to reduce the budget deficit along with concern the European debt crisis may worsen: TYZ11 +9, FVZ11 +2.5, EDH12 -2.5. Bullish factors included (1) increased safe-haven demand after stocks plunged when the U.S. deficit-cutting congressional supercommittee said they may fail to agree on spending cuts to reduce the budget deficit, (2) increased safe-haven demand on concern the European debt crisis may worsen after Moody’s Investors Service warned that higher financing costs are increasing fiscal challenges for France that could lead to negative credit implications, (3) the action by the Bundesbank to cut its 2012 German GDP forecast to 0.5% to 1.0% from a June prediction of 1.8%, and (4) strong demand for the Treasury’s $35 billion auction of 2-year T-notes that had a 4.07 bid-to-cover ratio, well above the 12-auction average of 3.39. Bearish factors included (1) the unexpected increase in Oct U.S. existing home sales (+1.4% to 4.97 million versus expectations of -2.2% to 4.80 million), (2) concern that the failure of the U.S. deficit-cutting congressional supercommittee to reduce the budget deficit may lead to a downgrade in the U.S. credit rating, and (3) supply pressures ahead of the Treasury’s $35 billion auction of 5-year T-notes on Tue.

The dollar index this morning is weaker with the dollar/yen -0.03 yen and the euro/dollar +0.57 cents. The dollar index yesterday rallied up to a 1-1/4 month high and settled higher on increased safe-haven demand after global stock markets plunged along with euro weakness after the Bundesbank cut its 2012 German GDP forecast: Dollar Index +0.260, USDJPY +0.008, EURUSD -0.00344. Bullish factors for the dollar included, (1) increased safe-haven demand for the dollar as global equity markets tumbled, (2) euro weakness after the Bundesbank cut its 2012 German GDP forecast to 0.5% to 1.0% from a June prediction of 1.8%, (3) a slump in French bonds, which kept pressure on the euro, after Moody’s Investors Service warned that higher financing costs are increasing fiscal challenges for France that could lead to negative credit implications, (4) comments from ECB Executive Board member Stark who said he sees “strong dampening” effects in Q4 Euro-Zone growth from the debt crisis, and (5) euro negative comments from EU Economic and Monetary Affairs Commissioner Rehn who said Europe’s economic standstill is “bound to slow down the improvement of public finances.” Bearish factors included (1) concern that the failure of the U.S. deficit-cutting congressional supercommittee to reduce the budget deficit may lead to a downgrade in the U.S. credit rating and (2) the weaker-than-expected Oct Chicago Fed national activity index of -0.13, which shows below-trend growth for the third straight month that may prompt the Fed to implement additional dollar negative stimulus measures.

Jan crude oil prices this morning are up +$1.32 a barrel and Jan gasoline is +3.91 cents per gallon. Crude oil and gasoline prices yesterday closed mixed as gasoline rose on speculation fuel demand will increase this upcoming Thanksgiving holiday weekend while crude fell due to a stronger dollar, a slide in global equity markets and the action by the Bundesbank to lower its growth forecasts for next year: CLF12 -$0.75, RBF12 +1.07. Jan crude fell to a 1-week low. Bearish factors included (1) the rally in the dollar index to a 1-1/4 month high, which reduces investment demand for commodities, (2) the slide in the S&P 500 to a 1-month low, which reduces confidence in the economic outlook and energy demand, and (3) the action by the Bundesbank to cut its 2012 German GDP forecast to 0.5% to 1.0% from a June prediction of 1.8%, which signals lower fuel demand. Bullish factors included (1) strength in gasoline on optimism that the U.S. Thanksgiving holiday will boost fuel demand after the AAA predicted U.S. holiday travel will be up +4% from last year, and (2) the unexpected increase in Oct U.S. existing home sales, which is positive for economic growth and fuel demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): MDT-Medtronic (BEST earnings consensus $0.82), CPB-Campbell Soup (0.79), HRL-Hormel Foods (0.42), NUAN-Nuance Communications (0.41), SIG-Signet Jewelers Ltd. (0.21), PDCO-Patterson Cos. (0.46), VAL-Valspar (0.70), EV-Eaton Vance (0.43), P-Pandora Media (-0.01), CHS-Chico’s FAS (0.20), DSW-DSW Inc. (0.80), GCO-Genesco (0.94), TIVO-TiVo (-0.23), RAVN-Raven Industries (0.63), CBRL-Cracker Barrel Old Country Stores (1.07).

Financial Calendar

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

0830 ET Q3 U.S. GDP expected unrevised at +2.5% q/q annualized. Q3 personal consumption expected unrevised at +2.4%. Q3 GDP price index expected unrevised at +2.5%. Q3 core PCE expected unrevised at +2.1% q/q.

0855 ET Redbook weekly retailer sales.

1000 ET Nov Richmond Fed manufacturing index expected +4 to -2, Oct unchanged at -6.

1130 ET Weekly 4-week T-bill auction.

1300 ET Treasury auctions $35 billion 5-year T-notes.

1300 ET Minneapolis Fed President Narayana Kocherlakota speaks on ‘Looking Back at Three Years of Federal Reserve Action’ at CFA Winnipeg.

1400 ET Minutes of the Nov1-2 FOMC meeting.

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