Market Happenings for Monday, November 28, 2011

Pre-market, futures are up big following record Black Friday sales and amid optimism that European leaders may be working toward a solution to Europe’s debt crisis. Gainers this morning include BSX, DE, YHOO, AMZN and WYN while losers include GCI, S, ANR, NFX and ABC.

U.S. Stock News

December S&Ps this morning are trading up sharply by +32.30 points. The US stock market last Friday was whipsawed lower and higher on several European debt headlines and finally finished lower after a report from Reuters said Greece is demanding private investors accept larger losses on their holdings of Greek debt: Dow Jones -0.23%, S&P 500 -0.27%, Nasdaq Composite -0.75%. The S&P 500, the Dow and the Nasdaq all posted 1-1/2 month lows. Bearish factors included (1) concern eh European debt crisis is worsening after Italian borrowing costs rose to a 14-year high and credit default swaps to insure European government debt rose to a record, (2) the action by Fitch Ratings to cut Portugal’s credit rating to junk, the action by Moody’s Investors Service to downgrade Hungary’s credit rating to junk, and Standard & Poor’s cut to Belgium’s credit rating by one step to AA with a negative outlook, (3) weakness in bank stocks after the Financial Times reported the European Financial Stability Facility may fail to raise enough funds to increase its capacity to more than 1 trillion euros as planned because of deterioration in market conditions over the past month, and (4) a report from Reuters that Greece is demanding new bonds issued to investors as part of a debt swap have a net present value of 25%, lower than the “high 40s the banks have in mind.”

Bullish factors included (1) a Reuters report that cited EU officials saying Euro-Zone nations are considering dropping private-sector involvement from their permanent bailout fund, which bolstered speculation European leaders will have an easier time implementing further bailouts and (2) speculation European leaders will do more to stem the region’s debt crisis after Italian Prime Minister Monti said that German Chancellor Merkel and French President Sarkozy “confirmed their support for Italy.”

JPMorgan Chase (JPM) rose 3.1% and Bank of America (BAC) jumped 4.8% in pre-market trading on carry-over support from a rally in European banking stocks.

The Markets

December 10-year T-notes this morning are down -25.5 ticks. T-note prices last Friday retreated on carry-over weakness from a fall in German bunds along with reduced safe-haven demand after European officials said they are considering dropping private-sector involvement from their permanent bailout fund: TYZ11 -18, FVZ11 -7.0, EDH12 unchanged. Bearish factors included (1) carry-over weakness from a slide in German bunds to a 3-1/4 month low and (2) reduced safe-haven demand for Treasuries after a Reuters report cited EU officials saying Euro-Zone nations are considering dropping private-sector involvement from their permanent bailout fund, which fueled speculation European leaders will have an easier time implementing further bailouts. Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European debt crisis is worsening after credit default swaps to insure European government debt rose to a record and EU Economic Monetary Affairs Commissioner Rehn said it looks like contagion is spreading to core countries and (2) increased safe-haven demand for Treasuries after Fitch Ratings cut Portugal’s credit rating to junk and Moody’s Investors Service downgraded Hungary’s credit rating to junk.

The dollar index this morning is weaker with the dollar/yen +0.01 yen and the euro/dollar +1.26 cents. The dollar index last Friday posted a 1-1/2 month high and settled higher on signs the European sovereign-debt crisis has worsened after Italy’s borrowing costs rose to a 14-year high and as French consumer confidence fell more-than-expected to a 2-3/4 year low: Dollar Index +0.545, USDJPY +0.628, EURUSD -0.01143. Bullish factors for the dollar included, (1) the slump in the euro to a 1-1/2 month low against the dollar on concern Europe’s debt crisis is worsening after credit default swaps to insure European government debt rose to yet another record high and Italy’s borrowing costs soared after it sold 8 billion euros of 6-month bills at a rate of 6.504%, a 14-year high, (2) comments from EU Economic Monetary Affairs Commissioner Rehn who said it looks like contagion is spreading to core countries, (3) euro negative comments from ECB Council member Coene who said an additional interest rate cut by the ECB is probable if current trends continue, (4) the action by Fitch Ratings to cut Portugal’s credit rating to junk along with the action by Moody’s Investors Service to downgrade Hungary’s credit rating to junk, (5) the bigger-than-expected decline in the Nov French consumer confidence indicator to a 2-3/4 year low, which is euro negative, and (6) the fall in the yen to a 2-week low against the dollar after Standard & Poor’s said Japan hasn’t made progress in tackling its public debt burden, a sign the ratings company may be preparing to downgrade Japan’s sovereign debt. Bearish factors included (1) reduced safe-haven demand for the dollar as stocks rallied after Italian Prime Minister Monti said that German Chancellor Merkel and French President Sarkozy “confirmed their support for Italy,” and (2) a report from Reuters that cited European officials who said there may be changes to the European Stability Mechanism due to come into force in 2013 that would eliminate the clause on private-sector involvement in future bailouts, which is euro supportive as it should make it easier for European leaders to pass additional bailout measures.

Jan crude oil prices this morning are up +$2.99 a barrel at a 1-week high and Jan gasoline is +7.41 cents per gallon. Crude oil and gasoline prices last Friday gyrated betweens gains and losses and finally settled mixed as speculation European leaders will do more to stem the region’s debt crisis offset strength in the dollar: CLF12 +$0.60, RBF12 -6.63. Jan crude posted a 2-week low but erased its losses and finished higher. Bearish factors included (1) the rally in the dollar index to a 1-1/2 month high, which reduces investment demand in commodities, (2) concern the European debt crisis will worsen after credit default swaps to insure European government debt rose to a record, and (3) comments from EU Economic Monetary Affairs Commissioner Rehn who said it looks like contagion is spreading to core countries, which could further hamper European fuel demand. Bullish factors included (1) a rally in stock prices, which bolsters confidence in the economic outlook and energy demand, on speculation European leaders will do more resolve the debt crisis after Italian Prime Minister Monti said that German Chancellor Merkel and French President Sarkozy “confirmed their support for Italy,” and (2) an increase in geopolitical risks after France called for a European embargo on crude supplies from Iran over objection to Iran’s nuclear program.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): CPRT-Copart (BEST earnings consensus $0.58), HI-Hillenbrand (0.36), NPD-China Nepstar Chain Drugstore (0.02), TAOM-Taomee Holdings Ltd. (0.08), CO-China Cord Blood Corp. (0.06).

Financial Calendar

1000 ET Oct new home sales expected -1.0% to 310,000, Sep +5.7% to 313,000.

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

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