Market Happenings for Wednesday, November 30, 2011

Pre-market, futures are up big on the Central Bank action and as investors also focus on China’s move to increase bank lending and signs of progress in the European debt crisis. Gainers this morning include ANR, FCX, MS, C and X, while losers include TAP, SLE and CMA. Light crude is up +1.48% at 101.27 and gold is up +1.67% at 1,742.00.

U.S. Stock News

December S&Ps this morning are trading up +8.80 points after China cut banks’ reserve requirements. The US stock market yesterday settled mixed as reduced European debt concerns and rising U.S. consumer confidence lifted prices while the Nasdaq lagged as technology stocks were pressured after Corning plunged when it cut its Q4 sales forecast: Dow Jones +0.28%, S&P 500 +0.22%, Nasdaq Composite -0.47%. The S&P 500, the Dow and the Nasdaq all posted 1-week highs, but the Nasdaq gave up its advance and closed lower. Bullish factors included (1) carry-over strength from a rally in European stocks after strong demand for a 3-year bond auction by Italy reduced European debt concerns, (2) the larger-than expected increase in Nov U.S. consumer confidence to its highest level in 4 months (+15.1 to 56.0 versus expectations of +4.2 to 44.0), (3) the larger-than-expected increase in the Sep FHFA house price purchase only index which posted its biggest monthly gain in 6 years (+0.9% versus expectations of +0.1%), and (4) comments from Fed Vice Chairman Yellen who said the Fed has leeway to spur the U.S. recovery and reduce unemployment by purchasing more assets and clarifying its plan to sustain record-low interest rates.

Bearish factors included (1) the action by Fitch Ratings to lower its outlook for the long-term rating of the U.S. to negative from stable, which increases the chances of a credit downgrade, (2) the larger-than-expected decrease in the Sep S&P 500/CaseShiller composite-20 home price index (-0.6% m/m and -3.6% y/y versus expectations of -0.1% m/m and -3.0% y/y), and (3) weakness in technology stocks after Corning plunged when it cut its Q4 sales forecast.

The Markets

December 10-year T-notes this morning are up +2 ticks. T-note prices yesterday settled lower on reduced safe-haven demand as the stock market rallied along with stronger-than-expected Nov U.S. consumer confidence: TYZ11 -9, FVZ11 -3.2, EDH12 +3.5. Bearish factors included (1) decreased safe-haven demand for Treasuries after strong demand for a 3-year bond auction by Italy reduced European debt concerns and fueled a rally in stocks, (2) the larger-than expected increase in Nov U.S. consumer confidence to its highest level in 4 months (+15.1 to 56.0 versus expectations of +4.2 to 44.0), and (3) the larger-than-expected increase in the Sep FHFA house price purchase only index which posted its biggest monthly gain in 6 years (+0.9% versus expectations of +0.1%). Bullish factors included (1) the larger-than-expected decrease in the Sep S&P 500/CaseShiller composite-20 home price index (-0.6% m/m and -3.6% y/y versus expectations of -0.1% m/m and -3.0% y/y) and (2) comments from Fed Vice Chairman Yellen who said she sees the scope for more Fed easing to spur the U.S. recovery and reduce unemployment.

The dollar index this morning is little changed with the dollar/yen +0.05 yen and the euro/dollar -0.18 cents. The dollar index yesterday finished lower on reduced safe-haven demand as stocks rallied and after comments from Fed Vice Chairman Yellen who said she sees the scope for more easing to spur the recovery: Dollar Index -0.256, USDJPY -0.057, EURUSD -0.00050. Bearish factors for the dollar included, (1) reduced safe-haven demand for the dollar as the S&P 500 rallied to a 1-week high, (2) comments from Fed Vice Chairman Yellen who said she sees the scope for more Fed easing to spur the U.S. recovery and reduce unemployment, which would further lower the dollar’s interest rate differentials, (3) strong demand for Italy’s debt auction of 7.5 billion euros of 3-year notes, which is euro supportive, (4) the action by Fitch Ratings to lower its outlook for the long-term rating of the U.S. to negative from stable due to “declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path will be forthcoming,” making the probability of a downgrade greater than 50% over the next 2 years, and (5) short-covering in the euro after CFTC data showed hedge funds and speculators were net short the euro by 85,068 on Nov 22, the most in 16-months. Bullish factors included (1) the larger-than-expected drop in Nov Euro-Zone economic confidence to a 2-year low, which is euro negative, (2) the larger-than-expected increase in the Nov U.S, consumer confidence to a 4-month high, which is dollar supportive, and (3) the failure by the ECB for the first time in 7 months to fully offset the extra liquidity created by its bond purchases after banks bid on only 194.2 billion euros of 7-day term deposits, below the 203.5 billion euros the ECB was trying to drain from the banking system as market uncertainty from the debt crisis prompts banks to hold more cash than necessary.

Jan crude oil prices this morning are up +28 cents a barrel and Jan gasoline is +1.27 cents per gallon. Crude oil and gasoline prices yesterday moved higher as the dollar weakened and after Nov U.S consumer confidence rose more than expected: CLF12 +$1.58, RBF12 +2.21. Bullish factors included (1) the weaker dollar, which encourages investment demand in commodities, (2) the larger-than-expected increase in Nov U.S. consumer confidence to its highest level in 4 months, which may lead to an increase in consumer spending and fuel demand, and (3) the rally in the S&P 500 to a 1-week high, which boosts confidence in the economic outlook and energy demand. Bearish factors included (1) the larger-than-expected drop in Nov Euro-Zone economic confidence to a 2-year low, which may signal a slowdown in European economic growth and energy demand and (2) the larger-than-expected drop in home prices in the Sep S&P/CaseShiller composite-20 home price index, which shows continued weakness in the U.S. housing market that may keep economic growth and fuel demand depressed. Expectations for Wednesday’s weekly inventory report from the DOE are for crude oil supplies to increase +50,000 bbl, gasoline stockpiles to rise +1.45 million bbl, distillate inventories to fall -1.25 million bbl and the refinery utilization rate to rise +0.4 to 85.9%.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): SNPS-Synopsys (BEST earnings consensus $0.45), AEO-American Eagle Oufitters (0.27), GES-Guess? (0.73), EXPR-Express (0.35), UNFI-United Natural Foods (0.40), TFM-Fresh Market (0.19), FNSR-Finisar (0.23), SMTC-Semtech (0.45), ARO-Aeropostale (0.28), INXN-InterXion Holding NV (0.12), RUE-Rue21 (0.33).

Financial Calendar

0700 ET Weekly MBA mortgage applications, previous -1.2% with purchase mortgage sub-index +8.2% and refinancing sub-index -4.0%.

0730 ET Nov Challenger job cuts, Oct +12.6% y/y.

0815 ET Nov ADP employment change expected +130,000, Oct +110,000.

0830 ET Revised Q3 non-farm productivity expected +2.5%, previous +3.1%. Revised Q3 unit labor costs expected 2.1%, previous -2.4%.

0945 ET Nov Chicago purchasing mangers index expected +0.1 to 58.5, Oct -2.0 to 58.4.

1000 ET Oct pending home sales expected +2.0% m/m, Sep -4.6% m/m and +7.9% y/y.

1400 ET Fed’s Beige Book.

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