Market Happenings for Thursday, December 15, 2011

Pre-market, futures are up following a report showing that initial jobless claims hit a 3-year-low. Gainers this morning include NVLS, TER, GNW, FDX and MRO while losers include LH, ETFC, TMO, DTV and SYK. Light crude is up +0.76% at 95.67 and gold is up +0.30% at 1,591.60.

U.S. Stock News

March S&Ps this morning are trading up +5.50 points. The US stock market yesterday slumped to 2-week lows on concern the European sovereign debt crisis may worsen: Dow Jones -1.10%, S&P 500 -1.13%, Nasdaq Composite -1.55%. Bearish factors included (1) carry-over weakness from a slide in European stocks on concern the region’s debt crisis may worsen after Italian borrowing costs rose to a 14-year high and Spanish banks borrowed the most from the ECB in 14 months, (2) global economic growth concerns after the Ifo institute cut its 2011 and 2012 German GDP forecasts and China’s Nov M2 money supply growth slowed to its slowest pace in 11 years, (3) weakness in energy producers after crude oil fell to a 2-1//2 week low when OPEC raised its output target for the first time in 3 years.

Bullish factors included (1) the weaker than expected Nov import price index (+0.7% m/m and +9.9% y/y versus expectations of +1.0% m/m and +10.1% y/y), (2) a rally in financial stocks on reduced European debt concerns after the WSJ reported that Standard & Poor?s has not informed France about an imminent downgrade to the country’s credit rating, and (3) the fall in the 10-year T-note yield to a 3-week low of 1.893%.

The Markets

March 10-year T-notes this morning are unchanged. T-note prices yesterday rallied to a 2-1/2 month high on increased safe-haven demand after stocks slumped on European debt concerns along with strong demand for the Treasury’s $13 billion auction of 30-year T-bonds: TYH2 +10.5, FVH2 -0.5, EDM2 -5.0. Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European debt crisis may worsen after Italian borrowing costs rose to a 14-year high and Spanish banks borrowed the most from the ECB in 14 months, (2) global economic growth concerns after the Ifo institute cut its 2011 and 2012 German GDP forecasts and China’s Nov M2 money supply growth slowed to its slowest pace in 11 years, (3) the weaker than expected Nov import price index (+0.7% m/m and +9.9% y/y versus expectations of +1.0% m/m and +10.1% y/y),(4) strong demand for the Treasury’s $13 billion auction of 30-year T-bonds that had a bid-to-cover ratio of 3.05, stronger than the 12-auction average of 2.66, and (5) increased safe-haven demand for Treasuries when the S&P 500 tumbled to a 2-week low.

The dollar index this morning is lower with the dollar/yen -0.21 yen and the euro/dollar +0.18 cents. The dollar index yesterday rallied to an 11-month high and finished stronger on increased safe-haven demand as European debt concerns sent the euro to an 11-month low against the dollar and sent stocks tumbling: Dollar Index +0.347, USDJPY +0.082, EURUSD -0.00537. Bullish factors for the dollar included (1) the increase in Italian borrowing costs after Italy sold 3 billion euros of 5-year bonds at a 14-year high of 6.47%, (2) funding concerns for Spanish banks after Spanish lenders borrowed an average 98 billion euros from the ECB in Nov, the most in 14 months and a sign that banks are struggling to access other sources of finance, (3) the action by the Ifo institute to lower its 2011 GDP forecast for Germany to 3.0% from a previous projection of 3.3% and to slash its 2012 GDP forecast for Germany to 0.4% from 2.3%, and (4) the increase in cost for European banks to borrow in dollars to a 2-week high after the 3-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, widened to 147 bp below the euro interbank offered rate. A bearish factor was the euro positive comments from ECB Council member and Bundesbank President Weidmann who said he is “not a fan” of the ECB’s bond buying program and that the idea that the ECB can solve the sovereign debt crisis by printing money must be laid to rest.

Jan crude oil prices this morning are up +35 cents a barrel and Jan gasoline is +2.97 cents per gallon. Crude oil and gasoline prices sold-off yesterday after OPEC raised its output target, the dollar rallied, and weekly DOE gasoline supplies rose to an 8-1/2 month high: CLF12 -$5.19, RBF12 -12.12. Jan crude fell to a 2-1/2 week low and Jan gasoline posted a 2-week low. Bearish factors included (1) the rally in the dollar index to an 11-month high, which discourages investment demand in commodities and (2) the action by OPEC to raise its output target for the first time in 3 years to 30 million barrels a day from 24.845 million barrels a day to accommodate increased output from Libya and Iraq, (3) the larger-than-expected increase in weekly DOE gasoline inventories which climbed to an 8-1/2 month high (+3.82 million bbl to 218.8 million bbl versus expectations of +1.0 million bbl), and (4) European debt concerns that drove the S&P 500 down to a 2-week low, which reduces confidence in the economic outlook and energy demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): ACN-Accenture PLC (BEST earnings consensus $0.94), FDX-FedEx (1.53), ADBE-Adobe Systems (0.60), DFS-Discover Financial Services (0.91), HEI-HEICO (0.41), PIR-Pier 1 Imports (0.20), MLHR-Herman Miller (0.41), RAD-Rite Aid (-0.11), SCHL-Scholastic (2.33), AIR-AAR Corp. (0.45), STEI-Stewart Enterprises (0.09).

Financial Calendar

0830 ET Weekly initial unemployment claims expected +9,000 to 390,000, previous -23,000 to 381,000. Weekly continuing claims expected +50,000 to 3.633 million, previous 174,000 to 3.583 million.

0830 ET Nov PPI expected +0.2% m/m and +5.9% y/y, Oct -0.3% m/m and +5.9% y/y. Nov PPI ex food & energy expected +0.2% m/m and +2.9% y/y, Oct unchanged m/m and +2.8% y/y.

0830 ET Nov Empire manufacturing index expected +2.4 to 3.0, Oct +9.1 to 0.6.

0830 ET Q3 current account balance expected -$108.0 billion, Q2 -$118.0 billion.

0900 ET Oct net long-term TIC flows expected +$62.5 billion, Sep +$68.6 billion.

0915 ET Nov industrial production expected +0.1%, Oct +0.7%. Nov capacity utilization expected unchanged at 77.8%, Oct +0.5 to 77.8%.

1000 ET Nov Philadelphia Fed manufacturing index expected +1.4 to 5.0, Oct -5.1 to 3.6.

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 Dec 19-21).

1300 ET Treasury auctions $12 billion 5-year TIPS.

1630 ET Weekly money supply report and Fed balance sheet.

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