Market Happenings for Monday, December 19, 2011

Pre-market, futures are up as investors wade through news overseas of Kim Jong Il’s death and await developments out of Europe. Gainers this morning include BAX, FTR, CSX, CVC and VMC while losers include MAS, ETN, XLNX, RTN and ALTR. Light crude is up +0.69% at 94.18 and gold is up +0.65% at1,608.30.

U.S. Stock News

March S&Ps this morning are trading up +8.30 points. The US stock market last Friday erased an early rally and settled mixed on concern the European sovereign debt crisis will worsen and drag down the global economy: Dow Jones -0.02%, S&P 500 +0.32%, Nasdaq Composite +0.567%. Bearish factors included (1) concern the European debt crisis will worsen after Fitch Ratings placed the debt ratings of France, Belgium, Spain, Italy, and Cyprus on rating watch negative, saying a “comprehensive solution” to the Euro-Zone crisis is “technically and politically beyond reach,” (2) comments from Jean-Claude Juncker, the head of the Euro-Zone finance ministers, who said the Euro-Zone is “on the brink of recession,” (3) comments from ECB Council member Nowotny who said the refinancing needs of European governments and banks next year will cause “stress” as early as Feb as European governments have to refinance 1.3 trillion euros of debt next year and banks will have to refinance an additional 1 trillion euros, and (4) the action by Insee, the French statistics office, to predict that the French economy will contract -0.2% in Q4 and shrink -0.1% in Q1 of next year, which is euro negative.

Bullish factors included (1) reduced European debt concerns after Italian Prime Minister Monti’s government won a confidence vote on a 30 billion-euro package of austerity and growth measures, and (2) early strength in stocks after Italian and Spanish government bond yields declined, (3) the action by JPMorgan Chase to raise its Q4 GDP forecast for the U.S. to 3.5% from 3.0%, citing “surprisingly resilient net exports” and strong data on inventory building, and (4) the decline in the 10-year T-note yield to a 2-1/2 month low of 1.834%.

The Markets

March 10-year T-notes this morning are down -3.5 ticks. T-note prices last Friday posted an all-time high on increased safe-haven demand on concern the still unresolved European sovereign debt crisis will drag down the global economy: TYH2 +14.5, FVH2 +6.2, EDM2 unchanged. The 10-year T-note yield fell to a 2-1/2 month low of 1.834%. Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European debt crisis will push the European economy into recession and drag the global economy down as well after Jean-Claude Juncker, the head of the Euro-Zone finance ministers, said the Euro-Zone is “on the brink of recession,” and the French statistics office said the French economy will contract -0.2% in Q4 and shrink -0.1% in Q1 of next year, (2) concern the European debt crisis will worsen after Fitch Ratings placed the debt ratings of France, Belgium, Spain, Italy, and Cyprus on rating watch negative, saying a “comprehensive solution” to the Euro-Zone crisis is “technically and politically beyond reach,” and (3) the action by the Fed to purchase $2.5 billion of Treasuries as part of its Operation Twist program to replace $400 billion of shorter maturities in its holdings of Treasuries with longer-term debt. Bearish factors included (1) reduced European debt concerns after Italian Prime Minister Monti’s government won a confidence vote on a 30 billion-euro package of austerity and growth measures, (2) the larger-than-expected increase in the core Nov CPI which posted its biggest annual increase in 3 years (+0.2% m/m and +2.2% y/y versus expectations of +0.1% m/m and +2.1% y/y), (3) comments from Dallas Fed President Fisher who said he would “argue against” a proposal for QE3, and (4) supply pressures ahead of the Treasury’s $35 billion auction of 2-year T-notes on Monday.

The dollar index this morning is stronger with the dollar/yen +0.17 yen and the euro/dollar -0.31 cents. The dollar index last Friday finished little changed after the warning by Fitch Ratings of possible further downgrades to European debt offset a decline in Italian and Spanish bond yields that had boosted the euro: Dollar Index -0.065, USDJPY -0.508, EURUSD +0.00296. Bearish factors for the dollar included (1) a decline in Italian and Spanish government bond yields, which boosted the euro, and (2) Italian Prime Minister Monti’s government winning a confidence vote on a 30 billion-euro package of austerity and growth measures, which eases European sovereign debt concerns. Bullish factors included (1) concern the European debt crisis will worsen after Fitch Ratings placed the debt ratings of France, Belgium, Spain, Italy, and Cyprus on rating watch negative, (2) comments from Jean-Claude Juncker, the head of the Euro-Zone finance ministers, said the Euro-Zone is “on the brink of recession,” (3) comments from ECB Council member Nowotny who said the refinancing needs of European governments and banks next year will cause “stress” as early as Feb as European governments have to refinance 1.3 trillion euros of debt next year and banks will have to refinance an additional 1 trillion euros, and (4) the action by Insee, the French statistics office, to predict that the French economy will contract -0.2% in Q4 and shrink -0.1% in Q1 of next year, which is euro negative.

Jan crude oil prices this morning are up +57 cents a barrel and Jan gasoline is +3.14 cents per gallon. Crude oil and gasoline prices last Friday settled lower on concern the European debt crisis will slow the global economy and fuel demand: CLF12 -$0.34, RBF12 -0.07. Jan crude posted a 5-week low and Jan gasoline fell to a 2-1/2 week low. Bearish factors included (1) comments from Jean-Claude Juncker, the head of the Euro-Zone finance ministers, who said the Euro-Zone is “on the brink of recession,” (2) the prediction from the French statistics office, or Insee, that the French economy will contract -0.2% in Q4 and shrink -0.1% in Q1 of next year, which signals weakened fuel demand, and (3) concern the European debt crisis will worsen after Fitch Ratings placed the debt ratings of France, Belgium, Spain, Italy, and Cyprus on rating watch negative, saying a “comprehensive solution” to the Euro-Zone crisis is “technically and politically beyond reach.”

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): RHT-Red Hat (BEST earnings consensus $0.26), MGIC-Magic Software Enterprises Ltd. (0.11).

Financial Calendar

1000 ET Dec NAHB housing market index expected unchanged at 20, Nov +3 to 20.

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

1230 ET Richmond Fed President Jeffrey Lacker speaks on a panel at the Charlotte Chamber’s 2011 Economic Outlook Conference.

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

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