Market Happenings for Tuesday, August 30, 2011

Pre-market, futures are down on the order of -.75%. Gainers this morning include URBN, PHM, NEM, BA and DF. Losers include MCO, NYX, DO, AKAM and JDSU. Light crude is down -0.81% at 86.55 and Gold is up +1.92% at 1826.00.

U.S. Stock News

September S&Ps this morning are trading down -5.20 points. The US stock market yesterday rallied sharply after damage estimates from Hurricane Irene were reduced along with optimism the U.S. recovery will continue after Jul personal spending rose more than expected: Dow Jones +2.216, S&P 500 +2.83%, Nasdaq Composite +3.32%. The S&P 500, the Dow and the Nasdaq all posted 3-week highs. Bullish factors included (1) a rally in insurance stocks after Kinetic Analysis, a firm that predicts disaster effects, said Hurricane Irene caused about $2.6 billion of damage, down from estimates as high as $14 billion last week, (2) the larger-than-expected increase in Jul personal spending which posted its biggest gain in 5 months and bolsters optimism in the economic outlook (+0.8% versus expectations of +0.5%), and (3) strength in raw material and energy producers as a weaker dollar and confidence in continued global economic growth prompted a broad-based rally in most commodities.

Bearish factors included (1) the ongoing slump in the U.S. housing market after Jul U.S. pending home sales fell more than expected (-1.3% m/m versus expectations of -0.5% m/m), (2) heightened European debt concerns after EU Economic and Monetary Affairs Commissioner Rehn said he’s “seriously concerned” that financial turbulence could spill over into the broader economy and that the EU may cut its growth forecasts next month, and (3) the action by the IMF to cut its 2011 US GDP forecast to 1.6% from a 2.5% forecast made in June and to lower its 2012 US GDP forecast to 2.0% from 2.7%.

The Markets

September 10-year T-notes this morning are up +11 ticks. T-note prices yesterday settled lower after Jul U.S. personal spending rose more than expected and a strong rally in stocks reduced the safe-haven demand for Treasuries: TYU11 -18, FVU11 -7, EDZ11 +1.0. Bearish factors included (1) the larger-than-expected increase in Jul personal spending which posted its biggest gain in 5 months (+0.8% versus expectations of +0.5%), (2) the bigger-than-expected increase in the Jul PCE deflator which rose at its fastest pace in 2-3/4 years (+2.8% y/y versus expectations of +2.7% y/y), (3) the larger-than-expected increase in the Jul PCE core deflator which climbed to a 1-year high (+1.6% y/y versus expectations of +1.4% y/y), and (4) reduced safe-haven demand for Treasuries after the S&P 500 rose to a 3-week high. Bullish factors included (1) the larger-than-expected decline in Jul U.S. pending home sales (-1.3% m/m versus expectations of -0.5% m/m), (2) the action by the IMF to cut its 2011 US GDP forecast to 1.6% from a 2.5% forecast made in June and to lower its 2012 US GDP forecast to 2.0% from 2.7%, and (3) increased safe-haven demand for Treasuries after EU Economic and Monetary Affairs Commissioner Rehn said he’s “seriously concerned” that financial turbulence could spill over into the broader economy and that the EU may cut its growth forecasts next month.

The dollar index this morning is higher with the dollar/yen +0.05 yen and the euro/dollar -1.11 cents. The dollar index yesterday fell to a 1-1/2 week low on reduced safe-haven demand after global stock and commodity markets rallied on speculation the global economic recovery will continue: Dollar Index -0.093, USDJPY +0.390, EURUSD +0.00252. Bearish factors included (1) the jump in the S&P 500 to a 3-week high, which reduced the safe-haven demand for the dollar and (2) the action by the IMF to cut its 2011 US GDP forecast to 1.6% from a 2.5% forecast made in June and to lower its 2012 US GDP forecast to 2.0% from 2.7%. Bullish factors for the dollar included (1) weakness in the yen after Japanese Finance Minister Noda was chosen to succeed Prime Minister Kan, which should ensure a continuation of Japan’s policies against an appreciating yen and (2) euro negative comments from ECB President Trichet who said risks to the inflation outlook in the Euro-Zone are “under study,” which is less hawkish than his statement earlier this month that risks to the inflation outlook were “on the upside,” and may signal an end to ECB tightening measures and a shift in policy to a more dovish stance.

Oct crude oil prices this morning are down -22 cents a barrel and Oct gasoline is +0.95 of a cent per gallon. Crude oil and gasoline prices yesterday finished mixed as stronger-than-expected Jul U.S. personal spending and stock market strength boosted crude while the lack of damage done to East Coast refineries from Hurricane Irene undercut gasoline: CLV11 +$1.90, RBV11 -1.65. Oct crude posted a 1-week high and Oct gasoline jumped to a 3-week high but shed its gains and closed lower. Bullish factors included (1) the slide in the dollar index to a 1-1/2 week low, which boosts investment demand for commodities, (2) the larger-than-expected increase in Jul U.S. personal spending which posted its biggest gain in 5-months and eases concern over an economic slowdown, and (3) the rally in the S&P 500 to a 3-week high, which lifts confidence in the economic outlook and energy demand. Bearish factors included (1) the larger-than-expected decline in Jul U.S. pending home sales, which signals continued weakness in the housing market that may curb economic expansion and fuel demand, and (2) the resumption of normal operations to most East Coast refineries after Hurricane Irene spared most refiners from any major damage.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): DG-Dollar General (BEST earnings consensus $0.48), PVH-PVH Corp. (0.95), DSW-DSW Inc. (0.63), VRA-Vera Bradley (0.29), BKS-Barnes & Noble (-0.97).

Financial Calendar

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

0800 ET Chicago Fed President Charles Evans speaks to CNBC in a live interview.

0855 ET Redbook weekly retailer sales.

0900 ET Jun S&P/CaseShiller composite-20 home price index expected unchanged m/m and -4.5% y/y, May -0.1% m/m and -4.5% y/y.

0900 ET Q2 S&P/CaseShiller home price index expected -8.3% y/y, Q1 -5.1% y/y.

1000 ET Aug consumer confidence expected -7.5 to 52.0, Jul +1.9 to 59.5.

1130 ET Weekly 4-week T-bill auction.

1215 ET Minneapolis Fed President Narayana Kocherlakota speaks on ?Economic Outlook and a Reconsideration of Leverage Incentives? at he North Dakota National Association of State Treasurers.

1400 ET Minutes of the Aug 9 FOMC meeting.

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