Market Happenings for Wednesday, September 07, 2011

Pre-market, futures are up nicely. This mornings gainers include NVDA, YHOO, AKAM, ANR and ADBE. Losers include URBN, DRI, NEM, DOV and CTL.

U.S. Stock News

September S&Ps this morning are trading up +13.10 points. The US stock market yesterday extended last Friday’s losses on concern that global economic growth will slow further as the European debt crisis worsens, although prices did recover to settle well off of their worst levels: Dow Jones -0.90, S&P 500 -0.74%, Nasdaq Composite -0.26%. All of the indexes posted 1-week lows. Bearish factors included (1) concern that the European sovereign-debt crisis will worsen as credit default swaps to insure Greek government debt rose to records and the yield on Greece’s 2-year note surged to an all-time high of 53.20% when German Chancellor Merkel told members of her CDU party that Greece will not receive aid payments due this month unless it meets conditions of the rescue, (2) weakness in energy and raw-material producers on concern a global slowdown will cut demand for commodities, (3) a sell-off in U.S. bank stocks after FBR Capital Markets said mortgage repurchase losses for U.S. banks may total $121 billion, up from a previous estimate of $54 billion to $106 billion, and (4) the action by UBS to cut its year-end forecast for the S&P 500 to 1,350 from 1,425 along with the action by HSBC to cut its 2011 global GDP forecast to 2.6% from a Jun forecast of 3.0%, saying the global recovery is now a “distant dream.”

Bullish factors included (1) the unexpected increase in the Aug ISM non-manufacturing index (+0.6 to 53.3 versus expectations of -1.7 to 51.0, (2) possible fuel for a short-covering rally as CFTC data shows that hedge funds and other large speculators as of Aug 30 held a net short position in S&P 500 futures of 107,913 contracts, the most in nearly 4 years, and (3) the decline in the 10-year T-note yield to a record low of 1.907%.

Yahoo! (YHOO) rose 6.5% in European trading after the company fired CEO Carol Bartz and announced a strategic review to revive growth.

The Markets

December 10-year T-notes this morning are down -5.5 ticks. T-note prices yesterday rose to all-time highs on a surge in safe-haven demand due to increased European sovereign-debt concerns, but prices came off of their best levels and closed lower after the Aug ISM non-manufacturing index unexpectedly increased and helped equities up off of their lows: TYZ11 -2, FVZ11 -1, EDH12 unchanged. The 10-year T-note yield fell to a record low of 1.907%. Bullish factors included (1) carry-over safe-haven support on concern the European debt crisis may worsen as the yield on the 10-year German bund dropped to a record low of 1.824% when the yield on Greece’s 2-year note surged to a record 53.20% and credit default swaps to insure Greek government debt rose to records after German Chancellor Merkel told members of her CDU party that Greece will not receive aid payments due this month unless it meets conditions of the rescue and (2) speculation that Fed Chairman Bernanke may signal at a speech this Thursday that the Fed may begin “Operation Twist” in which the Fed shed’s short-term securities in its balance sheet and buys longer-dated Treasuries to keep long-term rates low. Bearish factors included (1) the unexpected increase in the Aug ISM non-manufacturing index (+0.6 to 53.3 versus expectations of -1.7 to 51.0 and (2) comments from Minneapolis Fed President Kocherlakota who said the U.S economy didn’t need additional stimulus in Aug and “it is unlikely that the data in Sep will warrant adding still more accommodation.”

The dollar index this morning is lower with the dollar/yen -0.47 yen and the euro/dollar +0.53 cents. The dollar index yesterday rallied to a 1-3/4 month high on increased safe-haven demand after the euro fell to a 1-3/4 month low against the dollar on concern the European sovereign-debt crisis will worsen: Dollar Index +0.840, USDJPY +0.910, EURUSD -0.01946. Bullish factors included (1) weakness in the euro as credit default swaps to insure Greek government debt rose to a record and the yield on Greek 2-year T-notes surged to a record high of 53.20% when German Chancellor Merkel told members of her CDU party that Greece will not receive aid payments due this month unless it meets conditions of the rescue, (2) the weaker-than-expected Jul German factory orders which is euro negative, (3) the slide in the yen to a 1-week low against the dollar after Japanese Finance Minister Azumi said he will tell G-7 leaders at this Friday’s meeting in France that “excessive yen rises” are bad for the global economy, which raises the risks of coordinated G-7 currency intervention to stem the yen’s strength, and (4) strong dollar demand from European banks as the 3-month dollar Libor rate rose for the 30th consecutive day to a 1-year high of 0.33561% as banks continue to forego lending and park their excess reserves in dollars after the dollar Libor-OIS rate, a gauge of banks’ reluctance to lend, rose to 25.26 bp, its widest in 13 months. Bearish factors included (1) the action by the SNB to impose a ceiling on the euro-franc exchange rate of 1.20 francs, which temporarily boosted the euro and (2) the decline in the 10-year T-note yield to a record low, which further undercuts the dollar’s interest rate differentials.

Oct crude oil prices this morning are up +66 cents a barrel and Oct gasoline is +0.58 of a cent per gallon. Crude oil and gasoline prices yesterday closed lower as the dollar strengthened and as concern intensified that the European debt crisis will spread and undercut the global economy and energy demand: CLV11 -$0.41, RBV11 -1.70. Oct crude slipped to a 1-week low. Bearish factors included (1) the rally in the dollar index to a 1-3/4 month high, which reduces investment demand in commodities, (2) a sell-off in most commodities on concern a worsening of the European debt crisis will slow global economic growth and demand, and (3) the weaker-than-expected Jul German factory orders, which signals a reduction in economic growth and fuel demand. A bullish factor was the unexpected increase in the Aug ISM non-manufacturing index, which indicates economic strength and is positive for fuel demand.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): VIP-VimpelCom Ltd. (BEST earnings consensus $0.32), NAV-Navistar International (1.26), CASY-Casey’s General Stores (1.06), MW-Men’s Wearhouse (1.02), AVAV-Aerovironment (0.01), GIII-G-III Apparel Group Ltd. (0.20), STEI-Stewart Enterprises (0.09), LAYN-Layne Christensen (0.46).

Financial Calendar

0700 ET Weekly MBA mortgage applications, previous -9.6% with purchase mortgage sub-index +0.9% and refinancing sub-index -12.2%.

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

0855 ET Redbook weekly retailer sales.

1115 ET Chicago Fed President Charles Evans speaks at the European Economics and Financial Centre: Distinguished Speakers Seminar in London.

1130 ET Weekly 4-week T-bill auction.

1400 ET Fed?s Beige Book.

1600 ET San Francisco Fed President John Williams speaks to the Seattle Rotary Club.

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