Market Happenings for Thursday, October 06, 2011

Pre-market, futures are mixed again with investors viewing the latest interest rate decisions from the Bank of England and European Central Bank. Gainers this morning include STZ, ETFC, TGT, AMA and,JWN. Losers include YHOO, JCP, CMG, RF and FAST.

U.S. Stock News

December S&Ps this morning are trading up +10.40 points. The US stock market yesterday rallied on speculation European leaders will act to contain the region’s debt crisis along with stronger-than-expected U.S. economic data: Dow Jones +1.21%, S&P 500 +1.79%, Nasdaq Composite +2.32%. Bullish factors included (1) gains in bank stocks on optimism that European leaders will act to stem the region’s debt crisis after the IMF said EU officials are working on plans to boost bank capital, (2) the larger-than-expected increase in the Sep ADP employment change (+91,000 versus expectations of +70,000), (3) the smaller-than-expected decline in the Sep ISM non-manufacturing index (-0.3 to 53.0 versus expectations of -0.5 to 52.8), (4) strength in energy producers as crude oil rallied sharply after the DOE reported an unexpected drop in weekly crude inventories, and (5) a rally in coal stocks after the WSJ reported that the EPA may ease rules and allow power plants to emit more pollutants than previously permitted.

Bearish factors included (1) concern the European sovereign-debt crisis will worsen after Moody’s cut Italy’s credit rating three levels to A2 from Aa2, with a negative outlook, and said other European countries rated below the top Aaa level may face downgrades and (2) concern the U.S. labor market will continue to struggle after the Sep Challenger job cuts surged +212% y/y, the biggest increase in 2-1/2 years.

The Markets

December 10-year T-notes this morning are up +1.5 ticks. T-note prices yesterday retreated the entire day on reduced safe-haven demand as stocks rallied along with stronger-than-expected U.S. economic data: TYZ11 -27, FVZ11 -10, EDH12 +2.5. Bearish factors included (1) reduced safe-haven demand for Treasuries after equity markets rallied on speculation European leaders will act to contain the region’s debt crisis, (2) the larger-than-expected increase in the Sep ADP employment change (+91,000 versus expectations of +70,000), and (3) the smaller-than-expected decline in the Sep ISM non-manufacturing index (-0.3 to 53.0 versus expectations of -0.5 to 52.8). Bullish factors included (1) concern the labor market will continue to struggle after the Sep Challenger job cuts surged +212% y/y, the biggest increase in 2-1/2 years and (2) increased safe-haven demand for Treasuries after Moody’s cut Italy’s credit rating three levels to A2 from Aa2, with a negative outlook, and said other European countries rated below the top Aaa level may face downgrades.

The dollar index this morning is stronger with the dollar/yen -0.15 yen and the euro/dollar -0.45 cents. The dollar index yesterday settled lower on reduced safe-haven demand as stocks rallied on optimism European leaders will act to contain the region’s debt crisis: Dollar Index -0.678, USDJPY -0.016, EURUSD -0.00015. Bearish factors included (1) reduced safe-haven demand for the dollar after stocks rallied on speculation European leaders will act to contain the region’s debt crisis and (2) the IMF’s Regional Economic Outlook report that said the Fed’s decision to keep interest rates low at least through mid-2013 is “appropriate” and that “consideration may need to be given to further unconventional measures should the recovery weaken further.” Bullish factors included (1) increased safe-haven demand for the dollar after Moody’s cut Italy’s credit rating three levels to A2 from Aa2, with a negative outlook, and said other European countries rated below the top Aaa level may face downgrades, (2) stronger-than-expected U.S. economic data on Sep ADP employment and the Sep ISM non-manufacturing index, which indicates economic strength and is dollar supportive, (3) the unexpected downward revision to the Sep Euro-Zone PMI composite to a 2-year low, which is euro negative, (4) a lack of lending among European banks that may lead to a liquidity squeeze and increase the safe-haven demand for the dollar after the ECB reported that banks parked 213 billion euros in overnight deposits at the ECB on Oct 4, the highest in 15 months, and (5) strong European demand for dollars as the 3-month dollar Libor rate rose for the 19th consecutive day to a 13-3/4 month high of 0.384%.

Nov crude oil prices this morning are up +$1.21 a barrel and Nov gasoline is +2.70 cents per gallon. Crude oil and gasoline prices yesterday settled sharply higher as equity markets improved and after weekly crude and gasoline inventories unexpectedly declined: CLX11 +$4.01, RBX11 +8.08. Bullish factors included (1) a rally in global stock markets, which improves confidence in the global economic outlook and energy demand, (2) the unexpected decline in weekly DOE crude inventories (-4.68 million bbl to an 8-month low of 336.3 million bbl versus expectations of +1.8 million bbl), (3) the unexpected fall in weekly gasoline inventories (-1.14 million bbl versus expectations of +1.25 million bbl), and (4) the larger-than-expected increase in the Sep ADP employment change, which indicates a possible improvement in the labor market that may also improve fuel demand. Bearish factors included (1) the stronger dollar, which discourages investment in commodities, (2) comments from UAE’s OPEC Governor that oil imports by India and China are falling and there are “dark clouds on the horizon which show a major downside risk” to global oil demand, and (3) slack gasoline demand after the DOE reported U.S. gasoline demand on a 4-week average for the week ended Sep 30 fell -1.7% to 8.959 million barrels a day.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): STZ-Constellation Brands (BEST earnings consensus $0.66), NSR-NeuStar (0.43), RBN-Robbins & Myers (0.75), ISCA-International Speedway (0.31), HELE-Helen of Troy Ltd. (0.87).

Financial Calendar

0830 ET Weekly initial unemployment claims expected +19,000 to 410,000, previous -37,000 to 391,000. Weekly continuing claims expected -4,000 to 3.725 million, previous -20,000 to 3.729 million.

1030 ET Sep ICSC chain store sales, Aug +4.6% y/y.

1100 ET Treasury announces amounts of 3-year T-notes (previous $32 billion), 10-year T-notes (previous $21 billion) and 30-year T-bonds (previous $13 billion) to be auctioned Oct 11-13.

1630 ET Weekly money supply report and Fed balance sheet.

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