Market Happenings for Tuesday, October 18, 2011

Pre-market, futurres are mixed as disappointing company earnings and slower Chinese economic growth weighed on investors. Gainers this morning include PH, EMC, BAC, DVA and ETN. Losers include HOG, WHR, IBM, MOLX and GAS. Light crude is down -0.34% at 86.09 and gold is down -1.97% at 1,643.60.

U.S. Stock News

December S&Ps this morning are trading down -3.40 points. The US stock market yesterday slumped after Germany dampened optimism of a quick fix to the European debt crisis and bank stocks tumbled after Wells Fargo reported disappointing Q2 revenue results: Dow Jones -2.13%, S&P 500 -1.94%, Nasdaq Composite -1.98%. Bearish factors included (1) carry-over weakness from a slide in European stocks after comments from German Chancellor Merkel’s chief spokesman that threw cold water on expectations for a quick resolution to the European sovereign debt crisis when he said that European leaders won’t fulfill any “dreams” of a quick end to the European debt crisis at their Oct 23 summit, (2) the smaller-than-expected increase in the Oct Empire manufacturing index (+0.3 to -8.5 versus expectations of +4.8 to -4.0), (3) comments from ECB Council member Stark who said the consequences of Greece leaving the Euro-Zone would be “incalculable,” and (4) the slump in bank stocks after Wells Fargo tumbled after it reported Q2 revenue of $19.6 billion, below estimates of $20.2 billion.

Bullish factors included (1) increased M&A activity as El Paso surged after Kinder Morgan agreed to buy the company for $21.1 billion and (2) the Sep U.S. industrial production which rose +0.2% as-expected and the Sep capacity utilization which rose +0.1 and matched a 3-year high at 77.4%.

International Business Machines (IBM) slipped 4.1% in European trading after the company reported late yesterday Q3 sales of $26.2 billion, below analysts’ estimates of $26.3 billion.

The Markets

December 10-year T-notes this morning are up +10.5 ticks. T-note prices yesterday shed early losses and settled higher on weak U.S. manufacturing data along with increased safe-haven demand after stocks fell on concern Europe may take longer to contain its sovereign debt crisis: TYZ11 -10, FVZ11 +0.7, EDH12 +1.5. Bullish factors included (1) the smaller-than-expected increase in the Oct Empire manufacturing index (+0.3 to -8.5 versus expectations of +4.8 to -4.0) and (2) increased safe-haven demand for Treasuries as equity markets tumbled when Germany threw cold water on expectations for a quick resolution to the European sovereign debt crisis after Chancellor Merkel?s spokesman said that European leaders won’t fulfill any “dreams” of a quick end to the European debt crisis at their Oct 23 summit. Bearish factors included (1) the Sep U.S. industrial production which rose as-expected +0.2% and the Sep capacity utilization which rose +0.1 and matched a 3-year high at 77.4% and (2) reduced foreign demand for Treasuries after Fed data showed that its holdings of U.S. government debt on behalf of foreign central banks and institutions fell -$76.5 billion in the last 7 weeks, the most in 4 years.

The dollar index this morning is stronger with the dollar/yen -0.13 yen and the euro/dollar -0.55 cents. The dollar index yesterday rebounded from a 1-month low and settled higher on increased safe-safe haven demand after the euro and equity markets tumbled when Germany expressed doubts about a quick resolution to the European debt crisis: Dollar Index +0.523, USDJPY -0.379, EURUSD -0.01433. Bullish factors included (1) euro weakness after German Chancellor Merkel’s chief spokesman said that European leaders won’t fulfill any “dreams” of a quick end to the European debt crisis at their Oct 23 summit, (2) the statement from the German Institute for Economic Research that said enlarging the EFSF may lead to France “losing its top AAA rating,” (3) comments from ECB Council member Stark who said the consequences of Greece leaving the Euro-Zone would be “incalculable,” and (4) increased safe-haven demand for the dollar as equity markets slid and after Canadian Finance Minister Flaherty said “time is running out” for European leaders to solve the debt crisis that has begun to spread as Europe risks a banking crisis if it doesn’t dedicate more funding or an “adequate restructuring” of Greek debt. Bearish factors included (1) the weaker than expected Oct Empire manufacturing index, which indicates economic weakness and is dollar negative and (2) the action by G-20 leaders meeting in Paris over the weekend to endorse parts of plan to bolster banks and avoid a Greek default which temporarily boosted stocks and reduced safe-haven demand for the dollar in early trade.

Nov crude oil prices this morning are down -22 cents a barrel and Nov gasoline is -1.96 cents per gallon. Crude oil and gasoline prices yesterday fell back from an early rally and closed lower after Germany dampened optimism for a quick fix to the European debt crisis and after manufacturing data in the New York region contracted more than expected: CLX11 -$0.42, RBX11 -8.18. Nov crude posted a 1-month high and Nov gasoline climbed to a 1-1/4 month high before both contracts shed their gains and closed lower. Bearish factors included (1) a reversal in the dollar after the dollar index rebounded from a 1-month low and settled higher, which reduced investment demand for commodities, (2) comments from German Chancellor Merkel’s chief spokesman who said expectations that the European debt crisis will be resolved at the Oct 23 summit were “dreams,” and (3) the larger-than-expected contraction in the Oct Empire manufacturing index, which signals reduced energy demand. Bullish factors included (1) early optimism that G-20 leaders would come up with a plan avoid a Greek default and bolster European banks and (2) speculation that Chinese energy demand will remain strong on optimism Q3 China GDP, to be released late Monday, will show China’s economy expanding above +9.0% y/y for the ninth straight quarter.

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): AAPL-Apple (BEST earnings consensus $7.35), JNJ-Johnson & Johnson (1.21), KO-Coca-Cola (1.02), INTC-Intel (0.62), BAC-Bank of America (0.24), UNH-UnitedHealth Group (1.12), GS-Goldman Sachs Group (-0.11), EMC-EMC Corp. (0.36), CSX-CSX Corp. (0.44), YHOO-Yahoo! (0.17), STT-State Street (0.89), ISRG-Intuitive Surgical (2.76), CHKP-Check Point Software Technolgy (0.69), OMC-Omnicom Group (0.70), JNPR-Juniper Networks (0.28), GWW-WW Grainger (2.34), HOG-Harley-Davidson (0.79).

Financial Calendar

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

0815 ET Boston Fed President Eric Rosengren delivers opening remarks at the Boston Federal Reserve Conference titled “Long-Term Effects of the Great Recession.”.

0830 ET Sep PPI expected +0.2% m/m and +6.4% y/y, Aug unchanged m/m and +6.5% y/y. Sep PPI ex food & energy expected +0.1% m/m and +2.4% y/y, Aug +0.1% m/m and +2.5% y/y.

0855 ET Redbook weekly retailer sales.

0900 ET Aug net long-term TIC flows expected -$20.0 billion, Jul +$9.5 billion.

1000 ET Oct NAHB housing market index expected +1 to 15, Sep -1 to 14.

1130 ET Weekly 4-week and monthly 1-year T-bill auctions.

1315 ET Fed Chairman Ben Bernanke speaks at the Boston Federal Reserve Conference.

1830 ET Atlanta Fed President Dennis Lockhart speaks on the economic outlook in Chattanooga, TN.

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