Market Happenings for Thursday, October 27, 2011

Pre-market, futures are up big after European Union leaders agreed to expand Europe’s bailout fund and take major losses on Greek bonds — the latest step in an ongoing effort to curb the region’s debt crisis. Gainers this morning include AKAM, CTXS, BAC, GNW and PHM. Losers include AVP, BMC, CELG, SYMC and PX. Light crude is up while gold is down .

U.S. Stock News

December S&Ps this morning are trading up sharply by +25.60 points at a 2-1/2 month high. The US stock market yesterday finished higher on better-than-expected U.S. economic data and after EU leaders said they reached an agreement on plans to recapitalize banks: Dow Jones +1.39%, S&P 500 +1.05%, Nasdaq Composite +0.46%. Bullish factors included (1) the stronger-than-expected Sep durable goods orders (-0.8% and +1.7% ex transportation versus expectations of -1.0% and +0.4% ex transportation), (2) the stronger-than-expected Sep U.S. new home sales which rose to their best level in 5 months (+5.7% to 313,000 versus expectations of +1.7% to 300,000), (3) the report from Agence France-Presse that said China may be willing to help fund Europe’s bailout efforts, and (4) a rally in bank stocks after EU leaders meeting in Brussels said they had reached an agreement on a plan to recapitalize the region’s banks.

Bearish factors included (1) concern that European leaders may will be unable to agree on a solution to the debt crisis after a EU official said talks with banks on bondholder losses as part of a second Greek bailout were deadlocked and that EU leaders may put off expanding the European Financial Stability Facility (EFSF) until the end of November, and (2) concern that global economic growth is slowing after Oct U.K. CBI trends total orders fell to its lowest level in a year and after incoming ECB President Draghi said he sees “significant downside risks to economic growth in the Euro-Zone as industrial output in the region expands at a “very moderate pace.”

Bank of America (BAC) and Citigroup (C) rose more than 3% in pre-market trading on carry-over support from a rally in European banks after EU leaders took steps to stem the debt crisis.

Freeport McMoRan Copper & Gold (FCX) rose 3.6% in European trading after copper prices climbed to 1-month highs in overnight trade.

The Markets

December 10-year T-notes this morning are down -15.5 ticks as soaring global equity markets saps the safe-haven demand for Treasuries. T-note prices yesterday retreated on stronger-than-expected U.S. economic data along with reduced safe-haven demand as stocks rallied after EU leaders said they reached agreement on a plan to recapitalize the region’s banks: TYZ11 -17.5, FVZ11 -9.5, EDH12 -2.0. Bearish factors included (1) the stronger-than-expected Sep durable goods orders (-0.8% and +1.7% ex transportation versus expectations of -1.0% and +0.4% ex transportation), (2) the stronger-than-expected Sep U.S. new home sales which rose to their best level in 5 months (+5.7% to 313,000 versus expectations of +1.7% to 300,000), (3) the announcement from EU leaders that they had agreed on a plan to recapitalize European banks as part of an effort to contain the sovereign debt crisis, and (4) supply pressures ahead of the Treasury’s $29 billion auction of 7-year T-notes on Wed. Bullish factors included (1) increased safe-haven demand for Treasuries on concern that European leaders will be unable to agree on a solution to the debt crisis after a EU official said talks with banks on bondholder losses as part of a second Greek bailout were deadlocked, and (2) strong demand for the Treasury’s auction of $35 billion in 5-year T-notes that had a bid-to-cover ratio of 2.94, stronger than the 12-auction average of 2.79.

The dollar index this morning is weaker and at a 1-1/2 month low with the dollar/yen -0.33 yen and the euro/dollar +1.24 cents. The dollar index yesterday rebounded from a 1-1/2 month low and settled higher as the euro retreated after an EU official said EU talks with banks and on bondholders losses were deadlocked: Dollar Index +0.124, USDJPY +0.070, EURUSD -0.00012. The yen posted to a new post WWII high of 75.72 yen per dollar. Bullish factors included (1) concern that European leaders will be unable to agree on a solution to the debt crisis after a EU official said talks with banks on bondholder losses as part of a second Greek bailout were deadlocked, (2) weakness in the pound after Oct U.K. Confederation of British Industry (CBI) business optimism tumbled to a 2-1/2 year low, (3) comments from Japanese Finance Minister Azumi that increase the chance of Japanese intervention against the surging yen, when he ordered staffers “to be prepared to take action against the yen’s gains,” and (4) stronger-than-expected U.S. economic data on Sep durable goods orders and Sep new home sales, which suggests economic strength and is dollar supportive. Bearish factors included (1) the action by German lawmakers to approve a plan to increase the capacity of the European bailout fund, which is euro supportive and (2) weakness in the Canadian dollar against the U.S. dollar after the BOC cut its growth outlook through mid-2012, which reduces chances of the BOC raising interest rates.

Dec crude oil prices this morning are up +$2.04 a barrel and Dec gasoline is +3.82 cents per gallon. Crude oil and gasoline prices yesterday retreated as the dollar strengthened, crude oil inventories surged and U.S. gasoline demand faltered: CLZ11 -$2.97, RBZ11 -4.94. Bearish factors included (1) the reversal in the dollar after the dollar index rebounded from a 1-1/2 month low and settled higher, which decreased investment demand in commodities, (2) the larger-than-expected rise in weekly DOE crude inventories (+4.74 million bbl versus expectations of +1.48 million bbl), (3) a slump in U.S. gasoline demand after deliveries of gasoline to wholesalers last week fell -1.1% to 8.5 million barrels a day, the lowest in 7-3/4 years, and (4) concern the European sovereign debt crisis will remain unresolved, which could slow global economic growth and energy demand after a EU official said EU talks with banks and bondholders of Greek debt were suspended over how much of a loss bondholders are willing take on their Greek debt holdings. Bullish factors included (1) the stronger-than-expected Sep U.S. durable goods orders and Sep new home sales, which indicates economic strength that it positive for energy demand and (2) the larger-than-expected decline in weekly distillate inventories which fell to their lowest level in 3-1/2 months (-4.28 million bbl to 145.5 million bbl versus expectations of -2.0 million bbl).

Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap): XOM-Exxon Mobil (BEST earnings consensus $2.13), PG-Procter & Gamble (1.03), OXY-Occidental Petroleum (1.94), MO-Altria Group (0.56), BMY-Bristol-Myers Squibb (0.58), BIDU-Baidu Inc. (0.85), CL-Colgate-Palmolive (1.30), MET-MetLife (1.09), GILD-Gilead Sciences (1.01), DOW-Dow Chemical (0.64), LVS-Las Vegas Sands (0.52), CELG-Celgene (0.95), PCP-Precision Castparts (2.04), TWC-Time Warner Cable (1.14), BEN-Franklin Resources (2.06), JCI-Johnson Controls (0.76).

Financial Calendar

0830 ET Weekly initial unemployment claims expected -2,000 to 401,000, last -6,000 to 403,000. Weekly continuing claims expected -19,000 to 3.700 million, last +25,000 to 3.719 million.

0830 ET Q3 U.S. GDP expected +2.5% annualized, Q2 +1.3% annualized. Q2 personal consumption expected +1.9%, Q2 +0.7%. Q3 GDP price index expected +2.4%, Q2 +2.5%. Q3 core PCE expected +2.2%, Q2 +2.3% q/q.

1000 ET Sep pending home sales expected +0.3% m/m and +11.8% y/y, Aug -1.2% m/m and +13.1% y/y.

1300 ET Treasury auctions $29 billion in 7-year T-notes.

1630 ET Weekly money supply report and Fed balance sheet.

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