Monthly Archives: January 2012

The MorningSnapshot- 01/23

Last Week’s Wrap-Up: U.S. Equities Best Start Since 97’ – Treasuries Worst Since 03’
U.S. stocks rose for the third week in a row, representing the longest streak of gains since October, on better-than-estimated economic data and earnings releases, as well as the muted reaction to S&P’s downgrades. Asian and European equities have responded to much of the same data, and have now gained five weeks running. Bank of America (BAC) led gains on the Dow Jones Industrial Average after releasing earnings in which they posted an unexpected profit. For the week, the S&P 500 advanced +2%, and for the year it is up +4.6%, representing the best start for a year since 1997. The DJIA gained +2.4% on the week, reaching its highest level since July 21. Out of the 51 companies that have reported this year, 33 of those have posted earnings that beat analyst projections. Jobless claims hit their lowest level since 2008, and homebuilder confidence topped forecasts. “The domestic economy is strong and that’s helped the stock market,” Mark Bronzo, who helps manage $23.4 billion at Security Global Investors. “The market’s done pretty well in the face of some good earnings news and it seems to be overcoming some of the fears around Europe.” U.S. Treasuries are off to their worst start since 2003, as debt auctions in Europe continue to go smoothly, and the domestic economic picture continues to look up. In late Friday trading, the 10yr Treasury was at 2.03%, up 5bps on the day, and the spread between the 10yr and 2yr had widened 4bps to 178bps. Widening yield curve spreads are consistent with positive investor sentiment.

Friday, Standard & Poor’s Rating Services affirmed the AAA/A- 1+ rating of the long- and short-term credit ratings of the European Union. The outlook according to S&P is negative because of “ongoing risks” for the Eurozone, but the long-term rating was removed from CreditWatch negative where it was placed on Dec. 7. Frank Gill, an analyst with S&P, said in the statement, “Nevertheless, in our opinion, the supranational entity known as the EU benefits from multiple layers of debt-service protection sufficient to offset the current deterioration we see in member states’ creditworthiness.”

At a G-20 meeting in Mexico City on Friday, officials agreed on the need to do more to support indebted nations, however, they did not mention any specifics about how much they would loan to the IMF. Earlier last week, the IMF proposed to raise its lending capacity by as much as $500-$600B to prevent the Euro debt crisis from worsening. On Jan. 25, policy makers and business leaders begin meetings at the World Economic Forum. This comes after the World Bank cut its global growth forecast from its June estimate of 3.6% to 2.5% for this year; the biggest cut in three years.

Newt Gingrich’s victory in South Carolina means that a different candidate has now won each of the first three Republican primaries, raising the stakes at the next contest to be held in Florida. Gingrich won 40% of the vote and was followed by Romney with 28%, Santorum with 17%, and Ron Paul with 13%. In an interview with CNN, Gingrich said, “My job in Florida is to convince people that I am the one candidate who can clearly defeat Obama in a series of debates.”

Greece and its private creditors still appear to be on track to reach an agreement, one that is essential to cutting the country’s borrowings and thus allowing it to receive its second round of financial aid. According to Hans Humes, a member of the creditor committee responsible for negotiating a deal with the indebted nation, “There’s been significant progress…(and there is) broad agreement about the coupons and structural elements.” In October, European officials and private bondholders agreed to a 50% cut in the face value of $259B of Greek debt through voluntarily exchanging outstanding bonds for new securities. This next accord with bondholders will prove imperative if Greece is to make its upcoming €14.5B bond payment on March 20.

Rescuers now believe there may have been unregistered passengers aboard the Costa Concordia, which is hampering efforts to determine how many people remain missing after the ship capsized off the coast of Italy. A Hungarian family is insisting their daughter was on the ship, although she is not listed on the official passenger registry. According to the family, she is still unaccounted for. The official death toll has climbed to 13, but rescuers are unclear how many people remain missing.

Morning Commentary
Treasury yields are holding near their highest levels of the year before EU finance ministers meet in Brussels to discuss new budget rules and a Greek debt swap. Bondholders have made their “maximum” offer, leaving it up to the EU and IMF to determine if the deal is acceptable. The euro is strengthening this morning and European stocks are broadly higher, with the Euro Stoxx 50 up +0.7%, led by Italy’s FTSE MIB up +1.65%.

Striking truckers and cab drivers across Italy are disrupting traffic in protest to Prime Minister Mario Monti’s policies as he presents a plan to European finance ministers today. Trucks were scattered across the highway so as to disrupt traffic flows; striking cab drivers have left people stranded at airports and train stations. “The resistance to these reforms at a time when the economy is contracting is likely to be fierce,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “Opposition to structural reform in Italy is legendary. Mr. Monti knows these measures will be fiercely resisted, but is under enormous pressure to present an agenda for growth.”

The MorningSnapshot- 01/20

Yesterday’s Wrap-Up: Jobless Claims Keep On Falling
Jobless claims fell by 50,000 to 352,00 for the week ended Jan. 14, the lowest level since April 2008. The median forecast from 41 economists in a Bloomberg News survey called for 384,000 claims. This may help ease concerns that post-holiday firings were on the rise. According to Brian Jones, a senior U.S. economist with Societe Generale whose forecast of 363,000 was the lowest among those surveyed, “You’ve got a gradual improvement in the labor market… (but because of)choppiness with the beginning of the calendar year, you have to look at the four-week moving average,” which does look “encouraging.” Refer to pg.1 on the attachment for a chart of Jobless Claims & its 4-Week MA plotted under the S&P 500.

The Federal Reserve Bank of Philadelphia’s general economic index grew to a three-month high of 7.3, but missed the 10.3 reading the economists surveyed by Bloomberg had expected; readings above zero are indications of expansion. Consumer price data came in unchanged, versus the +0.1% increase economists expected.

Kodak filed for bankruptcy protection; they listed assets of $5.1B and debt of $6.8B in Chapter 11 documents filed yesterday. On Jan. 5 Moody’s cut ratings on some $1 billion of Kodak’s debt with a negative outlook and warned of “a heightened probability of a bankruptcy over the near-term” as their liquidity continued to dry up.

Morning Commentary
U.S. economic data this morning showed sales of previously owned homes rose for a third month, increasing 5% to a 4.61 annual rate. However this was slightly less than the 4.65 million expected by a survey of economists conducted by Bloomberg News. “Affordability being where it’s at right now and the recent improvement in the labor are combining to boost housing at the end of the year,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who forecast 4.62 million sales. “The existing-home sales data fit nicely to what we’ve seen in a number of other housing indicators.”

GE reported sales below estimates, as did Google yesterday, and both are weighing heavily on the S&P 500, which at 11:22 EST was trading -0.31% on the day. European equities are slightly lower on the day, with the Euro Stoxx 50 down -0.26% for the day. In Asia, equities soared higher, and the Nikkei 225 closed up +1.47%.

The MorningSnapshot- 01/19

Yesterday’s Wrap-Up: The IMF Bolsters Its “War-Chest”
After identifying the potential need for $1 trillion in financing in the coming years, the IMF is proposing to raise its lending capacity by as much as $600 billion to tame fears of contagion in the euro zone. Since their fund currently has about $385 billion, they may have as much as $985 billion in lending power after raising the new funds. If the IMF is estimating a $1 trillion dollar shortfall, then they are still $15 billion short of that figure. “The biggest challenge is to respond to the crisis in an adequate manner and many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the euro area and protect economies around the world,” IMF Managing Director Christine Lagarde said yesterday in an e-mailed statement following a discussion among her institution’s board of directors. The Euro traded up about +1% on this headline.

U.S. economic data out on Wednesday showed homebuilder confidence jumped, wholesale prices unexpectedly dropped, and industrial production rose +0.4%. Output climbed +0.9% as U.S. manufacturing remained at the center of the expansion. Gains in consumer and business spending may prompt factories to continue boosting their payrolls and hours. In addition, increased demand from emerging markets may be helping to shield American manufacturing from a slowdown in exports to Europe.

The Obama administration denied a permit for TransCanada Corp.’s Keystone XL oil pipeline, but will let the company file a new route that avoids an environmentally sensitive area in Nebraska. Although environmentalists praised the decision, the oil & gas industry, along with some Republican lawmakers, had been pushing Obama to approve the project as a way to create jobs.

Seven people were charged with securities fraud and conspiracy as part of a 5-year investigation of insider trading at hedge funds conducted by the FBI and the Justice Department. Prosecutors allege the scheme reaped $61.8 million in illegal profits.

The Merrill Lynch MOVE Index (refer to pg.4 in the attachment), an indication of treasury volatility, has declined -35% or more than 40bps from its early November highs, as investors have been reluctant to sell U.S. debt amid concerns over the euro debt crisis. It is now trading at 75.6 bps, the lowest level since June 7, and not far from the May low of 71.5, which the lowest since the financial crisis began. “We’ve had better economic numbers of late and yet Treasuries continue to grind lower in yields given the ongoing concerns in Europe,” said Larry Milstein, managing director in New York of government trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “The market is stuck near these levels as the bid in Treasuries has been rock solid irrespective of the data we have seen. The fundamentals are being pushed aside.”

U.S. 10yr Treasury yields (pg. 4) advanced 4bps to 1.897% as investors shift to more risky assets, and the U.S. Dollar Index continued its decline. France and German 10yrs are trading at 3.121% and 1.78% respectively, representing very little change since S&P’s string of downgrades.

Since the Oct. 3 low of 1100, the S&P 500 has risen +19% to a new 5-month high of 1308, the first close above 1300 since July. For the day, the S&P 500 closed higher at +1.11%, led by semiconductors and homebuilders; utilities were the biggest laggard. In Europe, equities were mixed, with the Euro Stoxx 50 posting a -0.25% decline led down by Spain’s IBEX 35 Index which tumbled -1.34%. Asian equities closed higher, with the Nikkei 225 up +0.99%.

Morning Commentary
The S&P 500 is trading up +0.3% this morning after jobless claims out today fell to the lowest level in almost 4 years. Claims plunged by 50,000 to 352,000 in the week ended Jan. 14, which represents the lowest level since April 2008. “You’ve got a gradual improvement in the labor market,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose forecast of 363,000 was the lowest. Because of “choppiness with the beginning of the calendar year, you have to look at the four-week moving average” which he said was “encouraging.” Other economic data out this morning showed consumer prices were little changed, and housing starts fell more than forecast.

Bank of America posted a 4Q profit of $0.15 per diluted share, compared with a loss of -$0.16 a year earlier; the stock was trading roughly +6% higher on the news. Morgan Stanly is up +8% after it posted a net loss of -$0.15 per share, a much smaller loss than analysts estimated, due to increases in equity-trading revenue.

In Europe, equities are surging higher, led by Italy’s FTSE MIB up +2.10%; all major indices in Europe are strongly higher on the day as the debt auctions for sovereign debt continues to go well. Asian markets closed higher, with the Nikkei 225 up +1.04%.