Thursday, January 14, 2010

Morning Note...

Futures are slightly lower(-15bps) as December Advance Retail Sales came in light, at -0.3% vs. +0.5% expected.  (See the quote section below for a trader’s quick take on retail sales.)  However, November Sales were revised upward to +1.8% from +1.3%.  Initial Jobless Claims for the week ending January 9th were also slightly worse than expected, at 444k vs. the 437k expectation.  Continuing Claims were better, at 4.596M vs. 4.750M expected.  Later this morning (10am), Business Inventories data will be announced.  In other economic news, Import Prices for December came in flat versus the prior month, as expected, and +8.6% year-over-year, as expected.  Recall that semiconductor giant INTC reports after the bell today, and JPM reports at 7am tomorrow amidst higher-and-higher earnings expectations.  Tomorrow also brings CPI data, the Empire Manufacturing reading, Industrial Production, Capacity Utilization, and UMich Consumer Confidence.  In corporate news, Target announced it will resume a $10B share repurchase program.  In news out of Washington, DC, yesterday’s Congressional hearings served to chastise Wall Street CEO’s and generated some photo ops of our elected politicians looking “tough on the fat cats,” but did little else.  More importantly, the Obama Administration clarified their plan to tax TARP-takers, indicating that the proposal is designed to raise $90B over the next ten years, and is aimed at firms with over $50B in assets, including bank holding companies, thrifts, insured depositories, insurance companies, and broker-dealers.  Obama is set to speak at 11:50am today on this topic.  Overseas, ECB President Jean-Claude Trichet talked tough on Greece (no bailout?) and stressed that the low interest rate environment would continue.  Germany’s Merkel said that Greece’s mounting budget deficit risks hurting the euro, predicting the currency faces “a very difficult phase.”  Additionally, Euro-Zone industrial production was better-than-expected this morning, and RTP reported higher full-year iron ore output than previously forecasted. 

We’ve grown relatively accustomed to the continually strong Treasury auctions week after week after week… UBS’ Art Cashin mentions this in his note this morning.  And maybe this is a dumb question, but considering the interesting “US-government-as-buyer-of-all-things” conspiracy theory floated by TrimTabs a couple of weeks ago, doesn’t the following fit that thesis?

Chatter About The Latest Mystery In The Treasury Market – Stock traders spend a lot of time watching interest rates. So, they have homed in this huge Treasury auctions this week. The auctions have gone much better than expected. That may be the result of aggressive bidding by one mysterious bidder. Here’s how the FT put it:
Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that "one big bidder" has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall. The surprising demand for Treasury notes has come in the form of "direct bids", the term used for US institutional investors who bypass the so-called primary dealers that underwrite government bond sales. Yesterday, direct bids accounted for 17 per cent of the sales of $21bn in 10-year Treasury notes, far higher than the recent average of 7.4 per cent. It was the highest percentage of direct bids in a 10-year Treasury auction since May 2005. On Tuesday, direct bids accounted for a record 23.4 per cent of the bidding for $40bn in three-year notes, up from an average direct bid of 6 per cent. Market participants say the unusually high level of direct bidding suggests that a large investor is looking to accumulate Treasuries without alerting the primary dealers on Wall Street to its intentions. "It appears to us that someone is trying to hide their apparent interest in owning these auctions from the rest of the market," said David Ader, strategist at CRT Capital.
Rick Klingman, managing director at BNP Paribas, said: "It is unusual to see such a spike in the direct bid and I would imagine it is one big bidder. There is no way we will find out who it is, not now, or ever." The surge in direct bidding is particularly notable because it comes after predictions that the record levels of Treasury debt issuance would exhaust investor demand, driving yields higher. Among the most high-profile warnings came from Pimco, manager of the largest bond fund, which raised concerns about the escalating supply of US Treasury debt.
Traders are fascinated by the idea of some big player willing to double down at current low yields and in the face of conventional wisdom that rates will head higher. There will be a lot of attention paid to the level of direct bids that shows up in today’s thirty year auction. We may need to resurrect Sherlock Holmes.

Software giant SAP is +4% on earnings.  BLAIR positive WAG.  BofAMLCO ups CCOI.  BCAP ups LEN.  CITI ups PPG.  KEYB ups SHE.  MKM ups BWLD  MSCO ups N, TLEO, STZ.  WEFA ups CMG.  BCAP cuts TOL.  CITI cuts ACL.  MSCO cuts FIRE.  VIX seeing some call buying.  LAZA cuts NFLX.  RNWK CEO steps down.  CSFB ups TSN. 

Asia mixed overnight.  Europe flat to slightly higher.  USD +5bps.  Oil -5bps.  Gold +20bps.

Brightpoint News:  

Brightpoint PreMarket (yest close/premkt/% change/volume):

S&P 500 PreMarket (last/% change prior close/volume): 
TYSON FOODS-A            13.88    +4.28% 9182
H&R BLOCK INC              23.05    +3.5 %  24912
FPL GROUP INC              50.26    -2.41%  12967
CUMMINS INC                51.51    -2.41%  200
ORACLE CORP                25.30    +2.22% 456659
LENNAR CORP-CL A        16.61    +2.22% 22278
CONSTELLATION-A         16.20    +1.82% 1200
MYLAN INC                    17.50    -1.74%  100
PPG INDS INC                 62.50    +1.68% 5867
TARGET CORP               50.10    +1.54% 78154
SUPERVALU INC             14.07    +1.52% 400

Today’s Trivia:  Name five countries – other than the obvious San Marino and Vatican City – with a population of less than 100,000. 

Yesterday's Answer:   Non-English-speaking countries with left side driving include Bangladesh, Cyprus, Guyana, India, Indonesia, Japan, Kenya, Macau, Malta, Mauritius, Mozambique, Nepal, Pakistan, Somalia, Sri Lanka, Surinam, Thailand, Uganda, Zambia, etc. 

Best Quotes:   “We are going to have to look into how its possible almost every publicly traded retailer is crushing Q4 eps estimates but yet Advanced Retail Sales can miss that badly.  Something is up there ... We will figure it out and circle back.”  --BCAP retail desk

“Good Morning - Using tax policy as a punishment is a bad idea.   Believing that the costs will not be passed on to the consumers, is like believing Mark McGwire was not on steroids all these years.   Obama is expected to announce the terms of the new bank fee to be levied against as many as 50 financial firms with assets greater than $50bn.  Fees will be imposed as a function of bank liabilities and are expected to raise $90bn over the 10 years beginning June 30.  Remember this is a tax cut for 95% of all Americans.  I do not know the numbers, but it is pretty safe to assume that JPM, WFC, C, and BAC probably come pretty close to touching that % of Americans in some way.  Who are the economic advisors?”  --MLCO desk

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