Monday, February 22, 2010

Morning Note...

Futures +40bps this morning as markets digest a slightly weaker USD, a looming Greek debt offering some time this week, China’s return following its New Year’s Holiday, a large oil services sector deal in SLB for SII for $11 billion (merger Monday is back?), in-line earnings from Campbell’s (CPB), and an upside earnings surprise from Lowe’s.  LOW is trading 2% higher and also made bullish comments on consumer behavior.  The SLB/SII deal is stock-for-stock, as SII shareholders receive 0.7 shares of SLB per SII share and the merger values each SII share at a +22% premium to Friday’s close.  Overseas, Japan surged nearly 3% and Hong Kong traded up 2.5%, but Shanghai was down 50bps after taking a week off.  Recall that the most recent Chinese tightening (in the way of increased reserve requirements) was announced after the China market close on February 12th thus making last night it’s first chance to react to that news.  Markets are also buoyed by Fed Chairman Bernanke’s expected testimony this week, as he is expected to reassure Congress that our low interest rate monetary policy will remain in place for some time.  He’ll be on the Hill starting at 10am Wednesday to deliver his snow-postponed semi-annual testimony.  This week we’ll get plenty of economic data, including home sales & prices (CaseShiller tomorrow, new home sales Wednesday), durable goods (Thursday), initial jobless claims (Thursday), GDP (Friday), and personal consumption (Friday).  In Europe, this week’s debt offerings will be closely watched – Belgium today, Portugal Wednesday, Italy Thursday and Greece somewhere within…   In other news, WSJ’s Heard on the Street column in positive on bank stocks and Barron’s was positive on the DRD/WAG deal. 

Volumes remain light even with the return of Chinese markets after their holiday, and concerns abound that this “lack of conviction” despite higher global markets creates greater risk of a sizeable pullback ahead.  According to BofAMLCO’s Chief U.S. Market Analyst MaryAnn Bartels:

The message to take away from our comments this morning are that Stocks rallied from extremely oversold readings and cleared resistance to open a test of S&P 500 1130-1150. Marginal new highs are possible but this rally lacks conviction.  Volume remains extremely light.  This correction is completed but the intermediate indicators point to deeper correction later in the year.

Further, if you are feeling particularly bearish, see below for recent comments out of Asia from both Marc Faber (Gloom, Boom & Doom Report) and respected Asia-Pacific analyst Christopher Wood (CLSA):

U.S. Stocks to Fall, Faber Says; Wood Doubts Recovery 2010-02-22 11:44:03.997 GMT By Masaki Kondo and Mike Firn
Feb. 22 (Bloomberg) -- U.S. stocks will probably fall this year, according to investor Marc Faber, and the country’s economy won’t face a “normal” recovery as job cuts dent consumer spending, said CLSA Asia-Pacific Markets’ Christopher Wood. Faber advised investors to buy U.S. stocks on March 9, 2009, when the Standard & Poor’s 500 Index reached its lowest level since 1996. The gauge rallied 64 percent since then to 1,109.17 and the Dow Jones Industrial Average gained 59 percent as more than $700 billion in government spending boosted the economy. “I would look at the market to close probably a bit lower than it started the year in 2010,” Faber said today in an interview before a speech at the CLSA Japan Forum in Tokyo. “Equally, I don’t think we have a huge downside risk. If the Dow and the S&P dropped, say 15-20 percent, in other words the S&P towards 900, I think there would be more stimulus and more quantitative easing.” The U.S. unemployment rate dropped to 9.7 percent in January, the Labor Department said on Feb. 5, owing in part to the federal government hiring temporary workers to conduct the 2010 census. Wood, an equity strategist at Hong Kong-based CLSA, said an increase in lower-paid temporary workers will be “very damaging” to U.S. consumer confidence. “I don’t believe in a normal U.S. recovery,” Wood told reporters today at a briefing in Tokyo during the CLSA Japan Forum. He recommended investing in gold and in stocks related to emerging Asian markets. “The endgame will be a systemic, public-sector debt crisis in the Western world, leading to debasement of Western paper currencies, leading to the end of the U.S. dollar-peg standard,” Wood said. “Long-term investors only need to own Asian equities, Asian assets, gold and gold-miner stocks.” Faber, who publishes the Gloom, Boom and Doom report, correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He was less prescient in March 2007, when he said the S&P 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 climbed 10 percent between then and its record of 1,565.15 seven months later. “I would imagine it’s conceivable that the market makes another marginal new high into April, and that the second half of the year is not very rewarding,” Faber said today.


Asia mixed (Oz, Japan, HK up; China down).  Europe mixed to slightly higher.  USD -5bps.  Oil +5bps.  Gold -30bps. 

S&P 500 PreMarket (last/% change prior close/volume): 
INTERPUBLIC GRP           7.62      +7.17%             600
SMITH INTL INC             40.40    +7.16%             9185618
SCHLUMBERGER LTD      60.35    -5.56%              3949375
DYNEGY INC-A                1.70      +3.03%             29450
SPRINT NEXTEL CO        3.58      +2.58%             116485
WALGREEN CO               35.73    +2.5 %              15620
WEATHERFORD INTL      17.00    +2.41%             28634
AES CORP                     12.47    +2.38%             9200
BOSTON SCIENTIFC       7.87      +2.34%             6500
LOWE'S COS INC            23.60    +2.03%             1065040
MATTEL INC                  22.22    +2.02%             1000

Today’s Trivia:  After the U.S. and the U.K., what nation was third to establish passenger rail service in 1835?

Yesterday's Answer:  Thomas Jefferson was the first President inaugurated in Washington, DC.   

Best Quotes:  “A Greek Recue Package? – Over the weekend, Der Spiegel carried a story that the German government was cobbling together a package to address the looming Greek crisis. The rumors are that the package may be in the form of loan guarantees. As we projected when the crisis arose, it could take the form of Germany and others backing the 22 billion in Euro bonds that Greece will need to refund in April and May. Using backing in the package would mean no initial outlay from the rescuers. It would also allow Greece to do the refunding at a “normal rate” instead of a panic premium. That seems to be the current thinking. Some currency traders speculate that a rescue package may not rescue the Euro so readily. They think that, with so many ailing members, the ECB will be forced to keep rates low longer than other central banks.”  --Art Cashin, UBS

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