Thursday, March 4, 2010

Morning Note...

Busy morning… Shout out to Marquis Jets’ Kenny D on CNBC this morning…Futures +20bps on in-line US jobless claims, EU approval of Greek austerity measures and a Greek bond sale, better-than-expected US same store sales, a pullback in Asia on China’s prediction of slower lending ahead, and no interest rate change from either the ECB (steady at 1%) or the BofE (steady at 0.5% and keeps QE on hold for 2nd straight month).  Regarding Greece, here’s the latest from Bloomberg: 

Greece began selling 5 billion euros ($6.8 billion) of 10-year bonds after Prime Minister George Papandreou’s promises to reduce Europe’s largest budget deficit by cutting wages and spending prompted protesters to occupy the finance ministry. The government is offering a premium to sell the new notes, pricing them at a spread of 300 basis points more than the mid- swap rate, or a yield of 6.39 percent. That compares with the 6.1 percent interest on Greece’s existing benchmark issue due July 2019, according to data compiled by Bloomberg. The bond sale marks a test of investor response to Papandreou’s austerity measures. German Chancellor Angela Merkel snubbed his bid for assistance after he announced his third package of deficit cuts this year, saying a meeting in Berlin tomorrow won’t be “about aid commitments.”

As noted here yesterday, the Greek populace is not “going quietly” considering they are now faced with higher taxes and a reduction – or complete elimination – of normally expected Easter bonuses.  Apparently the demonstrations at the Greek finance ministry are heating up.  In economic news, Initial Jobless Claims were in-line at 469k vs. the 470k expectation.  Continuing Claims were 4.5M vs. the 4.6M expectation.  Prior period revisions were negligible.  Further, Q4 Nonfarm Productivity was +6.9% vs. the +6.3% expectation and the +6.2% reading for Q3.  Unit Labor Costs were -5.9% vs. the -4.5% expectation and the -4.4% prior reading.  Pending Home Sales and Factory Orders due at 10am. 

In corporate news, BAC’s TARP Warrant sale is said to have raised ~$1.5 billion – the A series warrants auction at $8.35 and the B series at $2.55.  On average, Same Store Sales look better-than-expected.  BTIG posts a nice summary of the space – please see quote section below.

In political news, it appears the Volcker Rule (a Glass-Steagall redux of sorts, aimed at eliminating conflicts of interest in the banking sector) is gaining renewed momentum, as a draft version is released by the Obama Administration.  Granted, 60 votes aren’t there to pass this bill, but the Administration is probably using it as a bargaining chip toward establishing some other form of financial reform.  In light of that, UBS’ Art Cashin references a solid FT op-ed from today in his morning note:

Our UBS colleague, George Magnus, has an op-ed column in today’s FT. He opines on the on-going crisis and how it may play out in places like Greece and the U.K. We can’t fit the whole piece but here’s some of the opening:

The fundamental, and at times, passionate debate about sovereign debt is a predictable part of the sequencing of the financial crisis rumbling through the west. The crisis has exposed three big fault lines in our fiscal systems. First, it broke the banking system, the fixing of which has extracted a heavy cost. Second, it shocked western economies, depriving governments of significant tax revenues. Third, it exposed the fragility and unsustainability of public finance arrangements, by reminding us of the existing and enormous future budgetary costs associated with rapid ageing. It is no accident that the sovereign debt crisis has come to roost in four OECD economies facing the largest expansion of age-related spending: Greece, Portugal, Ireland and Spain.

These three fault lines are structural problems that require structural solutions. The banking system will not mend without structural change in the financial services industry. A significant portion of the tax revenues will not come back, unless new sources of economic growth are found. And the fiscal consequences of ageing cannot be sustained without reforming labour markets and pension systems.

In the eurozone area, you might also argue that the sovereign debt problem in the "Med" countries cannot be resolved without addressing the structural integrity of the euro. This agenda goes much further than the provision of temporary financial assistance to Greece, and embraces both the lack of fiscal transfer mechanisms, and the willingness of Germany, as Europe's largest creditor, to keep writing cheques to sovereign invalids in the euro family. A mooted financial aid programme for Greece has sidelined perceived default risks for now, but the bigger agenda will not go away.

Financial markets do not articulate clearly to the public why they "pick on" Greece, or the UK, or others. However, they are astute, in highlighting clearly a discomfort when policy inertia takes precedence over policy imagination and commitment. Accordingly, it was no surprise that sterling and the gilt market recently wobbled, especially in the wake of opinion polls pointing to the possibility of a hung parliament. There is no public debt crisis, per se, at this time but market angst is likely to linger until either the polls shift again to indicate a greater chance of one party emerging with a clear majority in the House of Commons, or indeed until the outcome of the election itself. Markets cannot know for sure, but they could be forgiven for assuming that an indecisive result could lead to a fractious and protracted period of uncertainty, just when clear and assertive leadership is required.

George then goes on to ponder the role of the looming British election in the relationship of the pound and other currencies. It could also influence or even inhibit some restructuring. Here’s a bit more:

The hung parliament angst has displaced, for now, another contentious economic policy issue that is steaming in the UK. The argument has become heavily politicised, but the economics is about when and how to proceed with fiscal retrenchment, specifically in a debt and deleveraging crisis. It is due to start in the fiscal year starting in April, but the question is how to embrace public frugality without succumbing to private economic anorexia? Financial markets, investors and the rating agencies could hardly hold their fire if they expected a new cycle of recession and higher public borrowing. But the chances are that markets would welcome a clear and detailed programme that indicated how fiscal austerity would be phased, and two ways in which the economy's structural settings would be rebooted: one to substitute employment-generative capital spending programmes for some current public spending, and the other, to boost employment rates and working lives for older workers, and skill formation for younger ones.

As with everything that George writes, it is clear, thoughtful and thought provoking. If you get a chance, pick up an FT and read it.

ALTR raises guidance to in-line.  AVY cut at BofAMLCO.  CMTL misses on revs.  BofAMLCO ups DIS.  MOKE ups FDX.  CIEN misses by 6c.  RCL upped at GSCO.  KO, BA, SPR upgrade at UBSS.  PETM target raised street-wide on earnings beat.  ZUMZ , DL upgrade at PIPR.  WEN beat earnings expectations but comp store sales were lower.  TRH upgrade at KBWI.  BBT upgrade at BERN.  FITB, MTB cut at BERN.  SBX cut at KBWI.  CVG cut at KAUF.  CBEY cut at SPHN.  MDVN cut at JPHQ.  CRA cut at JMPS.  DFG started MP at WEFA.  MSG initiated N at UBSS. DIVX beats by 5c.  OKE to replace BDK in S&P500.  PCLN proposes $500M offering.  FSYS higher on earnings.  STP beats by 16c.  URBN beats by 5c.  TTWO beats by 20c.

Asia lower overnight.  Europe mixed to slightly higher this morning.  USD +15bps.  Oil -15bps.  Gold -42bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
ABERCROMBIE & FI        39.50    +9.0 %  245000
CIENA CORP                  13.26    -8.87%  811521
FAMILY DOLLAR ST        33.60    +3.04% 2512
WENDY'S/ARBY'S-A        4.80      -2.83%  58435
AVERY DENNISON           30.70    -2.32%  600
FIFTH THIRD BANC         12.25    -2.31%  67977
MACY'S INC                   20.49    +2.3 %  21450
GAP INC/THE                 22.25    +2.25% 50811

Today’s Trivia:  As pervasive as IM is in this business, I thought it interesting to look up some “chat room acronyms.”  Take a stab at guessing what these mean – NBD, LMAO, AFAIK, IMHO, PMBI. 

Yesterday's Answer:   This winter has been the coldest on record in Miami since 1927.   


Better Than Expected (16)

Costco February SSS up 9.0% - better than 8.3%

Target February Comparable-store Sales Rise 2.4% - better than 1.4%
(Net Sales $4,637 million, an increase of 6 % from $4,373 million, y/y)

Macy's Feb. Same-Store Sales Up 3.7% - better than 1.9%
(Feb Total Sales $1.641 B, Up 4%, boosted by online sales up 38%)

BJ's Wholesale Feb Same-Club Sales Up 7.5% - better than 6.0%
(Reported Yesterday - SEES 1Q COMP SALES UP 3%-5%)

Dillard's Feb Same-Store Sales Rose 2.0% - better than (5.5%)
(Total Sales $499.1M vs. $497.7M, y/y)

Gap Inc. Feb Comp Sales Up 3.0% - better than 1.1%
(CFO – “We're pleased that we increased our sales in February, delivering a positive comp with merchandise margins significantly above last year.”)

Limited Brands February Comparable Store Sales up 10.0% - better than 9.3%
(Net Sales $600.1M vs $547M, y/y)

Amer Eagle Outfitters Feb Comp Sales Up 6.0% - better than 1.2%
(Reiterates 4Q EPS Guidance, SEES 4Q EPS EX ITEMS 32C-33C, EST. 33C)

Abercrombie & Fitch February SSS up 5.0% - better than (7.4%)
(Net sales $198.1 million, up 16% from $171.4 million, y/y)

Aeropostale February Same Store Sales Rise 7.0% - better than 4.2%
(Co. noted that its gross margins for the month increased over last year, and that its inventories remain well controlled and on plan.)

Zumiez reports February comparable SSS up 11.2% - better than 1.3%
(Reported Yesterday - Raised to 'Overweight' at Piper Jaffray)

Hot Topic reports February SSS down 7.0% - better than (14.9%)
(Reported Yesterday – Net Sales $54.2M, down 5.3% y/y)

The Wet Seal reports February comparable SSS up 4.7% - better than (4.7%)
(Total Sales $42.7M, Up 7.4%)

Buckle Inc. Feb Same-Store Net Sales Up 5.1% - better than (2.5%)
(Feb Net Sales $69.4M Vs $63.3M, up 9.7% y/y)

Fred's Reports 2.0% Increase In February Comparable Store Sales – better than (0.3%)
(Feb Total Sales $150.7M, Up 3% y/y)

TJX Cos Feb Consol Comparable-Store Sales Up 10.0% - better than 8.3%

Worse Than Expected (3)

Stage Stores February SSS down 3.9% - worse than (3.0%)
(Total Sales down 2.1% to $99M from $101M)

Bon-Ton Stores Feb Same-Store Sales Fell 0.5% - worse than 1.5%
(President - “We are encouraged by our February sales, which exceeded expectations, despite significant disruption from winter storms. We estimate the storms to have impacted our performance by several percentage points.”)

Stein Mart Feb. Comparable Store Sales Decline 9.3% - worse than (5.0%)
(Total Sales $74.5M vs $84.1M, down 11.4% y/y)

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