Tuesday, March 9, 2010

Morning Note...

Futures slightly lower (-30bps) this morning on overseas concerns as the “flight to quality” USD trades higher and European markets & the euro currency trade lower.  Ratings agency Fitch kept a negative outlook on Portugal’s AA ratings after that country announced new austerity measures.  Further, Fitch noted that contagion risks to Portugal and Spain from Greece were not great, but present nonetheless.  Additionally, Fitch gave negative commentary on the U.K., calling their current plan to cut the deficit in half in four years is too slow.  However, they did reconfirm that the U.K.’s credit profile is still within “AAA” tolerance levels.  Finally, the U.K.’s trade balance deficit unexpectedly widened in January to $12 billion, which marked the widest shortfall since August 2008.  On this side of the Atlantic, Texas Instruments (TXN) raised guidance while HPQ revised guidance lower.  In other corporate news, food giant Kroger (KR) beat by 5c and tax company H&R Block (HRB) beat by 1c.  Further, commercial real estate company GGP received a $4B new equity proposal from Fairholme and Pershing Square.  Note that yesterday (3/8/10) was the lightest volume day of the year to date and that today marks the one-year anniversary of the S&P 666 low.  We’ll get the results of Treasury’s 3-year note auction at 1pm and CSCO is reported to release a “game-changing” announcement at 11am. 

Regarding Greece, and the “PR” tour undertaken by Greek PM Papandreou, it seems the “spin” is aimed squarely at “speculators” and regulation of the Credit Default Swap market.  This morning’s top Bloomberg story is titled “Merkel Urges Regulation as Greece Takes Plea to U.S.”  But doesn’t this sound eerily similar to fraudulent companies complaining about “evil short-sellers” or some other such fantasy?  ResearchEdge picks up on this theme in their morning note: 

President Obama, with all due respect, please heed our advice from New Haven, Connecticut this morning and send this Greek snake oil salesman home packing. American capitalism is having enough confidence problems right now - we cannot let a country like Greece, who across centuries (not just years or months) has earned the Reinhart & Rogoff title of "Serial Defaulter", find a voice in some populist anti-Wall Street ring tone.

Market's don't lie; politicians do. Greece's stock market is trading down a hefty -1.7% this morning, taking their YTD loss on the Greek Athex Index back to -6.1%. While we've seen a sharp stick to the eye short covering rally in everything dysfunctional European balance sheet (Greece up +16% from February 8th to March 8th), it doesn't change the fact that Greece's concept of fiscal principles is, well, "unprincipled."

For what it’s worth, here’s an interesting blurb from a Bloomberg story that caught my eye yesterday titled “S&P Rally Slowed by Fastest Cash Depletion Since 1991:”

Equity mutual funds are burning through cash at the fastest rate in 18 years, leaving them with the smallest reserves since 2007 in a sign that gains for the Standard & Poor’s 500 Index may slow.  Cash dropped to 3.6 percent of assets from 5.7 percent in January 2009, leaving managers with $172 billion in the quickest decrease since 1991, Investment Company Institute data show. The last time stock managers held such a small proportion was September 2007, a month before the S&P 500 began a 57 percent drop, according to data compiled by Bloomberg.

WSJ “Heard on the Street” cautious on ANF & retailer inventory levels.  SUSQ ups BKE.  BofAMLCO ups AET.  CITI ups MAT.  HSBC ups YGE.  UBSS ups YUM.  WEFA ups SM, HK.  BofAMLCO cuts CI, URS.  JPHQ cuts TXT, ENER, ESLR, FSLR.  TIVO beats by 3c but misses on revs. 

Asia mixed overnight.  Europe roughly 50bps lower.  USD +50bps.  Gold -100bps.  Oil -180bps.

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
INTERPUBLIC GRP           7.91      -7.05%  1000
PROLOGIS                     12.40    -5.42%  2450
GEN GROWTH PROP       14.50    +2.98% 5800
XEROX CORP                 9.65      -2.62%  3700
YUM! BRANDS INC          36.27    +2.43% 30575
H&R BLOCK INC              16.20    -2.35%  3330
CIGNA CORP                  34.00    -2.30%  200
AMERICAN INTERNA       28.46    -2.2 %  45135
TEXTRON INC                21.28    -2.12%  10600
TEREX CORP                  22.20    -2.12%  665
MASSEY ENERGY CO       47.75    -2.11%  1850
HONEYWELL INTL           40.64    -2.05%  150

Today’s Trivia:  Name the only divorced President. 

Yesterday's Answer:   The Hurt Locker grossed ~$16M worldwide, which makes it the lowest-grossing Best Picture of the modern era.  (And which represents 2% of the gross of Avatar.) 

Best Quotes:  “Futures settle slightly cheap to fair value and work lower on globex on some negative Fitch headlines overnight, here are a few of them: "No central bank will tighten aggressively this year", UK credit profile deteriorated "pretty sharply", US Government vulnerable to interest rate shocks", " short term outlook for Greece is ok, but 6-9 mo outlook more uncertain / sees beginning of dissent in the Greek cabinet over budget and finally " no government can carry on the ways the Greeks have"..You get the point. Global volumes still quiet and we probably stay quiet until uncertainty around healthcare goes away..There's a WSJ article from E.S. Browning on page 1 that highlights the one year anniversary of the stock market bottom and goes great lengths in the bull/bear debate between economists Schiller and Siegel. Be aware that yesterday was the lightest Big Board volume day since Jan. 4th. There was a Manpower survey out after yesterday's close...73% of employers, a record-tying high, expect to keep staff levels stable in Q2.  12 of 13 industry sectors surveyed report positive Net Employment Outlooks, meaning employers in most industry sectors plan to add staff during the second quarter. Technically, market has plenty of support on downside and nerves would only come into play with a break of 1110.00 (unch on the year). I'd sell rallies today with protective stop in SPH at 1141.00. Have a good one.”  -- BofAMLCO trading

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