Thursday, April 8, 2010

Morning Note...

Futures ~45bps lower this morning as sovereign debt default concerns (Greece is back!) and weaker-than-expected initial jobless claims outweigh mostly better-than-expected U.S. March same-store-sales.  Initial Jobless Claims came in at 460k vs. the 435k expectation and exhibit no growth over last week’s 442k revision.  Continuing Claims were 4.550M vs. the 4.630M expectation and the 4.681M prior reading.  Regarding the retailers, please see the quote section below for a retail sales summary.  In Europe, the 10-year Greek government bond premium increased by 440bps, which is the highest level since the euro was introduced.  The concern is that Greece won’t be able to re-roll its EU20 billion debt due by May and that the ever-increasing cost to do so will lead them on a death spiral to bankruptcy.  (Note that their funding costs have increased from 5.2% last week to 8.3% as of this morning.)  Eurozone leaders are out this morning making comments in defense of Greece, but they seem to be falling on deaf ears for the most part.  In other Euro news, the ECB kept rates unchanged at 1% and adopt a “wait and see” approach on Greece and potential stimulus withdrawal.  Note that European markets are down 1.5% on average this morning.  In Asia, Tim Geithner is scheduled to meet the Chinese vice premier today, and speculation continues that China will move toward a revaluation higher of the yuan.  For those who enjoy quantitative data on market action, it’s worth noting that we’ve seen an 8.4% S&P rally over the last 42 days without a pullback of so much as 1%.  (Wow.)  We may see some Congressional “head-hunting” today, as ex-Citi CEOs Robert Rubin and Chuck Prince plan to testify before the Financial Crisis Investigative Committee that they had no idea a crisis was brewing.  Bernanke speaks tonight at 8:30pm.  In geopolitical news, tensions and protests continue in Thailand

In big picture terms, a recent JPM piece summarized potential “inflection points” ahead:  1) jobs data, 2) fund flows shifting from HG corporate bonds to equities, 3) U.S. gov’t and exit strategy from stimulus, 4) Treasury weakness, 5) Europe and sovereigns, 6) geopolitics and the middle east, and 7) China and the U.S.  I would add “potential financial regulation” and perhaps the proposed “global bank tax” to that list, but it seems to nicely summarize the current landscape.  You can bet that these seven or eight topics at least cover the known unknowns that markets face.  As to the unknown unknowns, your guess is as good as mine. 

It’s worth noting that China bear Jim Chanos had negative comments on China’s property outlook:

April 8 (Bloomberg) -- China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos. The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV. China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Additionally, here’s another bearish blurb on China from Bloomberg news:

…[China’s] inflation rose to 2.7 percent in February, a 16-month high. Failure to rein in local government spending could push inflation to 15 percent by 2012, said Victor Shih, a political economist at Northwestern University who spent months tallying government borrowing. “Increasingly the choice facing the government is between inflation or bad loans,” said Shih, author of the book “Finance and Factions in China,” who teaches political science at the university in Evanston, Illinois. “The only mechanism for controlling inflation in China is credit restriction, but if they use that, this show is over -- a gigantic wave of bad loans will appear on banks’ balance sheets.”

MON plans to lower prices and retreats from long-range profit goal after a 19% drop in Q2 earnings, as per WSJ.  ANF lower on sss miss.  BBBY beats by 13c.  UAUA and LCC once again in merger talks, as per the NY Times – airlines are bid higher as a result.  FRX lower on FDA approvals and PIPR downgrade.  HOTT announces $1 special dividend.  NAV guides higher.  SMSC beats by 6c.  SOMX initiated buy at JEFF.  Barron’s positive BRCD.  BCAP ups SII.  CITI ups ABC, ATHN.  Soleil ups LECO.  JEFF cuts MON.  KAUF cuts EBAY.  BARD cuts KEY.  CITI cuts PFG.  LAZA cuts FRX. 

Asia lower overnight.  Europe down 1.5% on average.  Oil -1%.  Gold -13bps.  USD +11bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
FOREST LABS INC          29.40    -9.43%  453356
GAP INC/THE                 25.19    +5.57% 169860
ABERCROMBIE & FI        45.37    -4.56%  154612
J.C. PENNEY CO              31.73    -3.23%  7882
BED BATH &BEYOND       45.92    +2.8 %  43073
AK STEEL HLDG              23.50    -2.49%  17598
AMERISOURCEBERGE      29.69    +2.24% 1300
KEYCORP                       8.33      -2.23%  48696
EBAY INC                       26.26    -2.2 %  23211
TARGET CORP               55.17    +2.15% 45352
INGERSOLL-RAND           35.9100 -2.05%  100

Today’s Trivia:  Let’s open it up to global companies – how would the top five look then?  (Note, my data on global mkt cap is as of Q4 2009) 
Yesterday's Answer:  Top five U.S. companies by market cap, as of February 2010:  XOM ($306B), MSFT ($246B), WMT ($202B), PG ($178B), and AAPL ($177B). 
Best Quotes:  “Better Than Expected (10)

Costco March SSS up 10.0% - better than 9.0%
(MARCH NET SALES $7.14 BLN VS $6.40 BLN, y/y)

Limited March SSS up 15.0% - better than 5.9%
(Total Sales $746.9M Vs $646.2M, y/y)

Hot Topic March SSS down 7.5% - better than (13.0%)
(Reported Yest – Co.  Announces a $1.00 Per Share Special One-Time Cash Dividend, SHARE-PRICE TO $8 FROM $6 AT FBR CAPITAL)

The Wet Seal reports March comparable SSS up 6.3% - better than 5.0%
(CEO – “Without the Easter shift, we believe March comparable store sales would have increased by a low-single-digit percentage.”)

Bon-Ton Stores March Same-Store Sales Rose 11.4% - better than 4.5%
(CFO - “We ended March with excess borrowing capacity under our revolving credit facility of approximately $406 million, well above the required minimum availability of $75 million.”)

Stein Mart March SSS up 1.0% - better than (1.0%)
(March Total Sales $133.6M vs. $135.2M, Down 1.2%)

Fred's March SSS up 3.6% - better than 2.5%
(Reported Yest - Total sales increased 5% to $183.5 million from $175.5 million, y/y)

The Buckle reports March comparable SSS up 7.2% - better than 5.4%
(Net Sales Rose 12.4% To $86.9M)

Stage Stores March SSS up 8.6% - better than 5.5%

Cato March Same-Store Sales Up 24.0% - better than 4.0%
(SEES 1Q EPS 79C-83C; EST. 73C (2 EST.), increase of 23% to 30% for Q1, y/y)

Worse Than Expected (1)

Abercrombie & Fitch March Same-Store Sales Rose 5.0% - worse than 6.9%
(Net sales of $275.4 million, a 19% increase from net sales of $231.3 million y/y)

--BTIG summary

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