Wednesday, April 14, 2010

Morning Note...


Futures are 40bps higher this morning as last night’s CSX and INTC earnings, and this morning’s positive JPM earnings, outweigh the widening of sovereign debt Credit Default Swaps in Europe.  Additionally, Singapore indicated economic strength and allows its dollars to appreciate, Korea posted the biggest unemployment drop in ten years, and markets anticipate bullish economic data to be released overnight tonight in China (~+12% year-over-year GDP is expected!).  In economic news this morning, Mortgage Applications were 9.6% lower than the prior week, March month-over-month CPI (Consumer Price Index) was in-line with expectations at +0.1%, March year-over-year CPI was +2.3% vs. the +2.4% expectation, and Advance Retail Sales were better than the +1.2% expectation at +1.6%.  The general read-through is bullish – no signs of inflation and higher consumer spending.  Note that Business Inventory data is due at 10am, the Fed Beige Book will be released at 2pm, and Ben Bernanke speaks at 10am.  Watch for earnings from GWW (trading lower premkt), PGR (looks like a beat, not trading), and YUM (after the bell).  Note that yesterday was the 26th straight day that the S&P closed with a move under 1%.  An earthquake in western China kills 400 and injures 8,000.  Getting back to CSX, INTC, and JPM:  INTC posted ridiculous +60% margins and made bullish commentary, highlighting the return of the consumer and calling it a “big driver” of computer demand.  JPM’s Dimon made positive comments on the overall economy (doesn’t see “double-dip” recession) and indicated that JPM is hiring new employees across all business lines.  And CSX handily beat estimates and saw increasing volume overall. 

Interesting article from across the Atlantic in the Daily Telegraph on global funds view of Europe since the Greek crisis: 

“Europe has become a no-go zone," said Patrik Schowitz, equity strategist at Bank of America Merrill Lynch. "As recently as five months ago investors regarded Europe as the most attractive play on global economic recovery". The bank's monthly survey of funds found that a net 18pc are underweight stocks in Europe.

George Soros also made cautious comments on Greece at an event in London yesterday:

Greece still faces the danger of a “death spiral” because the cost of borrowing in the euro region’s rescue package is too expensive, billionaire investor George Soros said. “While it’s better than what the market is currently willing to offer, it’s still rather high,” Soros said at an event in London late yesterday organized by the Economist magazine. “It is a question of solvency. If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency.” Euro region finance ministers on April 11 offered Greece a 30 billion-euro ($41 billion) aid package which would give it three-year loans at 5 percent if it can’t raise money in capital markets. Greece auctioned Treasury bills yesterday for the first time since the rescue bid, drawing more demand than at a previous sale. “Concessional rates” of borrowing aid would help Greece “fulfill their target,” Soros said. “If they don’t, they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a death spiral. That is the danger that is still remaining.”  (BBERG)

Here’s something for the bears that I forgot to post yesterday…Bill Dunkelberg’s National Federation of Independent Business index lost 1.2 points, and virtually all categories fell or were flat.  It garnered some attention early on, but was quickly swept up in the market’s ebullience: 

OPTIMISM INDEX
The Index of Small Business Optimism lost 1.2 points, falling to 86.8. The persistence of Index readings below 90 is unprecedented in survey history. The Index has posted 18 consecutive monthly readings below 90. The March Index continues this trend, and heading in the wrong direction, very inconsistent with the notion that the economy is recovering and that job growth has strength. Nine of the 10 Index components fell or were unchanged from February’s. Not the picture of an economic expansion.

"The March reading is very low and headed in the wrong direction," said NFIB chief economist Bill Dunkelberg. "Something isn't sitting well with small-business owners."

Here are key results of the March survey of small-business owners:

• The weak economy continued to pressure prices and inventories, which contributed to lower sales. Twenty-nine percent cut prices vs. 11 percent that raised prices. More businesses also plan to cut inventories rather than add to stock.

• More firms saw falling profit: 58 percent reported lower profit vs. 9 percent with higher profit. That trend will affect hiring and capital spending.

• Employment changes hit zero after falling steadily since July 2008, but hiring plans remained weak.

• Capital expenditures in the last six months fell, and plans for spending in the next three months also declined to near-record lows. Fewer firms said it's a good time to expand.

"With all the good news about the economy and GDP growth, it is not immediately obvious why owners remain so pessimistic," Dunkelberg said.

LLTC higher on earnings.  BBBY initiated Hold at BBNT.  PIPR raises FAST tgt to $60.  Nomura initiates GS with Buy and MS with Neutral.  Nomura raises DB target.  BofAMLCO ups ANN, CHS.  CSFB ups ERIC.  GSCO ups AIB. Janney ups CRM, MCD.  MSCO ups OMC.  OPCO ups RHT.  UBSS ups PL, SIAL, TLAB.  BofAMLCO cuts KND.  CITI cuts DNDN.  GSCO cuts MOS, POT.  HSBC cuts ZNH.  MSCO cuts TWX.  WEFA cuts MIPI.  ADTN beats by 3c.  AMD, NVDA, TXN higher on INTC earnings.  BMR announces 9M share offering.  Cramer positive HOTT.  KLIC higher on earnings. 

Asia higher overnight.  Europe ~65bps higher on average.  USD -20bps.  Gold +62bps.  Oil +1%. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
TELLABS INC                  8.45      +5.23% 37008
FANNIE MAE                  1.24      +5.08% 895758
INTEL CORP                   23.72    +4.17% 3425108
FREDDIE MAC                1.52      +4.11% 154199
MBIA INC                       7.92      +3.94% 67503
ADV MICRO DEVICE        9.92      +3.77% 88989
NVIDIA CORP                 18.24    +3.28% 11173
LINEAR TECH CORP        30.60    +3.2 %  61605
WW GRAINGER INC        111.95  -3.19%  2877
KLA-TENCOR CORP         32.98    +3.13% 500
INTEGRYS ENERGY         46.62    -2.9 %  1000
JPMORGAN CHASE          47.15    +2.79% 2231672
EASTMAN KODAK           7.85      +2.61% 800
JDS UNIPHASE               13.81    +2.6 %  2840
REGIONS FINANCIA        8.55      +2.52% 81457
TEXAS INSTRUMENT      26.52    +2.51% 42515

Today’s Trivia:  Where is the highest-elevation paved road in North America?
                                                                                                                                                                             
Yesterday's Answer:  Middlebury College is two-time national champion in the sport of Quidditch, which was introduced in JK Rowling’s Harry Potter series. 
                                                                                                                            
Best Quotes:  “The Comeback Country!

The pieces are starting to come together.  In Sunday’s “Bedtime,” we noted that we were entering the phase where market consensus begins to shift to “normal recovery.”  It is also the  phase where the recovery story starts to go mainstream.  The latest issue of Newsweek titled America’s Back! has begun to spread that message.  Wall Street traditionally goes the other way on Newsweek covers, but we have to give Newsweek some credit.  In the beginning of August, they declared the recession over and although they will likely be a couple of months early when NBER finally declares the trough, Newsweek’s call was better than many others.  Just yesterday, NBER conferred “No Trough announced.”  The Business Cycle Dating Committee explained that “Although most indicators have turned up, the Committee decided that the determination of the trough date on the basis of current data would be premature.”  They cited the number of revisions necessary on the current data for their pause.  Needless to say, if the revision trend remains upwards, they will confer a trough soon enough. 

There was a wrinkle in our theory today as the NFIB’s Small Business Optimism Index, which has been unable to gain any traction at any time during the recession, dropped to its lowest level since last July.  This recession has been one in which the big have gotten bigger (and stronger) and the small have gotten smaller.  Investors have the benefit of the fact that only the big are in the S&P 500.  Of course, the recovery still has additional progress to be made but the ingredients are there.  The question is how long will it take for them to cook?  Main Street may finally start to see a rainbow (that was last week’s Economist cover) as job growth materializes and positive data points are reported.  If the earnings reports from Intel and CSX due tonight serve as any kind of indicator as to how the rest of the season will fair, then our broadening recovery theory is likely to gain traction.  If this impressive rally that has occurred over the past 13 months is destined to enter some type of upside blow off, the stage is currently being set for it to happen in the next few months as the recovery belief spreads.  As noted Sunday, we are Bulls and we prefer not to see a blow off move because it means the end of the rally.  Instead, we prefer to see the slow steady rise consistent with a healthy move.  That being said, with every piece of decisively strong data, the odds of a big move rise.  We continue to remain focused upon the 1250 level of the S&P 500, it is more of a question of how long will it take to get there.”


Mike O’Rourke, CMT
BTIG Chief Market Strategist
212.593.7564

1 comment:

  1. 原來這世上能跟你共同領略一個笑話的人竟如此難得........................................

    ReplyDelete