Thursday, April 22, 2010

Morning Note...

Futures are ~70bps lower this morning on European weakness stemming from the widening of Greek credit default swaps to record levels, a slate of earnings disappointments in the U.S. (at least relative to the unpublished “whisper numbers”), negative Fitch commentary on Japan, and concern ahead of President Obama’s NYC speech on financial reform later today.  Additionally, U.S. March Producer Prices (month-over-month) indicated some inflationary pressure, and came in at +0.7% vs. the +0.5% estimate and the prior -0.6%.  Year-over-year PPI was in-line at +6%, which is slightly higher than the prior +4.4% reading.  Further, Initial Jobless Claims offered little in the way of good news – claims for the week ending April 17th were 456k vs. the 450k estimate, and Continuing Claims were 4.646M vs. the 4.6M estimate.  Regarding Greece, here’s this morning’s news courtesy of Bloomberg:

April 22 (Bloomberg) -- Greek bond yields surged to the highest since 1998 as the country’s worsening budget outlook put pressure on the government to accept a European Union bailout and ignore street protests against its austerity measures. Greece’s benchmark 10-year bond yield rose to 8.564 percent, more than twice the rate on bunds. As a civil servant strike closed hospitals and shut the 2,500-year-old Parthenon temple, the EU said today that Greece’s deficit in 2009 was worse than previously forecast. EU officials lifted their estimate to 13.6 percent of gross domestic product from 12.7 percent and said it could top 14 percent.
Prime Minister George Papandreou is under fire from voters who say his budget cuts have gone too far and from investors who argue that further action is needed to reduce a deficit that is four times bigger than European Union rules allow. As Greek lawmakers meet EU and International Monetary Fund officials to negotiate loan conditions, the premium investors demand to hold Greek debt over German bonds reached 522 basis points.

Note that Ireland’s 2009 deficit is actually more (14.3% of GDP) than Greece’s (13.6% of GDP) as market pundits consider the other dominos to fall in the euro-area.  Weakness in Europe has led to something of a “flight to quality” in the USD, and subsequent USD strength can weigh on U.S. equities. 

In earnings news, the latest batch of results has featured headline better-than-expected earnings from Pepsico (PEP; flat premkt), Qualcom (QCOM; -7%), eBay (EBAY; -7%), Starbucks (SBUX; +1.5%), BB&T (BBT; -4%), and Fifth Third (FITB; -1%), yet most are trading lower after falling short of the whisper number, or true earnings expectations.  Nokia (NOK; -14%) is one of the few to have come short of the headline consensus, while Dow component Verizon (VZ; -2%) had in-line results.  In M&A news, CenturyLink (CTL) is buying Qwest (Q) in a $10B stock swap deal. 

In addition to the “stern talking to” expected out of Obama today, note that Senators Dodd and Shelby of the Banking Committee have also agreed on a bipartisan financial reform bill that will be presented to the Senate today.  Of course, all of this is set against yesterday’s Pew Research Survey results indicating that confidence in government is at an all-time low:

Opinions about elected officials are particularly poor. In a follow-up survey in early April, just 25% expressed a favorable opinion of Congress, which was virtually unchanged from March (26%), prior to passage of the health care reform bill. This is the lowest favorable rating for Congress in a quarter century of Pew Research Center surveys. Over the last year, favorable opinions of Congress have declined by half – from 50% to 25%.  (

(Click HERE for historical chart)

BofAMLCO ups CHRW.  CLSA ups NBR.  CSFB ups BA.  HSBC ups AA.  JEFF ups CMG.  MSCO ups GILD.  OPCO ups CMG.  BofAMLCO cuts AMGN.  CITI cuts BZH.  OPCO cuts STI.  RBCM cuts KEY.  BARD ups PII.  UBSS cuts HOV, ARRY, ELN.  ACF beats by 18c.  ALGN beats by 7c.  CCMP misses by 3c.  CMG beats by 24c.  CTXS reports in-line earnings.  EBAY beats by 1c.  GHL lower on earnings.  MEE beats by 11c.  MKSI beats by 14c.  NFLX beats by 5c.  NOK misses.  QCOM beats by 2c and guides in-line.  SBUX beats by 4c.  SLM higher on earnings.  SNDK beats by 36c.  MO earnings miss. 

Asia lower overnight.  Europe lower across the board.  USD +40bps.  Gold -60bps.  Oil -130bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
BAXTER INTL INC           51.75    -12.21%            1448572
QUESTAR CORP             51.00    +11.21%           25372
EBAY INC                       24.28    -7.65%              1551098
QUALCOMM INC             39.66    -6.97%              3110479
SANDISK CORP              39.40    +4.82%             156330
BB&T CORP                   33.54    -4.47%              41065
QWEST COMMUNICAT    5.47      +4.39%             56020180
TEREX CORP                  25.00    -4.25%              3070
TERADYNE INC               12.67    +4.02%             89870
CITRIX SYSTEMS           47.92    -3.83%              72415
GEN GROWTH PROP       15.90    +3.11%             100
AMERISOURCEBERGE      31.25    +2.93%             25200
PHILIP MORRIS              50.48    -2.9 %              41936
SLM CORP                     13.49    +2.82%             68970
JANUS CAPITAL GR         14.75    -2.77%              1900
SPRINT NEXTEL CO        4.21      +2.68%             998622
PNC FINANCIAL SE         67.01    +2.62%             43289
HERSHEY CO/THE           46.01    +2.61%             23058
ROWAN COMPANIES       30.95    -2.43%              4735
HUDSON CITY BNCP        14.17    -2.34%              2392
MOTOROLA INC             7.17      -2.32%              47362
MASSEY ENERGY CO       42.80    -2.26%              15989
PACTIV CORP                25.00    -2.19%              6100
CIENA CORP                  17.39    -2.03%              2123
XL CAPITAL LTD-A          19.49    -2.01%              700

Today’s Trivia:  Today is Earth Day, a day “designed to inspire awareness and appreciation for the Earth's environment.”  So how long has Earth Day been around?
Yesterday's Answer:  April 21st is “San Jacinto Day” in Texas to mark the date that Texas won independence from Mexico by defeating General Santa Anna at San Jacinto.                                                                                                                                 
Best Quotes:  “Bedtime with BTIG – Market Observations (4/21/10)

Equity markets bounced around today as investors remained pensive about embracing the rebound of the past couple of sessions.  Investors are cautious to pay up and establish new high prices knowing the Administration has taken the gloves of in waging the financial reform battle.  The Administration’s standard approach is to knock you down three or four times, so that when they finally offer you a hand to get up, you find yourself saying thank you.  The result was the selloff in the S&P 500 today in the half hour leading up to the President’s television interview today.  Tomorrow is the President’s big visit to Wall Street to discuss Financial Regulatory reform.

It will be interesting to see the environment and how the speech is received.  Today, the NY State Comptroller Thomas Dinapoli put out a press release titled, “DiNapoli: State Could Run Short of Cash, Releases Final Closing Numbers for Last State Fiscal Year, Warns of Cash Crunch.”  The only reason the state finished the 2009-2010 fiscal year with a positive balance was it postponed payments into the new fiscal year.  The release notes “The state Division of the Budget projects the General Fund will end the months of May, June, July and August with a negative balance.  This is unprecedented in New York’s history, indicating growing fiscal stress and historically low cash flow levels.”   The Comptroller’s annual data was the primary spark for the Wall Street bonus outrage over the past 18 months.  Politicians throughout the country, including many high profile ones in New York, used the data to take a populist approach and bash Wall Street for political gain.

New York City is hardly an enclave of conservatism, but in recent weeks and months, the tone of the main stream print media has shifted in favor of Wall Street (or at least the taxes it pays) and in opposition to Washington.  The charge has been led by Mayor Bloomberg who recognizes the importance of the Financial industry's tax revenues to the livelihood of the city and the state.  Local media has also turned on Senator Schumer who is being portrayed as trading Wall Street (and thus New York) in favor of landing Harry Reid’s post as Majority Leader if (when) Reid is voted out of office in November.  Currently, the state could not have a weaker Governor, and his likely successor has been among the most aggressive Wall Street bashers, leaving Bloomberg as the only high profile politician in the industry’s corner.  Now, the President heads to New York to spread his message the day after the state comptroller warns of the state’s precarious financial state due to reduced tax revenues.  With an election approximately 6 months away, today’s news should be a wake-up call to all New York politicians to follow Bloomberg’s lead.  If they don’t start to battle for their continuants, then soon they won’t have any.

Mike O’Rourke, CMT
Chief Market Strategist

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