Wednesday, August 4, 2010

Morning Note...


Futures ~25bps higher as this morning’s 8:15am ADP Employment Change surprised to the upside, thus lifting futures from their slightly lower track.  The ADP Report – which sometimes correlates with broader unemployment – measures the change in private, nonfarm employment using “approximately 365,000 of ADP’s 500,000 U.S. business clients and approximately 24 million employees working in all 19 of the major North American Industrial Classification (NAICS) private industrial sectors” (Bloomberg).  The reading came in at +42k jobs versus the +30k expectation, and the June reading was revised upward to +19k from +13k. 

Elsewhere, markets are generally quiet ahead of tomorrow’s comp store sales, the Bank of England and ECB rate decisions, and Friday’s Official Nonfarm Payrolls.  Earnings continue to roll in, but have not had much effect on the tape either way.  Priceline (PCLN; +15%) and Electronic Arts (ERTS; +3%) reported better-than-expected, as did Time Warner (TWX; +2%), Agrium (AGU), Camercon (CAM), Garmin (GRMN; +2.5%), Kenneth Cole (KCP), Polo Ralph Lauren (RL), and Intercontinental Exchange (ICE).  Pulte Homes (PHM; +4%) also reported ~90% revenue growth.  Owens Corning (OC) and Alpha Natural Resources (ANR) missed analysts’ earnings estimates.  Whole Foods (WFMI; -5%) is trading off on in-line earnings.  Research in Motion (RIMM) is slightly lower despite yesterday’s new product release.  In other news, Barnes & Noble (BKS; +23%) is higher on news the company is up for sale, and British Petroleum (BP) reportedly successfully killed its leaking well.  Worth noting that Gold has been up 6 days in a row and is up 125bps this morning.  ISM non-manufacturing data is due at 10am today.

Good summary of our own FOMC decision, due on August 10th, from BTIG:

The Fed – probably the most focused on news item Tues morning was the WSJ article talking about how the Fed may start to reinvest the proceeds of maturing Treasuries back into further QE.  Treasuries were very strong on back of this article (in addition to Tues’ sluggish inflation readings), w/the 2yr yield setting a new all time low.  However, keep in mind that CNBC’s S Liesman (@ 11:20amET on Tues) said that sources are telling him that the Fed won’t be making major policy changes at next week’s meeting.  Separately today, the NY Fed said that beginning Wed, it intends to conduct a series of small-scale, real-value reverse repurchase transactions with primary dealers using all eligible collateral types, including, for the first time, agency mortgage-backed securities (MBS) from the SOMA portfolio.

Excellent summary on yesterday’s retail weakness from JPM:

Consumer Disc. was one of the worst acting sub-sectors of the SP500 yesterday and we received a number of question on the desk. A couple items weighing –

1) MA made cautious comments re Consumer spending on their earnings CC. They said that a) there are mixed signals over spending and consumers are likely to remain cautious and b) that MA’s processed volumes decelerated through the Q with volumes in Jul flat vs. growth of ~1% in Q2.

2) Cautious BTS commentary and More Below St. Q3 Guidance - OMX followed ODP by talking to a very promotional Back-To-School season and guiding Q3 below the Street after beating for Q2.

3) Action Post Strong #s & Guide Up Disappointing - COH beat and then guided #s higher and still sold off. The sell-off was attributed to COH’s commentary on their CC re GM pressure in Jan-June 2011. If this was in fact the case, the sell-off is very telling of how investors feel about retail when stocks are being sold on concerns that are well known by the market (there has been tons of press and commentary from other corporates re higher sourcing costs in 1H10; most recently from the apparel manufacturers the past two weeks). 

4) Eco Data Yesterday Was Not Encouraging - On the economic front, the Personal Income & Personal Spending #s yesterday morning both came in light vs. St. Another concern for the Specialty Apparel players was highlighted in a WSJ article this morning which digs into the data and says that Tech gadgets are receiving more of consumer’s income vs. clothes and appliances  (link to article - http://online.wsj.com/article/SB10001424052748703545604575407580208239338.html?mod=WSJ_hps_LEFTWhatsNews).

5) Expectations/Sentiment are negative heading into Same Store Sales on Thursday w/Sell-side commentary cautious (i.e. see Chuck’s Broadlines Preview yesterday which highlighted that a) trends slowed through the month and that b) Back-to-School is off to a slow start.

6) July Auto Sales yesterday came in lower than expected, i.e. F reported dn ~1% vs. St. looking +10%. This is however a mixed datapoint as overall SAAR ended up coming in ~11.8M near St. consensus of 11.9M and the #s were led by an improvement in Retail SAAR which is generally considered more important for an auto sales recovery (also Fleet sales are less profitable for the automakers).

7) Trading Flows Have Not Turned More Supportive - Finally, on the trading desk, we have continued to be better for sale in the group w/fresh shorts being laid out.

Asia mixed overnight.  Europe mixed as well.  USD +10bps.  EUR/USD 1.3204.  Oil -5bps.  Gold +125bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
TITANIUM METALS         21.18    -6.37%  20685
EXPEDIA INC                  24.10    +5.42% 84567
WHOLE FOODS MKT       37.35    -5.42%  19205
RR DONNELLEY & S        18.00    +5.2 %  100
CAMERON INTERNAT      41.6300 +5.02% 500
ELECTRONIC ARTS         16.82    +3.96% 33810
CBS CORP-B                  15.60    +3.93% 13259
PULTE GROUP INC          8.75      +3.8 %  25135
FIDELITY NATIONA         27.70    -3.79%  1720259
PITNEY BOWES INC        24.2500 -2.84%  100
MOTOROLA INC             7.82      +2.62% 96475

Today’s Trivia: It’s that time of year again…Shark Week begets shark trivia!  Which is considered the fastest shark?

Yesterday’s Question:  According to an article in this past weekend’s New Yorker magazine on the demise of the bluefin tuna, where does the word tuna come from? 
                                                                                                                                                                    
Yesterday's Answer:  Tuna comes from the ancient Greek word, thuno, meaning to dart or to rush…probably a reference to the speed of the bluefin. 

Best Quotes:  Good Morning - Change in trend?  Inside trading yesterday.  The days range was inside the prior days range.   Lower high, higher low.   I was surprised the market stayed as firm as it did after Mondays move, and what the Treasuries were doing.   I am guessing that the action will remain light until Fridays data,   IT feels that we are set up for a sell off.  Look for a test of 1100 on light volumes.   Gold up 6 consecutive days.  Short and sweet, sell the rallies.  Have a good day.  –trader commentary