Thursday, September 9, 2010

Morning Note...

Futures surge ~1% higher this morning on better-than-expected Initial Jobless Claims and a lower-than-expected Trade Balance deficit.  Jobless Claims for the week ending September 4th were 451k versus the 470k expectation and represent the lowest levels since the week of July 9th.  However, the prior reading was revised slightly higher to 478k from 472k.  Continuing Claims for the week ending August 28th were 4.478M versus the 4.450M expectation.  The July Trade Balance came in at -$42.8B versus the -$47B expectation.  Overseas, the Bank of England maintained their benchmark interest rate at 50bps and maintained its GBP200M asset-purchase program as on hold.  Europe is roughly 1.5% higher at the moment.  Further abroad, China considerably underperformed (-1.5%) Asian markets overnight on word of further tightening from the Chinese government, and commodity prices fell on speculation that regulators there are investigation unusually large positions in natural rubber futures.  Elsewhere, the Wall Street Journal this morning speculates that the upcoming Basel Committee on banking may set Tier 1 capital requirements at a less stringent level than expected.  The article was bullish on U.S. banks but cautious on European banks.  Given the Rosh Hashanah holiday today, desks may be understaffed and volumes may be lighter than normal.  In technical terms, note that we’re up ~5% over the past 7 trading sessions since the beginning of September and may be butting up against upside resistance at ~1115 on the S&P500 Index.  Note that the TXN mid-quarter update will be released after the close today.  A 30-year Treasury auction will go off at 1pm today.  Oil +1.5%.  Gold -20bps.  USD -25bps. 

Worth noting that the latest Blue Chip Economic Indicators report lowered GDP growth forecasts for 2010.  RBC is calling for an “unavoidable reckoning” in the Euro for the first half of 2011 and expects the currency to fall to $1.10 versus the USD.  On the midterm elections front, Concept Capital this morning raises their odds that the GOP takes the House to 65% and takes the Senate to 40% (from 55% and 15% respectively).  Staying with the political theme, it’s worth sharing yesterday’s Hedgeye note on that topic:

Yesterday afternoon at our offices in New Haven, CT, Daryl Jones and I hosted former White House Deputy Chief of Staff and Senior Advisor to President George W. Bush, Karl Rove, for a political strategy conference call.

…It turns out that Rove was perfectly analytical and proactively prepared with plenty of math. The data, after all, doesn't lie as much as some of America's current politicians do. That said, the data can still change before the mid-term elections in November.

For now, I'll…give you some proactive political predictions that you can hold Karl Rove to:

1.       The Republicans will win the House by a wider than expected margin.
2.       The Democrats will cede at least 8 seats to the Republicans in the Senate.
3.       The anti-incumbent vote in America will be pervasive theme.

"Anti-incumbent" means anti any professional politician in Washington who sold you a bill of dry heaves in the most recent election, or as Mr. Rove called them, incumbent politicians with a "D" after their name who are perceived to be easiest to blame. Shock-and-awe, eh? A Republican strategist concluding that the Democrats are going to get rolled over in the mid-terms!

Well, take it from one Canadian with an American family looking to be on the right side of this immediate term TRADE rather than get stuck in the partisanship of being wrong and blaming someone else's politics for it - I think Rove's got this one right.

Whether we like politics or not, we all have to play the risk management game that's in front of us. To spend or not to spend more taxpayer moneys on "stimulating" the economy, remains the question.

The SP500 was down -1.2% yesterday to 1091, taking its cumulative decline since its YTD high on April 23rd to -10.4%, and its YTD loss for 2010 to -2.2%. Was yesterday's weakness related to an expectation mismatch associated with an alleged "better than expected" employment report on Friday? Or was it based on another partisan "spending plan" of $50 BILLION that Americans don't buy into?

BCAP positive on QCOM after management meeting.  MCD same store sales for Europe were weaker than expected.  BERN initiates PLCM with OP.  Wunderlich sees buying opp in CREE.  ARMH higher on new chip release.  HALO announces 8.3M share secondary.  MW beats by 6c.  CITI ups CE.  GSCO ups TIN.  OPCO ups TEVA.  UBSS ups AUO, LPL.  CITI ups VAL.  GSCO cuts BZ.  Soleil cuts TLAB, QCOM.  UBSS cuts ZGEN. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 

Today’s Trivia:  The choice for state bird of Utah is somewhat…odd.  Why?

Yesterday’s Question:  Sonkaj√§rvi, Finland hosts the World Wife Carrying Championships each year…what is first prize?
Yesterday's Answer:  First prize at the Finnish World Wife Carrying Championships is your wife’s weight in beer. 

Best Quotes:  BofAMLCO…Good Morning - Struggling with my note this morning.   Yesterday was the busiest day of the year for investment grade issuance and Dealogic estimates $51 bln in fresh corporates and leveraged loans have hit the market in just the past 2 days.  The US slipped to 4th in the annual rankings of the world's most competitive economies amid record budget deficits according the World Economic Forum.  Jobless claims soon, AMG later today, and more new issue out there.  Jewish Holiday will keep the volumes low.  BBC report on Tier 1 ratios should give the financials a boost.  1100 key level.  Buy them today.