Happy Friday…Market feels a bit juiced today…Futures surged higher to +1.2% this morning (making back yesterday afternoon’s sell-off) on the 8:30am Durable Goods Orders release: Orders for August were down 1.3% vs. the -1.0% expectation, however the prior +0.3% reading was revised upward to +0.7% and the Durable Goods Ex Transportation reading surprised at +2.0% vs. the +1.0% expectation and the prior -2.8%. Additionally, European markets have reversed earlier weakness to stand at roughly 1.3% higher as
’s business confidence reading surprised to the upside. The euro is up big against the USD today to 1.3444, and the USD is lower by 80bps against a basket of foreign currencies. Despite equity strength, Gold ($1300/oz) and Silver ($21.35/oz) continue to achieve record highs. Germany Asia mixed overnight. Elsewhere, oil giant Petrobras (PBR) priced a record $70 billion offering at R$29.65, which is a 2% discount to last night’s close. Appaloosa’s David Tepper was on CNBC this morning and made bullish comments regarding equity markets. Wall Street Journal this morning discusses difficult stock picker’s environment and Congress’ decision to delay any vote on the Bush Tax Cuts until after the midterms (Susquehanna summary):
1) Article focuses on the high correlation in the market and the lack of focus on stock-specific factors as macro forces continue to be the primary mover of stocks. Citing data from Barclay’s Capital, the article notes that between 2000 and 2006 SPX correlation was around 27%, rose to 60% ahead of the Iraq war, spiked to 80% during the financial crisis and again during the European debt crisis, and has stayed in the 60-70% range since then. The article points to the 2008 financial crisis as the beginning of the macro focus and points to recent issues like the European debt crisis and the potential for a double-dip recession as ongoing worries. The rise of ETFs is also discussed, as they now account for 30% of stock volume on a given day. Some believe the recent high correlation environment will lead to opportunities once correlations recede as stocks that have been moving in lock-step should not necessarily have done so.
2) Deterred by protests from at-risk incumbents and faced with bleak prospects for passage, Democrats abandoned plans to vote prior to Election Day on extending Bushera tax cuts for the middle class while doing away with them for “better-off” Americans. The delay means more uncertainty for small businesses and individuals regarding future liabilities. If legislation is not passed by the end of the year (when the cuts expire), rates would increase on income, estates, capital gains, and dividends. Legislators from both parties said that there was an increased likelihood that all of the Bush-era breaks would be extended for at least a year or two, although the President could still veto such a bill.
For lack of anything intelligent to say this morning, I will borrow from JPM’s excellent news summary (note
Europe has since rebounded as mentioned above):
· European stocks continue to act weak after yesterday afternoon’s selloff in US equity markets. The only major story is the German IFO (business confidence), which surprised to the upside this morning.
and intervention – the yen briefly fell this morning amid speculation that Japanese officials intervened again in the market; however, unlike last Wed, Japanese officials aren’t confirming any involvement in today’s FX markets. Reuters Japan
· Tech warnings season continues to be pretty busy and has started a lot earlier than normal; AMD after the close Thurs trims its outlook for the Q, although the miss wasn’t a disaster and keep in mind it’s been nearly 1 month since the preannouncements started (INTC back on Aug 27). So far, we have seen AMD, INTC, SLAB, POWI, GLW, and PMCS bring down their outlooks (although it hasn’t all been bad as Infineon and SWKS have preannounced to the upside). Tech investors are bracing themselves for a wave of guidance cuts heading into the end of Q3, although each incremental update is impacting sentiment less and less (one thing to keep in mind w/AMD today: a Bloomberg article talks about how Oracle’s Ellison wants to buy chip companies and mentions AMD as a potential target….Arm Holdings is up ~6% in London on the ORCL BBG article)
· Notebook ODMs to ship at record highs in Sept; Most ODM notebook makers are expected to see their shipments hit record high levels in September 2010, with Quanta Computer's shipments likely to reach five million units, Compal Electronics 4.5 million units, and Wistron 2.5 million units; Quanta and Compal both are expected to see their notebook shipments begin to slow down in October. – Digitimes
· Congress puts off Bush tax vote until after the Nov 2 mid-terms; Dems decided to postpone the vote due to the difficult math (it increasingly looked like the White House wish of extending only the “middle class” rates would be tough to pass) and the tough positions such a vote would place certain incumbents in ahead of the Nov 2 elections. The delay raising uncertainty for small businesses and individuals. WSJ
· BMY/jobs – will be cutting ~3% of its workforce in the next 6 months (there haven’t been a lot of companies unveiling large across-the-board cuts, although BoA was in the news this week w/some reductions; note that the Sept labor report hits a little late this time around, not coming until Fri Oct 8).
· Health Care/HMOs – NAIC proposed rules mixed for industry - “Insurers had hoped regulators would opt for an aggregated ratio that reflected all of a company's various business units. Instead, the draft rules require insurers to account for MLRs separately at every business unit in every state”….however, regulators may allow HMOs to deduct many taxes from total premiums before calculating their MLRs. WSJ
· NKE reports strong earnings; EPS came in 1.14 vs. the St 1.01; revs came in $5.2B; global futures came in +13% vs. the St up ~9%. Says full year revs to come in at high-end of target.
· Stock pickers suffer in current market as macro forces take hold. Rising correlations and the proliferation of vehicles like ETFs making stock picking increasingly difficult. WSJ
· Deutsche Bank warns of a race among global banks to accelerate their compliance w/the new
Basel regs; the firm warned that risks exist to the global economy is banks try to top the new standards as quickly as possible. FT Basel
· Fund Flows – from JPMorgan’s
E Beinstein - The trend of strong inflows into all risky asset classes continued once again this week, though at a slower pace than last week. HG fund had inflows of $872mn, slightly down from $1.3bn last week but still a strong figure. HY funds also had strong inflows of $824mn, but down from last week’s $1.2bn inflows. Equity funds had inflows of $3.3bn which follows inflows of $7.9bn the week before. Money market funds had $11bn outflows this week vs. $22bn outflows last week.
NKE beats by 13c. ALU upgrade. KBH higher on earnings. TIBX beats by 2c. CSFB ups MWV. Janney ups GET. MSCO cuts CPB. WEFA cuts UNM. FINL misses by 5c.
S&P 500 PreMarket 8:30am (last/% change prior close/volume):
Today’s Trivia: Who am I? Born on this date in 1936 in
Greenville, Mississippi…winner of 18 Emmys, 17 Grammys, and 4 Awards…died in 1993…every kid surely knows his work without knowing who he actually is… Peabody
Yesterday’s Question: Who is Hector Boiardi?
Yesterday's Answer: Hector Boiardi was better known by his phonetically spelled name, which was chosen in order to help sell more product: Chef Boyardee.
Best Quotes: Futures moving higher on WSJ headlines that the Democrats have delayed the vote on the Bush tax cuts until after November election. German Business confidence also helping drive higher but the fact that the democrats don’t want to be “that guy”, I think can come back and bite them as they will be viewed as playing politics and not having the nerve to continue with their agenda. AMG Money flow data shows broad inflows again. HY and Loans saw their 12th straight week of inflows. Equities have now garnered $18b, or 69% of all their ytd inflows in this month alone. This is notable as we approach the largest equity issuance pipeline since 1999. We had NKE earnings last night, very good number, with bottom line beat coming from gross margin and SG&A, future orders were prob. highlight +13% driven by N.A. +14%. Our analyst Robbie Ohmes is taking up his numbers as expected. The stock traded at a 52wk high last night aft-mkt, our most recent flow has been a good size long seller. Eco data: We get durable goods at 8:30 (softness expected as companies curb spending) and new home sales data at 9am. Technically, as long as we respect the week’s low at 1117.00 this tape will want to work higher. Until we break that, I stay a buyer. 1130.50 is 50% of the week’s range. We settle above there? I think so. Have a great weekend