Wednesday, November 10, 2010

Morning Note...

Futures ~15bps higher this morning, shrugging off slight weakness overseas on the back of better-than-expected Initial Jobless Claims, an uptick in mortgage applications, and lower-than-expected October Import Prices.  Further, the September Trade Imbalance was also slightly lower than expected.  Initial Jobless Claims for the week ending November 6th were 435k vs. the 450k expectation.  Continuing Claims were 4.301M vs. the 4.305M expectation.  Mortgage Applications for the week ending November 5th were up 5.8% over the prior week.  Month-over-month import prices for October came in at +0.9% vs. the +1.2% expectation, and the year-over-year reading was +3.6% vs. the +3.9% expectation.  Finally, the September trade deficit was -$44B vs. the -$45B estimate, which is a slight positive.  Overseas, Asian markets (ex-Japan at +1.4%) were lower on news that China has once again tightened monetary policy by ordering some banks to increase reserve ratios by 50bps starting November 15thChina’s trade surplus also came in lighter-than-expected.  In Europe, the EU extended Ireland’s bank guarantee from Dec 31st this year to June 30th, 2011 and a Portuguese debt auction saw mixed results.  Additionally, U.K. inflation was ~in-line with expectations, which apparently surprised the GBP, which had been pricing in a disappointment.  Europe is currently 50bps lower on aggregate.  Oil +80bps.  Gold -25bps.  USD +15bps.  Bond prices are slightly lower, raising yields.  In corporate news, A123 systems (AONE; -10%) missed by 12c.  European bank ING is ~3% higher on their earnings release.  Ralph Lauren (RL; +3.5%) is higher after beating earnings estimates and raising guidance.  Campbell’s Soup (CPB; -3%) preannounced due to weaker than expected soup sales.  Note that banks and the bond market are closed tomorrow in observance of Veterans Day (that’s why Initial Jobless Claims were reported today).  Looking ahead, the G20 meeting gets underway tomorrow in Seoul, South Korea, and we’ll see plenty of “currency war” and “replacing the $ as global reserve currency” headlines as a result. 

In terms of commentary, it appears that inflation fears are starting to filter through the markets now that QE2 is a certainty.  I thought this Barclay’s trader comment summarized it well:  Macro:  The MSCI World Index is down 60 bps (but S&P 500 futures are flat) as inflation seems to be the talk of the town.  Cotton futures (+2.5%) advanced for a 9th straight day & the BOE says CPI inflation remained well above their 2% target.  China posted a larger trade surplus than expected as their govt signaled a step up in efforts to cool inflation by increase reserve ratios. 

BofAMLCO ups CUZ.  MSCO ups ENER.  OPCO ups AAP.  BofAMLCO cuts COLM, JNY, PVH, RWT, VFC, WRC.  FBRC cuts ANH, SCHW.  UBSS cuts LVS.  JCS higher on earnings.  JMBA lower on earnings.  PSEC beats by 1c.  LOPE misses by 2c.  JOBS lower on earnings.  APAC cut at BARD.  ARCC announces 10M offering.  CAGC misses by 11c.  DEER raises guidance.  EEP announces offering.  FEED lower on earnings miss.  HRBN misses by 9c.  IGT lower on earnings.  SMT lower on earnings.  UEPS lower on earnings.  WERN declares special dividend.  WTW lower on earnings. 

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

Today’s Trivia:  What are the two top selling spices in the world?
Yesterday’s Question:  What insect has supposedly caused more human deaths than all the wars in history combined?

Yesterday's Answer:  The flea – probably because of the bubonic plague – has apparently caused more deaths that all the wars combined.  (yeah, I guessed the mosquito, too…)

Best Quotes:  BofAMLCO trader commentary… Good Morning - China reports their 2nd largest trade surplus of the year raises lender reserve requirements by 5%  effective Nov 16th. "We have $10 trillion of hot money flowing around" said Chinese Minister Guangyao post QE2. World Bank Pres Zoellick says QE2 concerns to emerging markets is overstated. Irish bonds down for the 12th straight day, their longest streak since 2007 and Irelands risk metrics are now out to where  Greece reached this spring.  U.S. 30yr auction today, yesterdays 10yr was weakest since February. Financials underperformed for the 2nd straight day.  Room was better for sale all day.  Could this just be a healthy correction?  Mortgage Apps show refi's +6%, new buys +5.5%.  Jobless data at 8:30. Bond Market is closed tomorrow.  1200 key level of support, nothing else matters.   Have a good day.