Wednesday, January 5, 2011

Morning Note...

Futures ~20bps lower this morning despite much better than expected unemployment data from ADP.  The December ADP Employment Change release indicated 297,000 jobs were added to the economy for the month, which is nearly three times the +100k estimate.  U.S. futures, however, remain slightly underwater as European markets are down ~1%, Asian markets were mixed to slightly lower overnight, and commodities are generally lower across the board on “slowing global growth” concerns.  Additionally, the USD is ~1% higher and the EUR/USD stands at 1.3146 (down 1.22%).  Drilling down a bit in Europe, it’s worth noting that Portugal sold EU500 billion of six-month bills with a 3.7% yield, which is much higher than the 2.05% rate in September 2010.  In M&A news, QCOM will acquire ATHR for $45/share, or roughly $3.1 billion.  In earnings news, agriculture company MOS is ~3% higher on a 10c beat to earnings estimates.  Yesterday’s Fed minutes also revealed a lack of faith in the recovery signals observed during the last two months, with the Fed noting its reticence to adjust the QE2 program at this juncture.  The Fed further expressed concern on the European debt issues that have been gaining attention in the market over the past few months.  With all of the variables in place, several Committee members stated that they had a “fairly high threshold” for making adjustments to QE2.  Note that December’s ISM Non-Manufacturing release is due at 10am today, and stands to confirm this morning’s positive jobs data.  Here’s a quick summary from Knight’s Fixed Income desk:

ADP, the best (and really only) predictor of Friday’s monthly jobs data, printed at a very high 297K gain for December versus expectations of a 100K gain.  We have noted before that “best” here is a pretty low bar and the ADP report should be considered in its own right, and not just a forward look at the official numbers.  ADP overestimated November’s jobs data (by 43K), but underestimated the prior 6 months (average difference of 55K).
That being said, the 297K print is hard to argue with.  270K of the jobs were in the services sector, so this raises expectations for the ISM Non-Manufacturing number due out at 10AM.  We will closely watch this number for confirmation of the ADP data, but there is historically not a huge basis to argue with the number.  Even adjusting for holidays and noting the service bias, it is not out of line.  Service jobs accounted for about 97% of ADP December job gains and 84% of all ADP prints over the past five years.  A confirming ISM number at 10AM will significantly raise expectations and estimates for Friday. 

Regarding market “feel,” here’s one trader’s take (BofAMLCO):

Look no farther than the commodities for the selloff.  The dollar up for a third straight day vs. the euro, and the possibility of position limits on CRB loom.    Reuters: CFTC commissioner Bart Chilton “While I will now support publishing a position limit proposal for public comment, I will continue to make the case that we need to address excessive speculation in these markets immediately,”  These comments will focus on ETF participation in the Commodity markets.   12555 is Monday low, the first level of support, 1245 was last weeks’ low.  1270 was yesterdays high.   I am still a buyer of this dip.   Going into earnings I feel you need to be long the market.   Have a good day.

FDO lowers guidance.  EBAY initiated Hold at Canaccord.  PIPR cautious on LEAP.  JEFF cuts ASBC.  BCAP ups BYD, NVDA.  EDR announces 9.5M share offering.  HTS announces 9M share offering.  TRID lowers guidance. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
Best Quotes:  Good BBERG piece on rising food costs…

World Food Prices Rise to Record on Sugar, Meat Costs
2011-01-05 09:57:50.319 GMT

By Rudy Ruitenberg
     Jan. 5 (Bloomberg) -- World food prices rose to a record in December on higher sugar and meat costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.
     An index of 55 food commodities maintained by the Food and Agriculture Organization climbed for a sixth month to 214.7 points, above the previous all-time high of 213.5 set in June 2008, according to a monthly report posted on the Rome-based UN agency’s website today. The gauges for sugar and meat prices advanced to records.
     Sugar climbed for a third year in a row in 2010, and corn jumped the most in four years in Chicago. Food prices may gain further unless global grain production rises “significantly”
in 2011, the FAO said Nov. 17. At least 13 people died last year in Mozambique in protests against planned increases in bread and water prices.
     “There is still, unfortunately, the potential for grain prices to strengthen on the back of a lot of uncertainty,”
Abdolreza Abbassian, senior economist at the FAO, said by phone today. “If anything goes wrong with the South American crop, there is plenty of room for them to increase further.”

                      Cereals, Cooking Oils

     The FAO’s food-price indicator climbed from 206 points in November. Its gauge for sugar prices reached 398.4 points last month, increasing from 373.4 in November. The meat-price index rose to 142.2 points from 141.5.
     The agency’s cereal-price index jumped to 237.6 points in December, the highest level since August 2008, from 223.3 the previous month. The indicator for cooking oils advanced to 263 points, the highest since July 2008, from 243.3. The index for dairy prices rose to 208.4 points from 207.8.
     Global grain output will have to rise at least 2 percent this year to meet demand in 2011-2012 and avoid further depletion of stocks, the UN agency has said. Concern about dry weather in Argentina helped corn prices to jump 52 percent in Chicago last year.
     The basis for the FAO index is 2002-04. The gauge includes commodity quotations that the agency considers representative for international food prices.