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TODAY’S S&P 500 SET-UP - January 10, 2011


As we look at today’s set up for the S&P 500, the range is 25 points or -1.61% downside to 1251 and 0.35% upside to 1276.  Equity futures are trading below fair value in response to weaker Asian and European markets as investors digest Friday's jobs report. This week’s MACRO data points sees the Fed's Beige Book, PPI, CPI, Initial Jobless Claims, Retail Sales and the first reading of January's Consumer Confidence later in the week.

According the FT, the Fed is expected to start stress testing a number of US banks this week to determine which ones are allowed to raise dividends or return capital to shareholders. The test is expected to be finalized by March. Alcoa starts the Q4 earnings season off after the close today.

MACRO DATA POINTS:

  • U.S. Fed to purchase $7b-$9b in notes/bonds, 11 a.m.
  • Export inspections (corn, soybeans, wheat), 11 a.m.
  • U.S. to sell $29b in 3-mo. bills, $28b in 6-mo. bills, 11:30 a.m.
  • Fed’s Lockhart speaks on U.S. economic outlook in Atlanta

TODAY’S WHAT TO WATCH:

  • Airgas Inc. (ARG US) extended tender offer for Airgas until Feb. 4 from Jan. 14.
  • Commonwealth REIT (CWH). Adam Portnoy to become president, replacing John Mannix, who resigned as president and chief investment officer to lead acquisition plans in Australia.
  • Olam International (OLMIF)  along with Wilmar International (WLMIF) and Noble (NOBGF) may be attractive amid global commodities boom, Barron’s reported.
  • Salix Pharmaceuticals (SLXP) may rise on Food and Drug Administration approval of its irritable-bowel syndrome treatment - Barron’s
  • Strayer Education (STRA) new student enrollments down by ~20%
  • Union Pacific (UNP) may rise as much as 50 percent over the next three years as the railroad raises prices and cuts costs, Barron’s reported, citing Lisa Dong, Westwood Holdings Group portfolio manager.
  • WellPoint (WLP) preliminary 2010 EPS exceeded $6.60

PERFORMANCE: Consumer Staples is BROKEN on TRADE

  • One day: Dow (0.19%), S&P (0.18%), Nasdaq (0.25%), Russell (0.45%)
  • Last Week: Dow +0.84%, S&P +1.10%, Nasdaq 1.90%, Russell +0.53%
  • Month/Quarter/Year-to-date: Dow +0.84%, S&P +1.10%, Nasdaq +1.90%, Russell +0.53%
  • Sector Performance - BEARISH (Only 3 sectors positive) - Energy +0.72%, Utilities +0.36%, Industrials +0.20%, Consumer Discretionary (0.05%), Healthcare (0.06%), Materials (0.09%), Tech (0.46%), Consumer Staples (0.51%) and Financials (0.90%)   

 EQUITY SENTIMENT: MIXED

  • ADVANCE/DECLINE LINE: -368 (+289)  
  • VOLUME: NYSE 1089.51 (-0.35%)
  • VIX:  17.14 -1.49% YTD PERFORMANCE: -3.44%
  • SPX PUT/CALL RATIO: 1.79 from 0.86 (+108.71%)  

CREDIT/ECONOMIC MARKET LOOK:


Treasuries were stronger across the curve; outperformance mainly in the belly of the curve, where 5s and 7s fell ~10bps. 10-yr yield down ~7bps, ending at 3.32%.

  • TED SPREAD: 17.33 0.507 (3.016%)
  • 3-MONTH T-BILL YIELD: 0.14% -0.01%    
  • YIELD CURVE: 2.74 from 2.76

COMMODITY/GROWTH EXPECTATION:  

  • CRB: 323.94 -0.35%
  • Oil: 88.03 -0.40% - trading +0.74% in the AM (down 3.67% last week)
  • Oil Rises in New York After Alaskan Crude Pipeline Leak Cuts U.S. Supplies
  • COPPER: 428.25 -1.09% - trading -0.11% in the AM (down 3.70% last week)
  • Copper May Fall for Fifth Day as Lower Equity Markets Cool Demand Outlook
  • GOLD: 1,367.90 -0.43% - trading 0.16% in the AM (down -3.58% last week)
  • Gold Fluctuates Amid Concern About Sovereign Debts in Euro-Zone Nations

OTHER COMMODITY NEWS:

  • Alaskan Oil Pipeline Shutdown Cuts Production, Pushes Crude Prices Higher
  • Corn Advances as Dry, Warm Weather in Argentina May Limit Grain Production
  • Freight Rates Poised to Tumble as 35-Mile Line of Ships Passes Coal Demand
  • Hedge Funds Increase Bets on Wheat Rally to Highest Level Since September
  • EU Wheat-Export Slump Signals Tightening Supplies of Grain, Analysts Say
  • Florida Orange Output May Fall on Unusually Frigid Weather, Survey Shows
  • China Likely to Impose Tariffs on U.S. Dried Distillers' Grains, Yigu Says
  • Silver is `Common Man's Gold' in India as Bullion Expensive, Trader Says
  • Copper Imports by China Decline in December as Arbitrage Profits Shrink
  • South Korea Finds More Foot-and-Mouth Cases, Livestock Culling Tally Jump
  • Palm Oil Production in Malaysia Declines to the Lowest Level in 10 Months

CURRENCIES:

  • EURO: 1.2907 -0.93% - trading flat in the AM (down 3.56% last week)
  • DOLLAR: 81.012 +0.27% - trading +0.07% in the AM (up 2.51% last week)

EUROPEAN MARKETS:

  • European Markets: FTSE 100: (0.56%); DAX: (0.87%); CAC 40: (1.54%)
    European markets fell as continuing concerns over peripheral Europe's debt crisis and weaker markets across Asia. 
  • Reports that Portugal denied having been pressured by France and Germany to accept a bailout impacted the euro, peripheral debt spreads and equity markets, with France and Portuguese equity markets leading the region lower down around (1.5%) and (1.86%), respectively.
  • All but one sector trades lower led by banks down over (2.5%) and basic resources (1.9%). US futures trade lower
  • France Nov Industrial Production +2.3% m/m vs consensus +1%
  • Eurozone January Sentix Index 10.6 vs consensus 11.3
  • UK Dec house prices (1.3%) m/m vs consensus (0.4%) and (1.6%) y/y vs consensus (1.4%) - 

ASIAN MARKTES:

  • Asian Markets: Nikkei (closed); Hang Seng (0.67%); Shanghai Composite (1.66%)
  • Asian markets mostly fell this morning, due to disappointment with the January US jobs report and renewed concerns about European sovereign debt.
  • Australia traded up 0.16%, with retailers supporting the market.
  • China's auto sales last year rose 32.37% to 18.06M units, according to the China Association of Automobile Manufacturers.
  • Hong Kong traded down 0.67%.
  • South Korea went down 0.26%.
  • India down 2.38%
  • Japan is closed for Coming of Age Day.
  • Indonesia was the biggest looser down 4.21% - the biggest drop in 2 years on inflation concerns
  • China’s December trade surplus $13.1B vs survey $20B.

Howard PenneyManaging