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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

TODAY’S S&P 500 SET-UP - January 26, 2011


Equity futures are trading above fair value in a continuation of Tuesday's late day rally which erased declines in the last hour. Overnight, global markets have reacted positively to President Obama's State of the Union address in which he highlighted the need to cut corporate tax rates, and pledged to freeze domestic spending.  As we look at today’s set up for the S&P 500, the range is 9 points or -0.40% downside to 1286 and +0.30% upside to 1295.

MACRO DATA POINTS:

  • MBA Mortgage Index Sinks to Lowest Since Nov. 2008 MBA mortgage applications index fell 12.9% week ended Jan. 21. Refi’s sank 15.3%, lowest in a yr Purchases fell 8.7%, lowest since Oct.
  • Avg. 30-yr fixed rose to 4.80% from 4.77% prior week; rate hit 4.21% in Oct., lowest since group’s records began in 1990
  • Almost 60% of global investors predict at least one nation will leave euro-area within five years and a majority also says that Greece and Ireland will default, Bloomberg Global Poll shows as World Economic Forum’s annual meeting gets underway in Davos.
  • Spain will impose core capital requirement of as much as 10% on lenders that don’t have private investors and depend on wholesale funding, Finance Minister Elena Salgado
  • EFSF will need more cash to take on role of bond buybacks that ministers are discussing; would require as much as EU280b, more than rules currently allow it to disburse, for rescue program focused on Greece,
  • 10 a.m.: New home sales, Dec., est. 3.5% M/m gain to 300k, prior 290k, 5.5% gain
  • 10:30 a.m.: DOE inventories, Jan. 21
  • 11:30 a.m.: U.S. sells $25b 56-day cash management bills; 1 p.m.: sells $35b 5-yr notes
  • 3 p.m.: USDA broiler eggs set, Jan. 21

EARNINGS:

  • Altera (ALTR) forecast 1Q rev. down 1%-5% sequentially, implies sales $527.6m-$549.8m vs est. $523.2m
  • DeVry (DV) reported 2Q EPS $1.25 vs est. $1.19
  • Gilead Sciences (GILD) got “refuse to file” notification from FDA on Truvada/TMC278 NDA
  • Juniper Networks (JNPR) forecast 1Q rev. $1.06b-$1.11b vs. est. $1.09b
  • Keynote Systems (KEYN) forecast 2Q rev. $23m-$24m vs. est. $21.5m (3 ests.)
  • Lowe’s Cos. (LOW) plans to cut 1,700 management Jobs, hire 8k-10k more weekend staff
  • Molex (MOLX) forecast 3Q EPS 39c-43c vs est. 40c
  • RF Micro Devices (RFMD) forecast 4Q rev. down 10%-15% (implies $237.2-$251.1m), vs est. $259.4m
  • Stryker (SYK) said 2011 EPS may be as low as $3.65, vs est. $3.69; reported 4Q adj. EPS 93c, est. 91c
  • WMS Industries (WMS) forecast 3Q rev. $209m-$215m vs est. $219.5m
  • Yahoo! (YHOO) forecast 1Q rev. ex-TAC $1.02b-$1.08b vs est. $1.14b
  • Wellpoint (WLP) 6 a.m., $1.22
  • Praxair (PX) 6:02 a.m., $1.23
  • Textron (TXT) 6:30 a.m., $0.26
  • Xerox (XRX) 6:45 a.m., $0.28
  • MeadWestvaco (MWV) 6:50 a.m., $0.39
  • Eastman Kodak (EK) 6:52 a.m., $0.05
  • Legg Mason (LM) 7 a.m., $0.46
  • McCormick (MKC) 7 a.m., $0.96
  • Rockwell Automation (ROK) 7 a.m., $0.88
  • United Technologies (UTX) 7 a.m., $1.29
  • United Continental Holdings (UAL) 7:03 a.m., $0.24
  • Allegheny Technologies (ATI) 7:30 a.m., $0.29
  • Automatic Data Processing (ADP) 7:30 a.m., $0.61
  • Boeing (BA) 7:30 a.m., $1.11
  • Canadian Pacific Railway Ltd (CP CN) 7:30 a.m., $1.08
  • General Dynamics (GD) 7:30 a.m., $1.85
  • Hess (HES) 7:30 a.m., $1.23
  • Southern Co (SO) 7:30 a.m., $0.18
  • St Jude Medical (STJ) 7:30 a.m., $0.74
  • Occidental Petroleum (OXY) 7:35 a.m., $1.54
  • Abbott Laboratories (ABT) 7:44 a.m., $1.29
  • Valero Energy (VLO) 7:44 a.m., $0.34
  • Cooper Industries PLC (CBE) 8 a.m., $0.85
  • Exelon (EXC) 8 a.m., $0.92
  • New York Community Ban (NYB) 8 a.m., $0.32
  • ConocoPhillips (COP) 8:30 a.m., $1.31
  • US Airways Group (LCC) 8:30 a.m., $0.06 
  • Qualcomm (QCOM) 4 p.m., $0.72
  • Varian Medical Systems (VAR) 4 p.m., $0.73
  • Harris (HRS) 4:03 p.m., $1.11
  • Starbucks (SBUX) 4:03 p.m., $0.39
  • Crown Castle International (CCI) 4:04 p.m., $0.08
  • Amylin Pharmaceuticals (AMLN) 4:05 p.m., $(0.31)
  • Citrix Systems (CTXS) 4:05 p.m., $0.60
  • E*Trade Financial (ETFC) 4:05 p.m., $0.04
  • Lam Research (LRCX) 4:05 p.m., $1.57
  • NetFlix (NFLX) 4:05 p.m., $0.71
  • Owens-Illinois (OI) 4:05 p.m., $0.47
  • Symantec (SYMC) 4:05 p.m., $0.33
  • Motorola Mobility Holdings (MMI) 4:15 p.m., $0.37
  • Alcon (ACL) 4:15 p.m., $1.69
  • Murphy Oil (MUR) 4:47 p.m., $1.00
  • Noble (NE) 5:02 p.m., $0.32

PERFORMANCE:


The XLB remains the only sector that is broken on the Hedgeye TRADE - 8 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow (0.03%), S&P +0.03%, Nasdaq +0.06%, Russell 2000 +0.09%
  • Last Week: Dow +0.72%, S&P -0.76%, Nasdaq -2.39%, Russell -4.26%
  • Year-to-date: Dow +3.45%, S&P +2.67%, Nasdaq +2.50%, Russell (0.47%)
  • Sector Performance - (4 sectors up and 4 down and 1 flat): - Tech +0.46%, Consumer Spls +0.32%, Materials +0.13%, Consumer Disc 0.05%, Healthcare (0.00%), Utilities (0.15%), Industrials (0.12%), Financials (0.20%), Energy (0.29%)

  EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 219 (-1001)  
  • VOLUME: NYSE 1046.43 (+8.78%)
  • VIX:  17.59 -0.36% YTD PERFORMANCE: -0.90%
  • SPX PUT/CALL RATIO: 2.44 from 2.06 (-18.19%)

CREDIT/ECONOMIC MARKET LOOK:


Treasuries were higher yesterday with the weakness in stocks throughout much of the day.

  • TED SPREAD: 15.63 -0.304 (-1.910%)
  • 3-MONTH T-BILL YIELD: 0.16%      
  • YIELD CURVE: 2.73 from 2.78

COMMODITY/GROWTH EXPECTATION:

  • CRB: 327.570 -1.54%  
  • Oil: 86.19 -1.91% - trading +0.66% in the AM
  • COPPER: 422.60 -2.82% - trading +0.96% in the AM  
  • GOLD: 1,333.07 -0.79% - trading +0.25% in the AM  

COMMODITY HEADLINES:

  • Crude oil fell to its lowest price in eight weeks on signs that the economies of the U.S. and the U.K. are struggling to recover, curbing demand growth for fuels. 
  • Natural gas futures fell, marking their biggest two-day drop since November, on declines in other commodities and speculation that U.S. supplies are adequate to meet winter-heating demand.
  • India plans to invest $3 billion to build a steel plant in Indonesia and buy coal from the Southeast Asian nation as part of an initial accord.
  • Gold futures fell to the lowest in almost three months as demand waned for precious metals as alternative investments.  Global investors are becoming more confident about the economic outlook, according to a quarterly poll of 1,000 Bloomberg subscribers.
  • Copper prices fell to their lowest level in a month on Tuesday as another sharp build in London inventories and inflation fears in Asian consuming countries cast some doubts over the red metal's near-term demand outlook.
  • U.S. corn futures closed lower for the second consecutive day Tuesday as the market pulled back from 30-month highs.  The U.S. Department of Agriculture will give traders their next update on corn demand when it issues weekly export sales data Thursday.
  • Wheat futures rose, capping the longest rally in six months, on signs that demand is increasing for U.S. supplies as adverse weather threatens global output.
  • U.S. hog futures surged Tuesday on a plan by South Korea to remove its tariff on pork imports through June, likely boosting pork exports from the U.S.  Animal-health officials in South Korea have been battling numerous outbreaks of foot-and-mouth disease

CURRENCIES:

  • EURO: 1.3642  - trading +0.39% in the AM
  • DOLLAR: 78.002 -0.06% - trading -0.21% in the AM 

EUROPEAN MARKETS:

  • FTSE 100: +1.31%; DAX: 1.25%; CAC 40: +0.90% (AS OF 6:45 AM EST)
  • European markets opened higher and extended gains to currently trade around session highs, buoyed by broadly higher markets across Asia and US futures trade higher.
  • European Automobile Manufacturers' Association Dec Commercial Vehicles Registrations in the EU +12.5% y/y
  • BOE minutes: MPC voted 7-2 to hold rates at 0.5%, voted 8-1 to keep QE total at £200B; BOE policy maker Martin Weale joined Andrew Sentance in voting for an interest-rate increase this month as officials said the balance of risks to inflation had moved “upwards,” minutes show.
  • UK Dec Mortgage Approvals 28,726 vs prior 29,696
  • Germany reported import price inflation 12% vs est. 10.8%, fastest pace in 29 years. German two-year government note yields rose to the highest in a year as data raises inflation expectations.
  • Spain reported home loans down 14.6% Y/y in Nov., seventh month of declines.
  • Italy reported Nov. retail sales down 0.3% M/m vs est. gain 0.1%
  • Spanish, Greek, Portuguese 10-yr bonds all decline

ASIAN MARKTES:

  • Nikkei (0.60)%; Hang Seng +0.23%; Shanghai Composite +1.17%
  • Asian markets were mixed this morning.
  • China up 1.17% and Indonesia up 1.97%
  • South Korea rose 1.14% when Q4 GDP growth beat expectations although slowed sequentially.  GDP rose 0.5% vs 0.7% last quarter.  The median estimate of 12 economists in a Bloomberg News survey was for a 0.4%.  Year-over-year GDP increased 4.8%.
  • Taiwan rose +0.71%.
  • Japan declined (0.60%) on a weak showing by Wall Street and uninspiring US earnings. Japan December corporate services price index (1.3%) y/y to 96.4.
  • Australia is closed for Australia Day.

Howard Penney

Managing Director

THE HEDGEYE DAILY OUTLOOK - setup