THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - February 8, 2011


Equity futures are trading above fair value as investors continue to see upside potential for equities buoyed by the FED.  US equities finished higher Monday on a very quiet day.  Without any large negative geopolitical or economic headlines market participants focused on company specific M&A and earnings for direction.  As we look at today’s set up for the S&P 500, the range is 25 points or -1.44% downside to 1300 and +0.45% upside to 1325.

 MACRO DATA POINTS:

  • 7:30 a.m.: NFIB Small Business Optimism, Jan, est. 94
  • 7:45 a.m.: ICSC Weekly Sales, Feb., est. 50.3
  • 8:45 a.m.: Fed’s Lacker speaks on economy in Newark, Delaware
  • 8:55 a.m.: Redbook Weekly Sales
  • 10 a.m.: JOLTs job openings, Dec., prev. 3,248
  • 11:30 a.m.: U.S. to sell $22b in 52-wk bills, $35b in 4-wk bills
  • Noon: DoE short-term energy outlook
  • 1 p.m.: Fed’s Lockhart to speak in Alabama
  • 1 p.m.: U.S. to sell $32b in 3-yr notes
  • 1:30 p.m.: Fed’s Fisher to speak in Dallas
  • 4:30 p.m.: API inventories
  • 5 p.m.: ABC Consumer Confidence, Feb. 6, est. -40

EARNINGS/WHAT TO WATCH:

  • Confidence among U.S. small companies rose in January to the highest level in three years, as the outlook for sales and profits improved, a private survey found. The National Federation of Independent Business optimism index increased to 94.1, the highest since the recession began in December 2007, the Washington-based group said today. The reading was lower than the average 100.7 during the last expansion that started in November 2001.
  • Microsoft CEO Steve Ballmer plans to extend a management reshuffling aimed at adding senior product executives with an engineering background, two people with knowledge of the decision told Bloomberg. Changes may be announced this month. 
  • Big Lots is exploring strategic options, including a possible sale, and is working with Goldman Sachs, a person with knowledge of the situation told Bloomberg
  • President Obama is considering seeking aid for state unemployment insurance programs burdened by debt because of high unemployment rates, according to a person familiar with the discussions. Obama will seek delay of state tax increases, suspension of interest payments on state debt, person said on condition of anonymity before 2012 budget is released Feb. 14.
  • Advent Software (ADVS) sees 1Q rev. $74m-$76m vs est. $74.4m
  • Becton, Dickinson (BDX) 1Q rev. misses est.
  • Exide Technologies (XIDE) Sees 4Q adj. Ebitda up Y/y
  • Gartner (IT US)4Q adj. EPS, rev. beat ests.
  • Healthcare Services (HCSG) 4Q EPS missed est. by 1c after record close
  • LPL Investment Holdings (LPLA) 4Q adj. EPS, rev. beat ests.
  • NYSE Euronext (NYX) 4Q EPS beat est., oper. rev. Fell Y/y
  • Principal Financial (PFG) 4Q oper. EPS missed est. 
  • Veeco Instruments (VECO) 1Q adj. EPS, rev. outlook below est.

PERFORMANCE:


The more defensive sectors – Consumer and healthcare – underperformed, while sectors more leveraged to the recovery – financials and industrials – lead the way higher. Perfect = 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow +0.57%, S&P +0.62%, Nasdaq +0.53%, Russell +1.03%
  • Month-to-date: Month-to-date: Dow +2.27%, S&P +2.56%, Nasdaq +3.11%, Russell +3.46%
  • Quarter/Year-to-date: Dow +5.05%, S&P +4.88%, Nasdaq +4.94%, Russell +3.15%
  • Sector Performance - (8 sectors down and 1 up): - Financials +1.46%, Industrials +0.94%, Utilities +0.64%, Energy +0.58%, Tech +0.50%, Consumer Discretionary +0.53%, Materials +0.54%, Consumer Staples +0.14%, Healthcare (0.15%)

  EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1173 (+1180)  
  • VOLUME: NYSE 879.63 (-4.43%)
  • VIX:  16.28 +2.20% YTD PERFORMANCE: -8.28%
  • SPX PUT/CALL RATIO: 1.85 from 1.85 (-0.21%)

CREDIT/ECONOMIC MARKET LOOK:


Treasuries: were weaker except for the long bond, which saw its yield decrease by ~2bps

  • TED SPREAD: 17.30 +0.304 (1.788%)
  • 3-MONTH T-BILL YIELD: 0.16%
  • YIELD CURVE: 2.90 from 2.91

COMMODITY/GROWTH EXPECTATION:

  • CRB: 337.46 -0.43%  
  • Oil: 87.48 -1.74% - trading -0.82% in the AM
  • COPPER: 457.50 -0.10% - trading -0.61% in the AM  
  • GOLD: 1,349.15 +0.11% - trading +0.31% in the AM  

COMMODITY HEADLINES:

  • Oil fell to the lowest level in a week as talks between the government and opposition politicians helped ease tensions in Egypt, reducing concern that supplies will be disrupted. 
  • Natural gas dropped 4.8%, the biggest decline in three months, as forecasts showed milder weather next week, reducing demand for the heating fuel. 
  • After the worst January for precious metals in two decades, investors still have a $102 billion bet on higher prices, hoarding more gold than all but four central banks and more silver than the U.S. can mine in almost 12 years.
  • Copper backed away from a fresh record high on Monday, its sixth in as many sessions, as prices fell under the weight of a firmer U.S. dollar and began to show some signs of fatigue from the latest bull-run
  • Corn closed lower after a choppy session, rising to a new long-term high in early moves on talk that China would boost imports this year, pressuring dwindling U.S. grain stocks. 
  • Wheat prices rose to fresh highs as news that top buyer Egypt had entered the market after nearly a month-long absence boosted dealers' confidence after weeks of unrest. 
  • Barley output in Germany, Scandinavia and Eastern Europe has been hit due to heavy rainfall, while Russian growers experienced a heatwave. A study from Grocer magazine recently predicted that brewers will be forced to raise the average cost of a pint by 30 pence, due to the rising cost of commodities.

CURRENCIES:

  • EURO: 1.35.44 -0.27% - trading +0.65% in the AM
  • DOLLAR: 77.720 -0.02% - trading -0.40% in the AM 

EUROPEAN MARKETS:

  • FTSE 100: (0.11%); DAX: +0.31%; CAC 40: +0.16%; IBEX: +0.28% (as of 06:15 EST)
  • European markets trade mixed having fluctuated either side of unchanged for much of the session.
  • The euro-region rescue fund should be empowered to bail out banks and buy bonds on the market even though it’s “highly unlikely” that the debt crisis will spread to either Spain or Italy, according to Bank of Italy Director General Fabrizio Saccomanni.
  • With minimal regional economic news, earnings dominated the market, with BMW Group January unit sales and Toyota raising guidance aiding autos +2.3% and basic resources +2.0% buoyed by Xstrata and ArcelorMittal. Travel & leisure up +0.7% was the third best performing sector.
  • Germany Dec Industrial Output (1.5%) m/m vs consensus +0.3% and prior revised (0.6%).  Economy ministry says decline is due to cold weather.  Economy ministry says outlook is still positive. Manufacturing output -0.1%; Basic goods output -3.1%; Investment goods output +3.3%; Consumer goods output -1.3%; Energy output +0.3%; Construction output -24.1%
  • Egypt’s Central Bank Intervenes to Support Currency.  Egypt’s credit risk falling to lowest level since anti-govt. protests began two weeks ago, international borrowing costs dropping as the nation’s biggest political crisis in three decades eases.
  • Danish banks may face wave of consolidation after country’s latest lender insolvency left some bondholders in the lurch, straining efforts to raise funds just over four months after state withdrew its guarantee.
  • Irish Finance Minister Brian Lenihan said govt. pressing for “substantial discount” on EU20b ($27.2b) of unsecured senior bank bonds, push resisted by ECB, in debate on RTE television last night.
  • ECB President Jean-Claude Trichet said yesterday that Ireland needs to press ahead with fiscal austerity measures, imposing “haircuts” on investors isn’t part of the plan

ASIAN MARKTES:

  • Nikkei +0.41%; Hang Seng (0.29%); Shanghai Composite (closed)
  • Asian stocks fluctuate as gains by financial companies on earnings are tempered by losses among Taiwanese technology.
  • Australia up 0.45% - positive results from National Australia Bank, which rose 2% on the day.  On the flip side Macquarie Group edged down after forecasting earnings will decline in H2.
  • Hong Kong slipped -0.29% - property developers fell on a report that the government will make more residential land available next FY.
  • Taiwan fell -0.37%, but HTC rose 1% on announcing $87M of acquisitions.
  • South Korea fell -0.58% on worries about policy tightening in the region.
  • China will reopen tomorrow after its Lunar New Year break.
  • China raised key interest rates for the third time since mid-October after growth accelerated and inflation stayed above 4%.  The benchmark one-year lending rate will increase to 6.06% from 5.81% effective tomorrow
  • Japan December current account surplus +30.5% y/y to jpy1.195T vs cons jpy1.159T. January M3 +1.8% y/y..

Howard Penney

Managing Director

THE HEDGEYE DAILY OUTLOOK - setup