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TODAY’S S&P 500 SET-UP - February 9, 2011


Equity futures are trading below fair value as the recent upward trend looks to be stalling amid a lack of fresh catalysts. As we look at today’s set up for the S&P 500, the range is 29 points or -1.63% downside to 1303 and +0.56% upside to 1332.

On Tuesday, indices again found the path of least resistance to be to the upside, but other than the improving economic backdrop there was little obvious justification for the performance; especially given China's interest rate move.

 MACRO DATA POINTS:

  • MBA mortgage applications index fell 5.5% week ended Feb. 4.; Refis down 7.7%, purchases fell 1.4%; both had gained prior week
  • Rate on 30-Yr fixed-rate mortgage rises to 5.13%, above 5% for first time since April 2010, below 5-yr avg of 5.66%
  • 8:30 a.m.: WASDE commodities
  • 10 a.m.: Fed Chair Bernanke testifies at House Budget Committee
  • 10:30 a.m.: DoE inventories
  • 1 p.m.: U.S. to sell $24b notes
  • 6:45 p.m.:  Fed’s Lockhart speaks on U.S. outlook in Atlanta

EARNINGS/WHAT TO WATCH:

  • Bullish sentiment increases to 53.4% from 52.7% in the latest Investor's Intelligence poll; Bearish sentiment increases to 23.3% from 22.0%; those expecting a market correction decreases to 23.3% from 25.3%.
  • Morgan Stanley may turn its remaining proprietary-trading group into an electronic client-trading unit, two people with knowledge of the matter told Bloomberg
  • St. Joe hires Morgan Stanley to help it explore strategic alternatives including a merger or sale; will consider a revised business plan, operating partnerships, JVs, strategic alliances, asset sales, strategic acquisitions it says
  • News Corp.’s Fox network says it may drop some affiliates if the local TV stations are unwilling to pay a program fee sought by the broadcaster. Says it will seek direct talks with station owners after nine months of discussions with the affiliates’ board “made no progress”. Fox is demanding a share of so-called retransmission fees that stations are starting to receive from cable and satellite-TV systems for access to local signals
  • London Stock Exchange agreed to buy Toronto Stock Exchange owner TMX Group for C$3.2b
  • House Ways and Means trade subcommittee holds hearing on U.S. trade policy issues. 9 a.m.
  • House Oversight subcommittee on TARP holds hearing on the coming crisis in state and municipal debt. 9:30 a.m.
  • House Financial Services subcommittee holds hearing on job creation and the unemployment rate. 10 a.m.

PERFORMANCE:


There were some bright spots for stocks today, including a continued pickup in small business sentiment, another round of M&A and corporate actions activity and some heightened attention surrounding President Obama's efforts to improve the administration's relationship with the business community. 

Day 2 of perfect = 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow +0.59%, S&P +0.42%, Nasdaq +0.47%, Russell 2000 +0.66%
  • Month-to-date: Dow +2.87%, S&P +2.99%, Nasdaq +3.59%, Russell +4.15%;
  • Quarter/Year-to-date: Dow +5.66%, S&P +5.32%, Nasdaq +5.43%, Russell +3.83%
  •  Sector Performance - (7 sectors down and 2 up): - Consumer Disc +1.19%, Industrials +0.67%, Financials +0.71%, Consumer Spls +0.48%, Tech +0.41%, Materials +0.32%, Healthcare +0.29%, Utilities (0.01%), Energy (0.34%)

  EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 841 (-332)  
  • VOLUME: NYSE 886.27 (+0.75%)
  • VIX:  16.28 -2.89% YTD PERFORMANCE: -10.93%
  • SPX PUT/CALL RATIO: 1.37 from 1.85 (-25.67%)

CREDIT/ECONOMIC MARKET LOOK:


Treasuries were weaker for a seventh straight session today. Some of the pullback was chalked up to a disappointing three-year note auction, while supply concerns are expected to remain in focus ahead of tomorrow's $24B 10-year note auction and the sale of $16B worth of 30-year bonds on Thursday.

  • TED SPREAD: 16.70 -0.507 (-2.949%)
  • 3-MONTH T-BILL YIELD: 0.15% -0.01%
  • YIELD CURVE: 2.89 from 2.90

COMMODITY/GROWTH EXPECTATION:

  • CRB: 337.25 -0.06%; YTD: +1.34%  
  • Oil: 87.30 -0.62%; YTD: -5.34% (trading +0.30% in the AM)
  • COPPER: 455.30 -0.02%; YTD: +2.38% (trading +0.32% in the AM)  
  • GOLD: 1,362.58 +1.38%; YTD: -3.95% ( trading -0.35% in the AM)  

COMMODITY HEADLINES:

  • Natural gas futures declined to the lowest price in almost 12 weeks on forecasts of moderating temperatures that may limit demand for the heating fuel. 
  • Silver futures for March delivery gained 92.8 cents, or 3.2 percent, to settle at $30.271 an ounce on the Comex. Earlier, the price reached $30.285, the highest since Jan. 4.  Silver, which has wider industrial applications than gold, rose 84 percent last year and touched a 30-year high of $31.275 on Jan. 3, before dropping as low as $26.30 on Jan. 28.
  • After an 11-year moratorium on GMOs, Mexico had approved a small project with Monsanto and two other companies, but isn’t ready to go further into a full pilot program.  “Corn is a staple food crop in Mexico, intricately intertwined with the country’s cuisine, history, and culture,” notes Beth Buczynski at Care2. “Authorities are concerned that Monsanto’s genetically modified corn will contaminate native species, and could cause both health and environmental issues.”
  • Wheat futures rose to a 29-month high on signs that countries are boosting grain inventories after food inflation spurred unrest in North Africa.  Egypt, the world’s biggest importer, bought 55,000 metric tons from the U.S. in a tender on Feb. 5. Iraq, Turkey, Bangladesh and Algeria have issued tenders since Feb. 6, and Iran and Saudi Arabia may be in the market “soon.” 

CURRENCIES:


Euro gains vs most peers while New Zealand dollar falls against all of its major counterparts after Finance Minister Bill English said it was “possible” economy slipped into recession in 2H.

  • EURO: 1.3666 +0.90% (trading -0.23% in the AM)
  • DOLLAR: 77.999 -0.04% (trading +0.03% in the AM) 

EUROPEAN MARKETS:

  • FTSE 100: (0.35%); DAX: (-0.04%); CAC 40: (0.15%); IBEX: (0.31%) (as of 06:45 EST)
  • European markets mainly trade lower with M&A activity and corporate results influencing individual market direction.
  • London Stock Exchange and TMX Group to merge, with LSE shareholders ending up owning 55% of the combined group, expected to be accretive to adjusted EPS for both companies
  • There are no major MACRO data points
  • Bundesbank President Axel Weber will drop out of the race to succeed Jean-Claude Trichet as head of the ECB, Reuters said

ASIAN MARKTES:

  • Nikkei; (0.17%); Hang Seng (1.36%); Shanghai Composite (0.89%)
  • Asian markets fall the most in a month, led by energy, commodities shares, after China yesterday raised one-yr deposit and lending rates.
  •  Hang Seng falls to YTD low, led by developers, while basic resources shares fall as copper retreats.
  • Commonwealth Bank of Australia rose 2% when its results beat estimates, bringing other banks up in sympathy and powering the market to a small rise.
  • Morning gains in Japan were limited by caution about China’s performance and profit-taking in banks turned the market negative in the afternoon. China-related shares fell.
  • China reopened after a long break by falling in reaction to the higher interest rates. Property, commodity, and financial firms went down on worries that higher borrowing costs will stifle consumer demand.
  • Chinese developers fell 2-4% to lead Hong Kong down.
  • China January HSBC PMI 52.0 vs prior 53.1.
  • Japan January consumer confidence +1.0 pts m/m to 41.1.
  • Tokyo January office vacancies 9.04% vs prior 8.91%.

Howard Penney

Managing DIrector

THE HEDGEYE DAILY OUTLOOK - setup