THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 2, 2011

Equity futures have traded mixed to fair value, indicating a preference for risk aversion, amid rising geopolitical tensions.  Violence in Iran yesterday, the world's fourth largest oil producer, helped push the Nymex oil contract back above $100/barrel. As we look at today’s set up for the S&P 500, the range is 18 points or -0.94% downside to 1294 and 0.43% upside to 1312.

MACRO DATA POINTS:

• MBA Mortgage Index Drops 6.5%; Purchases, Refis Down; MBA mortgage applications index fell 6.5% week ended Feb. 25.; Purchases slid 6.1%, refis down 6.5%
• 30-yr fixed rate 4.84% vs prior 5.00%
• 7:30 a.m.: Challenger Job Cuts
• 8 a.m.: Fed’s Hoenig speaks on Council on Foreign Relations
• 8:15 a.m.: ADP Employment Change, est. 180k, prior 187k
• 10 a.m.: Bernanke testifies before the House
• 10:30 a.m.: DoE inventories
• 2 p.m.: Fed Beige Book
• 2:15 p.m.: Fed’s Lockhart speaks on economic outlook in Atlanta
• 8 p.m.: Bernanke speaks on state, local challenges in New York, no Q&A

EARNINGS/WHAT TO WATCH:

• Yahoo! is in talks to dispose of its 35% stake in its Japanese J-V with Softbank, according to two people briefed on the matter
• Amazon.com threatens to sever ties with >10,000 affiliates in California amid a dispute with the state over proposed taxation of Internet purchases
• The U.S. Senate will vote on a stopgap budget bill need to prevent a government shutdown; it passed the House yesterday 335-91 vote; Ontario public hearings to discuss TMX/ LSE deal begin today
• FDA advisory panel members discuss draft report on menthol cigarettes
• NFL collective bargaining agreement is scheduled to expire tomorrow

PERFORMANCE:

We have 4 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

• One day: Dow (1.38%), S&P (1.57%), Nasdaq (1.99%), Russell 2000 (1.99%)
• Month-to-date: Dow (1.38%), S&P (1.57%), Nasdaq (1.61%), Russell (1.99%)
• Quarter/Year-to-date: Dow +4.15%, S&P +3.87%, Nasdaq +3.19%, Russell +2.99%
• Sector Performance: - Materials (2.3%), Industrials (2.2%), Financials (2.2%), Consumer Disc (1.8%), Telecom (1.7%), Tech (1.7%), Energy (1.5%), Utilities (1%), Healthcare (0.7%), Consumer Spls (0.5%)

EQUITY SENTIMENT:

• ADVANCE/DECLINE LINE: -1590 (-2681)  
• VOLUME: NYSE 1187.03 (-5.60%)
• VIX:  21.01 +14.50% YTD PERFORMANCE: +18.37%
• SPX PUT/CALL RATIO: 2.31 from 2.30 (+0.69%)

CREDIT/ECONOMIC MARKET LOOK:

• TED SPREAD: 18.27 0.812 (4.649%)
• 3-MONTH T-BILL YIELD: 0.13%
• 10-Year: 3.41 from 3.42
• YIELD CURVE: 2.75 from 2.70

COMMODITY/GROWTH EXPECTATION:

• CRB: 355.18 +0.74%; YTD: +6.72%  
• Oil: 99.63 +2.74%; YTD: +7.48% (trading +0.32% in the AM)
• COPPER: 450.95 +0.29%; YTD: +0.86% (trading -0.49% in the AM)  
• GOLD: 1,428.55 +1.18%; YTD: +1.02% ( trading +0.34% in the AM)  

COMMODITY HEADLINES:

• JPMorgan Takes Delivery of Almost 1 Million Tons of Sugar, Most Since 2009
• Cotton Jumps by Daily Limit, Rises for Fourth Day as Supply Remains Tight
• Crude Oil Advances a Second Day in New York on Middle East Supply Concern
• Farming in Australia Seen `Vulnerable' to Climate Change, Dryness in West
• Palladium Seen Rising 15% in 2011 as Russian Cargoes Drop: Freight Markets
• Gold Buying in China Jumps as Inflation Flares, Boosting Demand, UBS Says
• Copper, Corn May Slump on Mideast Unrest as Gold Jumps to $1,500, UBS Says
• China's Wheat-Growing Areas May Be Dry After Wetter-Than-Normal February
• Pan Pacific May Deepen Copper Production Cut on Scarce Raw-Material Supply
• Soybeans Advance as Rain, Flooding May Delay Brazil Harvest, Wheat Drops
• Glencore Is Said to Brief 11 Banks as Commodities Trader Weighs Share Sale
• Gold May Decline as Record Prices Prompt Sales, U.S. Job Prospects Improve
• Milk Powder Climbs to Record on China Demand, Increasing Global Food Costs
• Cocoa Arrivals From Brazil's Bahia Decline in Latest Week, Hartmann Says

CURRENCIES:

• EURO: 1.3806 +0.10% (trading +0.20% in the AM)
• DOLLAR: 77.049 +0.21% (trading -0.33% in the AM) 

EUROPEAN MARKETS:

• FTSE 100: (0.43%); DAX: (0.66%); CAC 40: (0.82%) (as of 07:00AM ET)
• European markets fell on increasing concerns over the political unrest in the Middle East and North Africa.
• Bunds and Gilts were buoyed by safe-haven buying though investors remained cautious ahead of the ECB meeting on 3-Mar and the possibility of increased anti-inflation rhetoric.
• Peripheral debt was pressured ahead of Portuguese T-bill auction and by S&P's warning they may still cut Greece and Portugal's debt rating further depending on the outcome of EU leaders talks over the crisis fund.

ASIAN MARKTES:

• Nikkei (2.43%); Hang Seng (1.49%); Shanghai Composite (0.18%)
• Though off their lows for the day, Asian markets closed lower following yesterday's declines in the US markets as higher oil prices and the turmoil in MENA returned to front-and-center.
• China Railway Construction is among the biggest decliners, down 7.8% after saying it halted work on three projects with combined value of $4.24b in Libya.
• The Nikkei suffered its worst percentage drop this year.
• Airlines and automobile manufacturers led shares lower across the region, with All Nippon Airways down 3.05%, Cathay Pacific down 2.51%, Qantas down 2.15%, Toyota down 2.85%, and Honda down 2.49%.
• Sands China closed down 6.2% after Las Vegas Sands (LVS) said it received a subpoena from the SEC regarding its Macau operations.
• Yahoo Japan closed up almost 3.7% after Reuters reported Yahoo (YHOO) was in talks to sell its stake.
• India said it would hold local elections in five states between 4-April and 10-April; the states send a cumulative 116 lawmakers to the lower house of Parliament.

Howard Penney

Managing Director