THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - May 11, 2011

The three items of focus this morning;

1. Chinese Growth Slowing is a year old – Chinese inflation slowing sequentially is new “news” to the Street, but a core component of why we are bullish on China for the back half of 2012 (CPI and PPI slowed sequentially in April to +5.3% and +6.8%, respectively)
2. Growth oriented inflation readings in the commodity market (supply/demand, Copper, Cotton, etc) continue to negatively diverge from monetary inflation (Gold up again this morning to $1524, breaking out above an important line of resistance at $1521)
3. US stock market sentiment comes in hot from what I called out in my midweek note last week (that’s bullish on the margin); Investor Intelligence spread narrows by 400 bps w/w to 32.5 w/ Bulls dropping w/w to 51% from 55% (after stocks and commodities sold off)

As we look at today’s set up for the S&P 500, the range is 35 points or -1.56% downside to 1336 and 1.02% upside to 1371.

SECTOR AND GLOBAL PERFORMANCE

The Hedgeye models now have 7 of 9 S&P Sectors bullish TRADE and 8 of 9 bearish TREND.  The XLF is the only sector broken on both durations. 

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EQUITY SENTIMENT:

• ADVANCE/DECLINE LINE: +1895 (+714)  
• VOLUME: NYSE 835.48 (7.27%)
• VIX:  15.91 -7.28% YTD PERFORMANCE: -10.37%
• SPX PUT/CALL RATIO: 1.54 from 1.94 (-20.5%)

 

CREDIT/ECONOMIC MARKET LOOK:

• TED SPREAD: 23.87
• 3-MONTH T-BILL YIELD: 0.03%
• 10-Year: 3.23 from 3.17
• YIELD CURVE: 2.64 from 2.60 

 

MACRO DATA POINTS:

• 7 a.m.: MBA Mortgage Applications, prior 4.0%
• 8:30 a.m.: WASDE grains
• 8:30 a.m.: Trade balance, est. (-$47.0b), prior (-$45.8b)
• 10:30 a.m.: DoE inventories
• 12:15 p.m.: Fed’s Lockhart speaks in Atlanta
• 1 p.m.: U.S. to sell $24b in 10-yr notes
• 1 p.m.: Fed’s Kocherlakota to speak in N.Y.
• 1 p.m.: Fed’s Pianalto speaks in Cincinnati
• 2 p.m.: Monthly budget statement, est. (-$41.0b)

WHAT TO WATCH:

• Bullish sentiment decreases to 51.1% from 54.9% in the latest US Investor's Intelligence poll
• BOE says later in 2011 there's a good chance CPI will reach 5%; more likely than not to exceed 2% throughout 2012 -- wires
• FDA orders hip makers to conduct studies of the implants - NYT
• Record labels asked Google for upfront payments of $75-100M for licenses for Music Beta - NY Post, citing source
• AIG offering to be about $9B - WSJ
• Banks put forward $5B number to end foreclosure probe - WSJ
  
  

COMMODITY/GROWTH EXPECTATION

 

COMMODITY HEADLINES FROM BLOOMBERG:

• World Sugar Market to See Surplus for Second Year, Lowering Costs for Coke
• Biggest Oil-Gas Premium May Spur North America LNG Exports: Energy Markets
• Copper Drops as Chinese Inflation Figures Stoke Policy-Tightening Concern
• Gold Climbs for a Fourth Day on Chinese Inflation, European Debt Concern
• Corn Advances Before USDA Stockpile Estimate; Wheat Gains for Fourth Day
• Sugar Falls as Production Rises in India, Thailand; Cocoa, Coffee Slide
• Sugar Output in India’s Top Producer May Reach a Record on Cane Harvests
• Rubber in Tokyo Reaches One-Week High as Oil Gains, China May Boost Orders
• Brazil May Become Net Aluminum Importer on World Cup-Fueled Metals Demand
• Sugar Production in China Almost Flat Spurs Speculation of Rising Imports
• Barrick’s Munk Says ‘Unorthodox’ Equinox Deal Will Help Fund Gold Mines
• Silver Still Poised to Rally to $50, Merrill Forecasts: Technical Analysis
• Ethiopia May Ban Coffee Exporters Caught Hoarding, Defaulting on Contracts

 

CURRENCIES

EUROPEAN MARKETS

• European markets are generally higher with Greece and Spain two of the best performing markets
• Latvia and Turkey are notable underperformers
• Germany Apr final CPI +2.4% y/y vs consensus +2.4% and prior +2.4%; Germany Apr final CPI +0.2% m/m vs consensus +0.2% and prior +0.2%
  
  

ASIAN MARKETS

• China April CPI +5.3% y/y vs consensus +5.2% - Dow Jones; April PPI +6.8% y/y vs consensus +7.0%
• Asia traded higher; China was a notable underperformer

MIDDLE EAST

Howard Penney

Managing Director