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TODAY’S S&P 500 SET-UP - July 27, 2011

If you’re leaning long US Equities and Short Italian/Spanish ones, you’re having a good week. This is where Global Macro gets fun.  As we look at today’s set up for the S&P 500, the range is 27 points or -0.45% downside to 1326 and 1.58% upside to 1353.

SECTOR AND GLOBAL PERFORMANCE

Being long cyclicals under the assumption that their margins and earnings aren’t cyclical has been one of the more perplexing bull cases we have heard in 2011. The Industrials (XLI) got hammered on that reality today, closing down -1.9%.  Selling in the Industrials (XLI) was broad based.   Only 4 members of the XLI were up on the day and GE has effectively gone straight down since reporting on Friday. This makes the Industrials the worst looking sector in the market all of sudden. Comparing to the Financials (XLF), that’s saying something.

THE HEDGEYE DAILY OUTLOOK - levels 727

THE HEDGEYE DAILY OUTLOOK - daily sector view

THE HEDGEYE DAILY OUTLOOK - Global

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -974 (+875)  
  • VOLUME: NYSE 837.02 (+9.61%)
  • VIX:  17.52 -0.23% YTD PERFORMANCE: -1.30%
  • SPX PUT/CALL RATIO: 1.99 from 1.65 (+20.32%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 19.16
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 2.99 from 3.03   
  • YIELD CURVE: 2.58 from 2.61

MACRO DATA POINTS:

  • 7 a.m.: MBA Mortgage, prior 15.5%
  • 8:30 a.m.: Durable goods, est. 0.3%, prior 2.1%
  • 10:30 a.m.: DoE inventories
  • 11:30 a.m.: U.S. to sell $12b 5-day cash mgmt bills
  • 1 p.m.: U.S. to sell $35b 5-yr notes
  • 2 p.m.: Fed’s Beige book

WHAT TO WATCH:

  • House Speaker Boehner is facing resistance from within his own party; presidential candidate Michele Bachmann said she wouldn’t back his plan
  • Daimler said 2Q operating profit rose 23%, led by sales of Mercedes-Benz S-Class and E-Class sedans
  • Senate Finance Committee hears from Wal-Mart, Kimberly- Clark, CVS Caremark CEOs on how the tax code affects hiring. 10 a.m.
  • U.S. banks are arguing over how costs of planned deal with federal, state officials over home foreclosures should be divided, people familiar tell WSJ

COMMODITY/GROWTH EXPECTATION

THE HEDGEYE DAILY OUTLOOK - daily commodity view

COMMODITY HEADLINES FROM BLOOMBERG:

  • Oil Falls on Bets Rising U.S. Stockpiles Show Demand Is Slowing
  • Corn Drops as Rainfall in U.S. Eases Concerns on Yield Losses
  • Copper May Decline Before Figures on U.S. Durable-Goods Orders
  • Cocoa Falls as Ivory Coast Crop May Reach Record; Coffee Slides
  • Palladium to Gain on Japan Auto Demand, China Capital Says
  • Mumbai Blasts May Hasten Diamond Traders Relocation to Bourse
  • Rice Stockpiles in Japan May Drop to 4-Year Low After Quake
  • DP World Digs London Gateway as Economy Slows: Freight Markets
  • U.S. Steel Joins 9-Out-of-10 Club With Slump: Chart of the Day
  • India Winemakers Tap Growth as Duties Boost Imports’ Prices
  • Ethanol to Brazil Hits Record on Soaring Sugar: Energy Markets
  • BHP Rejects Escondida Talks as Coal Strikes Resume in Australia

CURRENCIES

  • EUR/USD – I would have expected to see the Euro side of this pair down hard this morning, but it’s down 10bps; away from hedge funds capitulating (covering Euros) yesterday, the big support mechanism for the Euro is Obama getting nothing done on debt deal

THE HEDGEYE DAILY OUTLOOK - daily currency view

EUROPEAN MARKETS

  • EUROPE: Italy getting smoked again, down another -2% with no support on MIB Index to 17,760; we are long US stocks and short European ones.
  • European Banks – Goldman is out with a similar call that Josh Steiner (our Financials Sector Head) made 2 weeks ago; this is not new but it’s good to see consensus focusing on it this morning; 13 European banks have over 200% of their Tier1 Cap in “Europig” bonds
  • ITALY – CDS is up +22bps this morning testing the Lehman Line (300bps CDS) and the MIB Index is getting hammered for another -2% drawdown; don’t forget that Italian stocks have already crashed in 2011 (peak to trough), so this is a resumption of TREND

THE HEDGEYE DAILY OUTLOOK - Europe

ASIAN MARKETS

  • ASIA: solid session where we care with China up +0.8% in day2 of rail recovery; Indonesia blasting higher to +12.4% YTD; KOSPI holds support

THE HEDGEYE DAILY OUTLOOK - Asia Pacific

MIDDLE EAST

THE HEDGEYE DAILY OUTLOOK - Middle East 2

Howard Penney

Managing Director