Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

U.S. Futures Moderately Lower on Eurozone Accord Skepticism

This morning.  U.S. equity markets remain in correction, pending some clear market follow-through to last Monday’s strong gains.  This past Wednesday’s and Friday’s gains came on weaker volume. All major indexes closed above 20-, 50-, 100-, and 200-day moving averages.
U.S. equity futures are moderately lower this morning, as markets analyze last Friday’s Euro “Accord”, which is widely regarded as insufficient to the task. The Telegraph’s  (Merkel's Teutonic Summit) “misguided and contractionary” take is one of the more cogent, describing an “austerity union” but not remotely a fiscal union. The article cites one game changer, by which the ECB will extend unlimited credit to the Eurozone’s €23 trillion banking system, halving the reserve ratio to 1% and relaxing collateral rules, and supporting a “rebuild” of the “shattered” banking system by allowing a “carry trade” by which banks borrow at 1% to buy Italian debt at 6.4%.
European equity markets are moderately lower after Bundesbank remarks that again rejected an expanded ECB role that might include financial as well as price stability. The dollar is stronger, compared to the euro, yen, and pound.  U.S. equity options markets suggest a neutral short-term outlook.  Commodities prices are lower.  U.S. Treasury yields are lower, with the 10-year at 2.033%, down from 2.061% Friday. U.S. repo rates edged up to 6 bps.  Overnight and 3-month LIBO remain elevated.  Euribor-OIS spreads are near 2011 highs.  After a fair value adjustment of -4.01 points, March SPX equity futures are at 1242.00, down -6.99 points.  The SPX opens at 1255.19, -7.95% below its April 29 multi-year 1363.61 closing high, +2.33% above its 20-day and +2.90% above its 50-day moving averages.  The SPX is -0.19% below its 1257.64 year-end close.  Next resistance is at 1264.13.  Next support is at 1240.36.
Friday.  U.S. equity markets ended with strong gains, but volume again disappointed as investors digested the latest Eurozone leaders’ summit results and remained cautiously positioned in front of the weekend. All major indexes posted gains of at least +1.55%. The Nasdaq rose +1.94%, followed by the NYSE composite, SPX (which rose +1.81% and 1.69%, respectively, and the DJI.
From its prior day 1234.35 close, the SPX gapped up to open at the 1242 level and generally gained through the day to an intraday high of 1258.25 minutes before the close. Market breadth was positive.  All market segments closed at least +0.99% higher. Leaders were financials, industrials, and oil and gas, which rose at least +2.20%. Laggards were consumer goods, basic materials, and telecommunications.

In Asia,
on lower volumes, Asian equity markets closed mixed.  In Tokyo, the NKY rose +1.37%.  Volume fell -49.5% in the lightest trade since November 28th.  In Hong Kong, the Hang Seng reversed early gains and fell -0.06%, on a -29.5% decrease in volume.  The Shanghai composite fell -1.02% on a -6.12% decrease in volume.  Commentary focused on the sufficiency of Eurozone policy actions, Italian and French debt sales, and improving U.S. economic prospects.
In Japan, the NKY closed at 8,653.82, up from 8,536.46 at the prior close.  The NKY closed +2.05% above its 20-day moving average, but down -15.4% for the year.  The index opened at 8,652.98, and traded within a narrow range through the day, to a mid-morning intraday low of 8,633.35 to a mid-afternoon intraday high of 8,682.47. All market segments closed at least +0.64% higher. Leaders were financials, telecommunications, and basic materials, which closed up +1.70%. Laggards were health care, consumer goods, and utilities.
In China, the Hang Seng Index closed at 18,575.66, down from 18,586.23 at the prior close.  The index gapped higher to open at 18,919.40, and traded immediately to an intraday high of 18,919.40 before traded sideways through the morning session and lower through the afternoon to an intraday low of 18,508.10 minutes before the close. Volatility fell -7.10%.  The index ended -0.26% and -0.43% below its respective 20-day and 50-day moving averages.  Market segments closed mixed.  Leaders were consumer services, , telecommunications, and consumer goods, which closed at least +0.21% higher.  Financials lost -0.07%. Laggards were utilities, basic materials, and technology, which lost at least -0.27%.
In Shanghai, the SHCOMP closed at 2,291.55, down from 2,315.27 at the prior close.  The index opened at 2,312.15, and rallied to an early intraday high of 2,315.81, but trended lower through most of the remaining session.  The SHCOMP closed -4.36% and -5.13% below its respective 20-day and 50-day moving averages.  All market segments closed at least -0.30% lower. Leaders were utilities, financials, and consumer services. Laggards were technology, telecommunications, and consumer goods, which closed at least -1.42% lower.
In Europe, equities opened lower and trade with moderate losses, but off mid-morning intraday lows. Commentary focuses on statements by Bundesbank President Weidmann, who rejected an expanded role for the European Central bank. The Euro Stoxx 50, FTSE, and DAX are down -1.54%, -0.35%, and -1.47%, respectively.  Compared to the prior day’s 2,342.59 close, the Euro Stoxx 50 trades at 2,306.09, off the intraday low of 2,291.05.  The index is +2.39% and +0.94% above its respective 20- and 50-day moving averages.  Most market segments are lower.  Health care is up +0.15%. Other leaders are technology and consumer goods, which are down at least -0.40%. Laggards are utilities, basic materials, and financials, which are at least -1.36% lower.
Libor, LOIS, Currencies, Treasuries, Commodities:
  • Interbank lending rates continue to reflect substantial stress, centered on the health of Eurozone banks in the current economic environment.   USD LIBOR is 0.15000%, unchanged from 0.15000% Friday, but below the 0.25188% year-end level.  USD 3-month LIBOR rose to 0.54350%, up from 0.54175% the prior day and 0.30281% at year-end 2010.
  • The US Libor-OIS (LOIS) spread rose to 45.4 bps, the year’s high, up from 45.0 bps the prior day, and compares to 12.0 bps at the end of 2010.  Euribor-OIS rose to 95.9 bps from 95.6 bps Friday, and 40.6 bps at the end of 2010.  A rise in the LOIS indicates an increased intra-bank lending risk premium.
  • The U.S. government overnight repo rate is 6.0 bps, up from 3.0 bps Friday, but well off from the August 2nd high of 33 bps.
  • U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.218% and 2.024%, respectively, compared to 0.222% and 2.061% Friday.  The yield curve narrowed to +1.806%, compared to +1.839% the prior day.  In the past year, the 2- and 10-year spread varied from a low of +1.520% on September 22, 2011, to a high of +2.910% on February 4, 2011.
  • The U.S. dollar is stronger against the euro, yen, and pound.  The dollar trades at US$79.155, compared to US$78.632 the prior day, and above its US$77.701 50-day, US$76.598 100-day, and US$75.829 200-day averages.  The euro trades at US$1.3260, compared to US$1.3386 Friday and US$1.3341 the day prior day.  The euro trades worse than its US$1.3607 50-day and US$1.3835 100-day averages.  In Japan, the dollar trades at ¥77.82, compared to ¥77.65 Friday and ¥77.64 the prior day.  The yen trades worse than its 50-day moving average ¥77.228.
  • Commodities prices are lower, with lower energy, precious metals, lower aluminum, but higher copper, and lower agriculture prices.
Volatility, Skew:
  • The VIX ended at 26.38, down -13.8% from 30.59 at the prior close.  The VIX is -13.9% below its 20-day moving average 30.64.
  • The Euro Stoxx 50 volatility index (V2X) is up +1.11% to 35.29 from 34.90 the prior day.  The V2X index trades -8.28% below its 38.47 20-day moving average, -21.3% below the 44.69 30-day high, and +2.67% above the 34.38 30-day low.
  • The Hang Seng volatility index (VHSI) fell -7.10% to 29.97 from 32.26 the prior day.  The VHSI index trades -7.48% below its 32.39 20-day moving average.
  • CBOE skew rose +1.27% to 116.83 from 115.37 at the prior day’s close and in a neutral (115-120) range.  The index tracks the cost of buying out-of-the-money, long-dated options.  A fall suggests that investors are buying more calls than puts, a bullish signal.
U.S. news and economic reporting.  There are no scheduled economic reports today. Tomorrow’s focus will be on the last FOMC meeting of 2011, a one-day meeting. A press release will issue at 2:15. There is no press conference. Economic reporting picks up tomorrow with the November NFIB small business optimism report at 7:30, followed at 8:30 by November advance retail sales, and at 10:00 by the December IBD/TIPP economic optimism report, October JOLTS job openings and October business inventories.
Overseas news: Today, Moody’s announced it would review all Eurozone sovereign debt ratings and will conclude that review by the first quarter.  This week, Greece holds talks with private investors to finalize the haircuts of Greek bonds and fulfill the “private sector involvement” terms of the country’s IMF/EU bailout agreement.  Today, Italy saw 12-month bill yields decline by -13 basis points to 5.95% from its prior auction last month.  In November, China’s exports declined to a +13.8% increase over the prior year, down from a +15.9% increase in October, but above expectations for a +10.9% increase. 
Company news/ratings changes:
  • None.
3Q2011 Earnings.  The third quarter’s earnings reports surprised expectations.  Of the 473 S&P500 companies that reported earnings to date, 73% (345 out of 473) beat operating EPS estimates, versus the historical average 62%.  In aggregate, companies beat EPS expectations by an average of +4.5% (versus a historical average of +2.0%).  EPS is up +14.8% over the prior year.  Though challenged in the current operating environment, 80% of companies reported increased revenues over the prior year and 58% beat revenue estimates.  In the third quarter of 2011, analysts estimate the SPX will earn $24.98 per share, compared to $24.84 and $21.49 per share in 2Q11 and 3Q10, a +0.6% and +16.2% increase, respectively. 
With all of the 24 BKX members reporting, 75% beat operating estimates with aggregated results surprising by +14.3% and 63% have beat revenue estimates with aggregated surprising by +4.2%.  EPS is up +21.2% over the prior year, while revenue is up +1.5%.  In the third quarter of 2011, the BKX earned $1.24 per share, beating analysts’ estimate of $1.15 per share, and compared to $1.12 and $0.71 in 2Q11 and 3Q10, (an +11% and +48% increase, respectively) In the second quarter, 88% (21 of 24) beat earnings estimates on an operating basis.  Revenues also exceeded expectations, with 79% of BKX members beating estimates.
Valuation.  The SPX trades at 12.7x estimated 2011 earnings ($99.06) and 11.5x estimated 2012 earnings ($108.92), compared to 12.5x and 11.3 respective 2011-12 earnings Friday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2011, analysts increased 2011 and 2012 earnings estimates by +4.7%, and +1.5%, respectively.  Analysts expect 2011 and 2012 earnings to exceed 2010 earnings ($84.78) by +16.9% and +28.5%, respectively. 
Large-cap banks trade at a median 1.23x tangible book value, and 11.1x and 9.6x 2011 and 2012 consensus earnings, respectively, compared to 1.20x tangible book value and 10.7x/9.3x 2011/2012 earnings Friday.  These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings.  Analysts expect 2011 and 2012 BKX earnings to exceed 2010 operating earnings by +30.2% and +53.8%, respectively.
Options.  Options markets are neutral.  Composite options markets are neutral, index options markets are bullish, and equity options markets are neutral.  The composite put/call ratio closed at 1.19, compared to 0.96 the prior day and above its 5- and 10-period moving averages of 0.97 and 0.95, respectively.  The index put/call ratio closed at 1.54, compared to 1.12 the prior day and above the 5- and 10-period moving averages of 1.17 and 1.22, respectively.  The equity put/call ratio closed the day at 0.71, compared to 0.77 the prior day and in between its 5- and 10-period moving averages of 0.73 and 0.67, respectively.   
NYSE Indicators.  Volume fell -12.0% to 819.22 million shares, from 930.50 million shares Thursday, 0.82x the 998.85 million share 50-day moving average.  Market breadth was positive, and up volume led down volume.  Advancing stocks led decliners by +2,150 (compared to -2,198 the prior day), or 5.95:1.  Up volume led down volume by 11.4:1.
SPX. On lower volume, the SPX rose +20.84 points, or +1.69%, to end at 1255.19.  Volume fell -14.54% to 607.95 million shares, down from 711.12 million shares Thursday and below the 766.05 million share 50-day moving average. For the 83rd straight session, the SPX’s 50-day moving average closed below its 200-day moving average (1219.85 vs. 1263.32, respectively).   The SPX closed above its 200-week moving average (1135.37) for the 45th straight session. 
From its prior close at 1234.35, the SPX gapped higher at the open to 1240 and set the intra-day low.  The index gained throughout the morning, meeting resistance at 1255 at 11:50.  The index hovered at the 1255 level through 2:30 finally breaking above that level and setting the intra-day high of 1258.25 at 2:52.  The index held the 1255 level into the close and finished just above that level and at the high end of the day’s positive range. 
Technical indicators are mostly negative.  The market returned to a correction following mid-November’s reversal.  The SPX closed below 1300 for the 93rd straight session but above 1200 for the eighth straight session.  The index closed above its April 2010 highs for the eighth straight session.  The 50-day moving average crossed above the 100-day moving average on December 6th, having been below that average since July 11th.  The 100-day moving average crossed the 200-day average to the downside on September 7th and the spread is still widening.  The SPX closed (by +2.33%) above its 20-day moving average (1226.66) for the eighth straight session.  The index closed (by +2.90%) above its 50-day moving average for the eighth straight session.  The index closed (by +3.71%) above its 100-day moving average (1210.31) for the eighth straight session.  The SPX closed -0.64% below its 200-day moving average, closing below that average for the 28th time in 29 sessions.  The 20- and 50-day moving averages rose.  The directional momentum indicator is positive for the eighth straight session, and the trend is weak and declining.  Relative strength rose to 56.00 from 51.43, a neutral range.  Next resistance is at 1264.13; next support is at 1240.36.
BKX.  On lower volume, the KBW bank index rose +1.04 points, or +2.73%, to end at 39.13.  The index recorded its 89th straight close below the prior 52-week low of 42.70 from August 25, 2010 and finished below the 40-level for the 24th time in the last 25 sessions.  Volume fell -14.70% to 76.45 million shares, down from 89.62 million shares Thursday but below the 97.52 million share 50-day average.  The BKX closed -8.96% below its August 30, 2010 closing low of 42.98, the trough of the last year’s correction, and -32.48% and -29.66% below its April 23, 2010, and February 14, 2011 respective closes.
Financials were the market’s best performing sector, and regional banks outperformed large-cap banks.  From its prior close at 38.09, the BKX gapped higher to 38.30 at the open, setting the intra-day low.  Through 11:45, the index continued climbing, reaching the intra-day high of 39.27.  The index fluctuated between 39.00 and 39.20 through the close, and finished above the 39.00 level and at the high end of the day’s positive range.  
Technical indicators are mostly negativeBank stocks are leading the market’s direction, which returned to correction following mid-November’s reversal.  Moving averages align bearishly, as most shorter duration averages are below the longer duration averages and some moving averages are falling.  The 50-day average (38.06) crossed below the 100- and 200-day moving averages (38.73 and 44.31, respectively) on April 25th and June 16th.  The 20-day closed (by -0.39 points) below the 50-day for the sixth straight session, and the gap expanded. The 50-day moving average closed (by -6.25 points) below the 200-day moving average for the 127th straight session, but the gap narrowed.  The 100-day moving average closed (by -5.58 points) below the 200-day moving average for the 105th straight session, and the gap expanded.  The BKX closed (by +3.85%) above its 20-day moving average for the eighth straight session.  The index closed (by +2.80%) above its 50-day moving average for the eighth straight session.  The index closed (by +1.02%) above the 100-day moving average for the fourth time in five sessions.  The index closed (by -11.69%) below its 200-day moving averages for the 134th consecutive session.  The index closed below 50.0 for the 134th straight session and below the 40.0 level for the 24th time in 25 sessions.  The directional movement indicator is positive for the eighth straight session, and the trend is weak and stable.  Relative strength rose to 54.32 from 50.19, a neutral range.  Next resistance is 39.52; next support at 38.49.