Daily State of the Markets
Thursday Morning – May 13, 2010
Good morning. Stocks advanced smartly on Wednesday as it appears the funeral for Europe and the Euro currency has been called off, or, at the very least, postponed. With a host of macro headlines from across the pond coming in better-than expected, traders apparently put away their fears and returned their attention to the economy and earnings picture here at home. As a result, the Dow put up another triple-digit gain and is now back to where it was before last Thursday's "flash crash."
Speaking of which, with the SEC and the CFTC closing in on the cause/causes of the lightning-quick dive and recovery seen last Thursday, traders appear to be regaining their confidence in the markets. With the focus now squarely on a trader who hammered the e-mini market with sell orders 10 minutes before the mini-crash began, the worries that this might be a case of financial terrorism or a hacker attack seem to be fading. And in short, with confidence restored, the dip buyers returned to business-as-usual on Wednesday.
But the real story this week remains the European debt situation. To put it mildly, the bears argue that the future of both the Euro and the EU are in jeopardy over this debt mess. However, the fact that the GDP reports for Germany, Italy, and the Eurozone all came in above expectations Wednesday seems to have put a crimp in the argument from the-glass-is-completely-empty crowd.
In addition, the fact that - surprise, surprise - the UK will have a government after all removed some concerns that political turmoil would turn the UK into the next Lehman/AIG crisis.
But the good news didn't stop there in Europe. The markets cheered Spain's announcement that it would slash 15 billion Euros from its 2010/11 budgets - a move that would bring the 2011 budget deficit down by about 5% in a single year. Next up, Portugal successfully sold 1 billion Euros of 10-year bonds, which is a sign that confidence is returning. And finally, fears about the ECB's reluctance to participate in the bailout were brushed aside as central banks continued to be on the bid for Eurozone bonds and yields fell for a third straight session.
Does any of this mean that the Eurozone is out of the woods? No, absolutely not. However, it does cancel the funeral that the market was pricing in last week. So, while there may still be problems ahead around the globe (there is always something to worry about if you look hard enough), for now at least, it looks like traders in the U.S. are undoing the discount that was put into the market last week.
Turning to this morning... Word of new debt problems in Dubai is causing some trouble in the currency markets and has muted the upbeat attitude in stocks. However, talk of austerity measures in Portugal give traders hope that the problems in Europe may be behind us.
On the economic front, the government reported that Import Prices for the month of April were up +0.9%, which was above the consensus for a rise of +0.8%.
In addition, the Labor Department reported that initial claims for unemployment insurance for the week ending May 8 fell by 4,000 to 444K, but the total was above the expectations for a reading of 440K. Continuing Claims for unemployment for the week ending May 1 were also above consensus at 4.627M vs. expectations for 4.59M. For comparison purposes, last week’s revised total was 4.615M (from 4.594M).
Also note that traders will again be watching this afternoon's auction of 30-year bonds - scheduled for 1:00 pm eastern.
Finally, don’t forget, ego is the enemy...
Here are the important indicators we review each morning before the opening bell...
Foreign Markets: Up across the board
Crude Oil Futures: -$0.73 to $74.72
Gold: -$5.30 to $1237.80
Dollar: Higher against Yen Euro and Pound
10-Year Bond Yield: Currently trading down at 3.56%
Stocks Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +1
- Dow Jones Industrial Average: +6
- NASDAQ Composite: +1
|Yesterday's Earnings After The Bell|
|Earnings Before The Bell |
* Report includes items that make comparisons to the consensus estimate questionable
Wall Street Research Summary
- Myriad Genetics (NASDAQ:MYGN) - AURIGA
- Arch Capital Group (NASDAQ:ACGL) - Deutsche Bank
- Aspen Insurance (NYSE:AHL) - Deutsche Bank
- PartnerRe (NYSE:PRE) - Deutsche Bank
- Avnet (NASDAQ:AVT) - Deutsche Bank
- Morgan Stanley (NYSE:MS) - FBR Capital
- Halliburton (NYSE:HAL) - FBR Capital
- U.S. Steel (NYSE:X) - Added Conviction Buy at Goldman
- Schlumberger (NYSE:SLB) - Macquarie
- eBay (NASDAQ:EBAY) - Morgan Stanley
- Teradata (NYSE:TDC) - Oppenheimer
- Con-way (NYSE:CNW) - BofA/Merrill
- Devon Energy (NYSE:DVN) - Bernstein
- Jack In The Box (NASDAQ:JACK) - Credit Suisse
- KB Home (NYSE:KBH) - Macquarie
- MDC Holdings (NYSE:MDC) - Macquarie
- Toll Brothers (NYSE:TOL) - Macquarie
- Capital One (NYSE:COF) - Macquarie
- Teva Pharma (NYSE:TEVA) - Oppenheimer
- ArcelorMittal (NYSE:MT) - UBS
Long positions in stocks mentioned: CSCO, WFMI, ACXM
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