Reports

US stock market, economy and companies update (January 31, 2012)

Contributed by Trade The News

- European markets closed mostly in the green this morning even as the three leading US equity indices have swung from early gains right into the red in mid-morning trade. Early optimism grew out of headlines suggesting the Greek debt negotiations are going better than thought, plus no major upsets at the Eurogroup summit. Note that there were reports overnight in the FT that the next edition of the LTRO, scheduled for Feb 29th, could see twice the demand seen in December, setting up the possibility of a €1.0T auction and a return of worries about a European liquidity crunch. After the open, the miss in the January US consumer confidence index helped send markets lower. Note that US markets are also being weighed down by some poor showings in key corporate earnings, including Pfizer and Exxon. In addition, the January Chicago Purchasing Manager survey was weaker than expected, with a decline seen in the new orders component. Crude spiked up to $101 just before the open, and then rapidly gave up all its gains; one catalyst may have been some negative headlines out of Syria. Money is finding its way to the greenback as well as US Treasury markets as risk sentiment dwindles. The benchmark 10-year yield is hovering right at the Dec lows of 1.8% and the curve is flatter. The 2-/10-year spread has narrowed below 160 basis points.

- Shares of oil giant Exxon are down almost 2%, given that analysts and investors have come to expect results that widely beat expectations. Higher crude prices only just offset falling margins in Exxon's downstream business, and the firm only just topped earnings expectations in its Q4.

- Big ag name ADM missed profit targets in its Q2, due to trouble maintaining margins. The firm said that weakness in global oilseeds margins, lower results in corn and poor international merchandising results hurt profits, and overall margins were down very sharply. Chemicals processing name Celanese missed earnings targets as well, blaming softness in its Europe business. CE is down 2.5% and ADM is down nearly 5%.

- Dow component Pfizer met expectations in its Q4, but also cut its FY12 guidance slightly. On the conference call, executives warned that cost of sales are increasing y/y, putting downward pressure on margins. In addition, losses in drug exclusivity had a big impact on Pfizer's Q4. Competitor Lilly beat expectations and reaffirmed its FY12 guidance. PFE is trading down about 1%, while LLY is in the black.

- Among manufacturing names, Tyco, Illinois Tool Works and Paccar had decent December quarters. All three topped expectations. Tyco said it remains on track to separate into three standalone public companies by the end of the current fiscal year. Paccar warned that economic uncertainties are resulting in lower orders on the continent over recent months.

- Thin month-end trading conditions left dealers space to reflect on the greenback's recent price action. US officials appear to be concerned about runaway dollar strength, and this may be one of the motivators for the ultra-easy FOMC stance. Secretly everyone was preparing for a euro collapse, but the recent spate of risk-on trading following the EU leaders' summit sent EUR/USD back to the 1.32 handle. But since the summit proposals would only be implemented by 2013, dealers feel that until that time immense patience is needed, as lower interest rates and weaker currencies would be the two-pronged strategy followed by many nations. EUR/USD was off its European morning highs to test below the 1.3140 level by midway through the New York session.

***Looking Ahead***
- 11:00 (CO) Colombia Dec Urban Unemployment Rate: 10.3%e v 10.3% prior
- 11:00 (US) Fed to purchase $2.25-2.75B in Notes
- 11:30 (US) Treasury to sell 4-Week Bills
- 12:00 (DE) German Econ Min Roesler

Dow -57 S&P -4 NASDAQ -7.4
***Economic data***
- (RU) Russia 2011 Annual Real GDP Y/Y: 4.3% v 4.0% prior
- (IE) Ireland Jan Consumer Confidence Index: 56.6 v 49.2 prior
- (CL) Chile Dec Unemployment Rate: 6.6% v 7.1%e
- (ZA) South Africa Dec Trade Balance: +4.7B v -1.6Be
- (BR) Brazil Dec Primary Budget Balance: 1.9B v 1.3Be; Nominal Budget Balance: -18.6B v -10.2B prior; Net debt to GDP: 36.5% v 36.4%e
- (US) ICSC/GS weekly chain store sales w/e Jan 28th: +0.1% w/w; +3.9% y/y - 8:00 (BR) Brazil ABRAS Dec Supermarket Sales
- (PL) Poland Central Bank Jan Inflation Expectations: 5.2% v 4.8% prior
- (US) Q4 Employment Cost Index: 0.4% v 0.4%e
- (CA) Canada Dec Industrial Product Price M/M: -0.7% v -0.1%e; Raw Materials Price Index M/M: -2.4% v 0.0%e
- (CA) Canada Nov Gross Domestic Product M/M: -0.1% v +0.2%e; Y/Y: 2.0% v 2.3%e
- (US) Redbook Retail Sales w/e Jan 28th: +2.0% y/y; Jan MTD: -1.8% v Dec
- (US) Nov S&P/CaseShiller 20 City M/M: -0.70% v -0.50%e; Y/Y: -3.67% v -3.3%e; Home Price Index: 138.49 v 140.3 prior
- (US) Jan Chicago Purchasing Manager: 60.2 v 63.0e
- (US) Jan Consumer Confidence: 61.1 v 68.0e
- (EU) ECB drained €219.0B vs. €219.0B targeted in 7-Day Term Deposits
- (UK) BOE buys £1.7B in 2038-2060 Gilts in reverse auction; Bid-to-cover: 1.33x