Comment by phil

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phil
February 25th, 2013 at 10:22 am

Good morning!  

Dollar bouncing off 81.20 so free ride is over for the indexes and now they have to show if it's more than just devalued air propping them up.  Given the sudden move up in XLF – I'd have to say yes, it's real and we're still consolidating at the top of the range and waiting for a good reason to go up and, very likely, we are waiting for Sequestration to "hit us" at the end of the week so we can move on to the next level (and finally time to roll over the Big Chart).  

Copper is the Futures play of the morning (/HG) over the $3.55 line as BLK gets approval to start a copper ETF ahead of JPM but JPM is still going for it so that's two ETFs that will buy up copper for no useful reason and stick it in storage and drive up prices – although they can't possibly (one would think) buy up enough to have a major effect on World supply but the initial reaction is likely to be up for copper and they have a lot of room to go before hitting serious upside resistance at $3.75.  

Italy's elections are still on today but the EWI is up 2% so I imagine they are going well (whatever that means over there).  

Exit polls in Italy show the center-left coalition led by Pier Luigi Bersani winning with 35-37% of the votes. Berlusconi received a surprisingly high 29-31%. Nevertheless, Bersani should have no issues forming a government if the numbers hold up. Italy's 10-year government note rate drops to 4.23% from 4.3%. European stocks add to rallies, with the Stoxx 50 (FEZ) +2.5%, led by Italy (EWI) +3.4%. Germany (EWG) +2.4%.

Consumers bought 1.2M new automobiles (+4.3% Y/Y, +15% M/M) in the U.S. during February, according to analysts. Though it's an excellent sign that average transaction prices rose and the level of incentives in the industry were moderate, inventory levels will be watched closely to ensure automakers aren't getting too far in front of demand. Of the pack, Ford (F) is forecast to have the largest yearly jump in sales for the month with Chrysler (FIATY.PK), Toyota (TM) and General Motors (GM) also strong – while Honda (HMC) and Nissan (NSANY.OB) are likely to report a decline in sales. 

How many ways do we have to say the economy is getting stronger before people believe us?  

Monday's economic calendar:
8:30 Chicago Fed National Activity Index
10:30 Dallas Fed Manufacturing Outlook
1:00 PM Results of $35B, 2-Year Note Auction
7:00 PM Fed's Lockhart: U.S. Economic Outlook

6:00 AM Overseas: Japan +2.43%. Hong Kong +0.17%. China+0.50%. India +0.08%. London +0.56%. Paris +1.15%. Frankfurt+1.95%

At the open: Dow +0.86% to 14001. S&P +0.88% to 1516. Nasdaq 0% to 3162.
Treasurys: 30-year -0.47%. 10-yr -0.21%. 5-yr -0.07%.
Commodities: Crude +0.5% to $93.6. Gold +0.83% to $1585.8.
Currencies: Euro +0.79% vs. dollar. Yen +0.73%. Pound +0.44%.

Market preview: Stock futures point to a higher opening after global markets rallied on reports that Japan is likely to appoint apro-stimulus central bank governor and the belief that Italian elections won’t have a surprise conclusion. S&P benchmark +0.5%. The yen weakened to a fresh 33-month low of 94.75, but Japan's Nikkei index jumped more than 2%.

Notable earnings after Monday’s close: ADSK, CZR, HALO, HCN, IPXL, LGCY, MELI, MR, OAS, OKE, OKS, SGY, TWI, URS, VVUS

The S&P 500 has returned to near its 2007 peak, but without the deterioration beneath the surface evident then. In fall 2007, mid-caps, small-caps, financials, and transports were all headed lower, the A/D line was negative, the yield curve was flattish, and corporate spreads were on the rise. All of those signals are reversed today. (h/t Ryan Detrick)

Jan. Chicago Fed National Activity Index: -0.32 vs. +0.25 (revised) prior.

Jon Hilsenrath is a day late with his story about the Fed not being in any hurry to take its foot off the pedal. After two days of wobbly market reaction, the central bank went balls to the wall Friday walking back the idea it was anywhere near ready to slow down or stop its asset purchase program. – OK, that calls for a music break if ever a news item did so!  

How much debt can the U.S. handle? A new paper quantifies an 80% public debt to GDP ratio – where the U.S. is right now – as the point at which a nation reaches a potential tipping point; once a nation has debt above that level, it becomes vulnerable to the kind of self-reinforcing vicious cycles that have crippled others. Two responses from Fed officials see the analysis as simplistic and eurocentric. 

Japanese PM Shinzo Abe is reportedly set to nominateAsian Development Bank President Haruhiko Kuroda as BOJ Governor. It's hard to think of a bigger dove. "The Bank of Japan must be prepared to do anything and everything" to achieve its 2% inflation target, he said in a January interview. Look for a big opening pop in the Nikkei, and a big opening drop in the yen.

While there are "dark warnings" that the U.S. is becoming like Japan, what's wrong with that? asks Zachary Karabell on Reuters. Sure, Japan has "chronic deflation, a sluggish job market, an aging population, an insular culture and (stagnant) growth." But its citizens are are prosperous and healthy, and have a high life expectancy, "democratic government is orderly and ordered," and the country has an efficient bureaucracy.

"If capitalism is America’s biggest problem, why save it?" asks MarketWatch's Paul Farrell. "Wall Street, Corporate America, Big Oil and the entire economy been transformed into a bizarre circus Adam Smith would never recognize. Capitalism is now an out-of-control Frankenstein monster that changed everything." Not that Farrell provides any alternatives.

China's HSBC Flash PMI for February falls to 50.4 from 52.3 previously and against expectations for 52.2. "Despite the moderation … the Chinese economy is still on track for a gradual recovery," says HSBC's Hongbin Qu. Shanghai gained 0.5% overnight following big losses last week. FXI +0.8% premarket.

MLPs are a multidecade story, not multiyear, says Chris Eades (CEM, EMO, CTR). His partner in a mini-Barron's roundtable, Kyri Loupis takes note of non-economic factors which keep MLP yields higher than REIT yields. "Maniacally focused" on yield, MLP investors should instead consider yield growth as a key metric, says Eades. His top pick is Targa Resources Partners (NGLS), still considered as having huge exposure to commodity prices even as fee income is set to rise to 65% of revenues.

CME Group has approached Deutsche Boerse (DBOEY.PK) to consider merger talks, reports Bloomberg. Deutsche, of course, recently had its deal to merge with NYSE Euronext quashed by regulators. 

Southwestern Energy (SWN) is added to the Conviction Buy list at Goldman Sachs, citing attractive gas assets that can deliver strong returns, double-digit production growth and a better balance of capex and cash flow than in recent years. Noble Energy (NBL) is removed from the list. SWN +2.1% premarket.

Sold – to China!  Chesapeake Energy (CHK) sells a 50% interest in its Mississippi Lime play to Sinopec for $1.02B in cash. CHK -0.5%premarket. (PR) – I guess this week no one cares?

Aqua America (WTR): Q4 EPS of $0.25 misses by $0.03. Revenue of $187.5M (+12.4% Y/Y) misses by $10M. (PR) 

More on Cooper Tire (CTB): North America Tire Operations revenue up 5% Y/Y to $771M on higher unit volumes and higher price and mix. International Tire Operations revenue down 9% to $342M with performance in both Asia and Europe weak. The company expects economic and industry headwinds to continue in 2013. (PR) – There's everything you need to know about the global markets in one earnings report!

Volkswagen (VLKAY.PK) CFO Hans Dieter Poetsch warns the automaker's Q1 will be "clearly below" last year's level as its exposure to Europe continues to drag down results. The exec says the Audi and Porsche brands will account for more than 50% of the company's profits this year.

More on Hertz Global's (HTZ) Q4: The U.S. car rental market was strong for the quarter, with revenue up 24.5% Y/Y. The company sees full year 2013 revenue of $10.85B to $10.95B and forecasts a period of margin expansion and cash flow generation. (PR) 

More on Lowe's (LOW): The company sees same-store sales rising 3.5% in 2013 and has a modest plan to open 10 new stores. Shares are up 1.1% premarket as the hefty buyback plan appears to be trumping soft EPS guidance. (earnings: I, II)