Comment by Phil

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Phil
April 4th, 2012 at 9:55 am

Good morning!  

We're holding up well, all things considered so we're not going to be greedy – tempting though it may be.  We have oil inventories at 10:30 and we can't be too bearish with oil holding $102.50 but copper failed $3.85 (now $3.83) so, if they don't get that back – we have no reason to be bullish either.  

That means cashy and cautious is still the way to go but, when we see cool opportunities like yesterday's TLT spread – that's what cash is for.  Oil $102.80 at the moment with the Dollar at 80.01 (definite bear line) with the Euro at $1.312, the Pound at $1.5855 and the Yen back to 82.45 but not helping the /NKD Futures, which are in epic fail mode at 9,755.  

Gold is $1,623 so congrats to all who put their foot down on that silly run back to $1,700.  

As we can see from the Big Chart, we have support lines on the Dow (13,200), the S&P (1,400) and the Nas (3,075) that will all be tested this morning – the Dow will open below and the Nas and S&P will be right there so it's all about the Dow taking 13,200 back to get the bulls back in the game.  Obviously, failure by either the S&P or the Nas makes a 4/5 level fail and that's going to be a pretty good indicator that we're looking at another 2.5% ride down.  

In the Futures, that 820 line on the RUT is key (we're there now) as is 13,000 on the Dow (and a great BULL line on /YM, playing for a very likely bounce).  So far, volume not very exciting to the downside so all can be reversed with a kind word from the Fed.  Williams speaks at 11 and, of course, oil inventories at 10:30 and another big build may send the markets tumbling (about a 2.5Mb build is expected).  If oil blows $102.50, then the whole energy sector might follow it and then the miners follow, etc…  That's the most likely fundamental thing to knock us down today. 

CNBC announcers are apoplectic this morning – I had to turn down the volume for Cramer and Pisani as they seem to think that if they scream bullishness at us, they can stop the sell-off!  Let's just keep our eyes on Europe – if they don't turn back up – why should we?  

Wednesday's economic calendar:
7:00 MBA Mortgage Applications
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
10:00 ISM Non-Manufacturing Index
10:30 EIA Petroleum Inventories

At the open: Dow -0.93% to 13077. S&P -0.87% to 1401. Nasdaq -0.2% to 3114.
Treasurys: 30-year +0.59%. 10-yr +0.35%. 5-yr +0.21%.
Commodities: Crude -1.28% to $102.67. Gold -2.93% to $1622.95.
Currencies: Euro -0.86% vs. dollar. Yen -0.51%. Pound +0.36%.

Market preview: U.S. stock futures continue yesterday's sell-off despite a decent and in-line ADP jobs report, with the S&P 500 benchmark -0.9%. The action's back in Europe today, where shares are lower, and Spanish and Italian bond yields are surging following a poor auction in Spain. Later: ISM Non-Manufacturing Index, EIA Petroleum Inventories 

March ADP Jobs Report: 209K vs. +230K prior (revised from 216K) and expectations of 208K.

Something Strange: The Economy Is Behaving Badly In The Least Expected Way.

Fed's Lockhart Says Sustained Job Gains Reduce Need for Easing. “I would have to see some pretty severe circumstances before I endorse for another round of quantitative easing,” Lockhart said today on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays.

The WSJ's Jon Hilsenrath confirms the market's read on the FOMC minutes as indicating the central bank is in no hurry to launch more stimulus, and in fact, is more worried about inflation than previously thought. Meanwhile, Goldman Sachs reads the tea leaves and shifts its expectation for a QE announcement from April to June.

T.Boone Pickens: Oil Could Hit $148 Per Barrel. Tightening oil production worldwide could mean prices hitting $148 per barrel this summer, Texas billionaire investor T. Boone Pickens said Tuesday. Not even spare capacity from Saudi Arabia would be enough to make up the difference amid increasing sanctions against Iranian oil, Pickens said in an interview to be aired on “The Kudlow Report.”

The U.S. apartment vacancy rate in Q1 fell to 4.9%, its lowest level in more than a decade, and effective rents rose to $1,018/month, the biggest jump in four years, real estate research firm Reis reports. But those numbers may be peaking, as 150K-200K new units are expected to be built next year, and the added supply likely will dampen rent growth. 

Spain's poorly received debt auction is not a sign of market fragility, but a reminder of continued pressure for governments to reform, says Draghi. Europe is at session lows, Stoxx 50 -1.7%, Germany -2.2%, Spain -1.1%. (earlier) 

Austria's central bank follows the Bundesbank example from last week and will no longer accept bank bonds from Greece, Ireland, and Portugal as collateral for borrowings, reports Dow Jones.

Methinks Draghi protests way too much:  The LTRO is not QE, says Mario Draghi, pointing out the ECB is not purchasing bonds, but lending money against collateral. Technically correct, but the collateral is suspect and the central bank balance sheet is still exploding. (earlier)

"Any exit talk is premature," says ECB chief Draghi of the central bank's current easing stance. In fact, he says, another LTRO is a possibility if the conditions warrant. Euro near session lows, -0.8%to $1.3125.

We don't see any signs that banks are addicted to ECB lending, says President Draghi. This chart shows that while the first LTRO served to narrow all bank credit spreads, LTRO #2 created a divergence, with those banks who partook seeing their spreads widen vs. those lenders who did not.

Draghi brushes aside any worry about the Bundesbank and Austrian central bank no longer accepting bank bonds from Greece, Ireland, and Portugal, calling the amount of paper involved "peanuts." Key is sovereign debt, which is still being accepted. (earlier)

Draghi says the capital of Greek banks has been wiped out by the PSI and the ECB is assessing which ones remain viable as counterparties in monetary policy operations – which sort of sounds like he's saying some won't be. (earlier)

Draghi Tested as German Pay Deals Add to Euro Divergence Threat. Wage moderation in Germany may be coming to an end at precisely the wrong time for European Central Bank President Mario Draghi. As nations from Greece to Spain battle recessions and record unemployment, workers in Germany are winning some of the biggest pay increases in two decades, with public service staff set to gain 6.3 percent more by the end of next year. That’s widening the gaps between Europe’s largest economy and its euro- area peers, making the ECB’s one-size-fits-all monetary policy less effective.

Taiwan Bourse Says Likely Tax on Trading Will Cause Stock Slump. Taiwan is likely to impose a capital-gains tax on share transactions to bolster revenues, causing equities to decline, said Schive Chi, the chairman of the island’s stock exchange. “The market will certainly react to this but I think that is because how the capital gains are going to be taxed is still not clear,” Schive said yesterday in an interview in Boao, China. “That will cause some kind of concern for uncertainty.”

SEC Probes Ties to High-Speed Traders. U.S. securities regulators are conducting a wide-ranging investigation into the complex relationships between rapid-fire trading firms and stock exchanges, according to the official overseeing some 20 probes into computerized trading. The inquiry into ownership and other ties is part of a broader probe into whether high-speed traders have unfair advantages over other investors, according to people familiar with the matter.

Monsanto (MON): FQ2 EPS of $2.28 beats by $0.17. Revenue of $4.75B (+15% Y/Y) beats by $220M. Shares +1.7%premarket. (PR)   More on Monsanto's (MON) FQ2: Net sales increases driven by global gains in corn and a strong selling season in the U.S. R&D expenses increased to $353M based on investments to support future growth opportunities. Soybean Seed segment revenue grew 12% Y/Y, while Vegetable Seed fell off 6%. Raises full-year EPS guidance to $3.49-$3.54 and sees free cash flow of $1.6B-$1.8B for FY12. Shares +1.1% premarket. (PR) 

McDonald's (MCD) is removed from Goldman's conviction buy list, the firm saying there is little visibility towards near-term catalysts and better opportunities elsewhere. Shares -0.9%premarket.

Shares of Sears Holdings (SHLD) trade 3.7% lowerpremarket after Eddie Lampert hits the CNBC airwaves (video) for a rare TV appearance that covered macroeconomic topics more closely than life at Sears – although he did tip off that he sees trends in retail favoring consumers over businesses.