Daily State of the Markets
Tuesday Morning – September 13, 2011
Good morning. For the bears, Monday started off with such promise. In the pre-market, European bourses were down better than -3%, Hong Kong was down -4.2%, and banks in France were being crushed – again. There was a report out of Greece that the poster child for the PIGIS only had enough cash to last through the end of the month. There was the report out of Germany that said an “orderly insolvency” for Greece shouldn’t be ruled out. There was yet another official denial from Greece’s PM that the country won’t default. There was a report about a big hole in some of Europe’s bank balance sheets. And there was disappointment that the G-7 could only muster a handful of paragraphs pledging some sort of support in the future.
Naturally, the U.S. stock market followed suit and before the session was even 2 minutes old, the Dow was off triple-digits – again. Even the chartists had something to worry about as the uptrend line that the bulls had been so fond of was suddenly making a snap-crackle-pop noise. And with the 1140 zone on the S&P 500 appearing to give way, it looked like the lows of the recent swoon were going to be tested once again.
As one might have expected though, stocks rallied after just a couple of minutes of nastiness as the Euro suddenly found some life (remember, the Euro has been slammed unmercifully of late and was due for a bounce) and the programs kicked in. But after an impressive bounce, our Commander-In-Chief proceeded to give the ball back to the bears by singing the same old song about raising taxes on the rich to pay for his new-fangled jobs program (seriously, have these guys learned anything?). And before you could stop shaking your head, the indices were back at the lows of the day.
So, with the party-line being that Greece is going default sooner or later, our furry friends had their sights set on an old-fashioned breakdown; you know something truly ugly. After all, with stocks having been down six of the last seven days, it was obvious who was in charge here.
But then it happened. A single headline changed the mood, the day, and perhaps even the near-term trend as Bloomberg reported that according to the Financial Times, China was talking to Italy about buying bonds. Bam, the Dow popped up 125 points from the low and the bears were looking nervous. You see, while there has been all kinds of talk about knights in shining armour mounting up their white horses, up until this point, there had been no riders to be found anywhere on the horizon.
When you stop and think about it, lots of folks have talked about being that white knight. Let’s see here… Ben Bernanke’s gang has all but assured us that they are going to do something in a week or two. The ECB has stopped talking about inflation long enough to notice that things aren’t exactly going swimmingly at the moment. The head of the Eurozone said over the weekend that they intended on supporting the Euro. The G-7 wrote up a dandy statement about standing ready to do something at some point. And the U.S. government never met an opportunity to spend money that it didn’t like. So, while details from all of these potential white knights have been severely lacking, there has been little doubt that somebody, sometime, would do something.
Lo and behold, that somebody turned out to be the Chinese. You remember them, right? These are the people with actual economic growth in their country and more dollars than they can figure out what to do with. Well, apparently the China Investment Bank (perhaps the world’s largest sovereign wealth fund) has been chatting it up with the Italians over the past two weeks and the FT finally put two-and-two together in a story Monday.
Although it took a while for FT to actually post the story (and as such, traders decided it was only a rumour and started hitting the sell button again), the article finally made it to cyber space. So, with actual names, dates and locations to go by, the bulls were suddenly in business as it appeared that there actually was a knight riding around on a white horse.
The question, of course, is if one white knight is going to be enough to turn the dismal market mood around. While Italy may have found its champion, it probably won’t be long before traders start to wonder who is going to ride in and save Spain, Portugal, Ireland, et al. But for Monday at least, that knight on a white stallion was a sight to behold.
Turning to this morning… All eyes continue to be focused on Europe this morning. The weak bond auction in Italy and ongoing concerns about Greece seem to be counteracting the positive reports that Italy is in talks with China. Our futures are pointing to a flat open at the present time.
On the Economic front… The NFIB Small Business Optimism Index fell 1.9 points to a reading of 88.1, marking the sixth consecutive monthly decline.
Thought for the day… Try sending positive thoughts to someone who could use an upbeat vibe today…
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: +0.81% Shanghai: -1.06% Hong Kong: NA Japan: +0.93% France: -0.82% Germany: +0.45% Italy: +0.65% Spain: +0.39% London: +0.04%
- Australia: +0.81%
- Shanghai: -1.06%
- Hong Kong: NA
- Japan: +0.93%
- France: -0.82%
- Germany: +0.45%
- Italy: +0.65%
- Spain: +0.39%
- London: +0.04%
- Crude Oil Futures: +$1.55 to $89.74
- Gold: +$20.10 to $1833.40
- Dollar: higher against the Yen, Euro and Pound
- 10-Year Bond Yield: Currently trading at 1.963%
- Stock Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -4.17 Dow Jones Industrial Average: -35 NASDAQ Composite: -2.04
- S&P 500: -4.17
- Dow Jones Industrial Average: -35
- NASDAQ Composite: -2.04
Wall Street Research Summary
- SunPower (SPWRA) – Auriga
- Kansas City Southern (KSU) – Citi
- Lockheed Martin (LMT) – Goldman Sachs
- Health Management (HMA) – Oppenheimer
- Fifth Third (FITB) – RBC Capital
- Kirby Corp (KEX) – Stifel Nicolaus
- JPMorgan Chast (JPM) – Stifel Nicolaus
- Coca-Cola Enterprises (CCE) – UBS
- Hospira (HSP) – Barclays
- HCA Holdings (HCA) – Cowen
- Netlogic Microsystemsn (NETL) – Jefferies, Stifel Nicolaus, UBS
- Sunshine Hotel Invesotrs (SHO) – JPMorgan
- FedEx (FDX) – RBC Capital
Long positions in stocks mentioned: none
For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com
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