Midday Look

{+++}Dow +122 S&P +12.6 NASDAQ +32.3
– Investors are jumping right back into the pool this morning, sending US equity indices up nearly 2% in early trading ahead of the FOMC decision later this afternoon. The hesitation that drove two days of losses on the major indices has evaporated, thanks to follow-on strength from Europe, a strong quarterly report from Macy’s and bullish preliminary earnings from Toll Brothers. Markets aren’t blinking at another big batch of secondary equity offerings either, with nearly all of the names selling shares up on the day. Front-month NYMEX crude was up almost $1.50 per contract higher following the monthly EIA report earlier today and has managed to maintain its strength despite yet another big build in crude stocks seen in the weekly DoE inventory report.

– Treasury prices began the day moving higher but have reversed as stock momentum builds. The 10-year note future was up more than to ticks at one point with its yield moving below 3.65%, but prices are now in the red and the yield is back above 3.7%. This afternoon is expected to be extremely eventful with the $23B 10-year auction results due out a little more than an hour before a highly anticipated FOMC statement. It is also worth pointing out that Fed Fund Futures prices looking out into 2010 have pretty much recouped losses seen following Friday’s jobs numbers. The March contract was at one time putting a better than 50% chance the Fed hikes the funds rate up to 0.75% by the end of the first Quarter, but that same contract is now not fully pricing in a 25 basis point hike.

– Macy’s strong earnings beat estimates and missed on slightly on revenue, with quarterly profits up on robust cost cutting. The retailer nearly doubled its profit forecast for 2009. High-end apparel retailer Liz Claiborne reported its third consecutive quarterly loss, missing top- and bottom-line estimates. The company said it is looking for an additional $100M in cost cuts (on top of the $70M already announced), but said it believes the big declines in same-store sales would moderate in the coming quarters with quarterly results improving as well.

– Homebuilder Toll Brothers reported preliminary Q3 revenue figures this morning, beating the Street by nearly $100M. Toll’s CEO pointed to the increase in the number of net contracts signed this quarter as a reason for optimism. “This marked the first time in 16 quarters – dating back to Q4 of FY05 – that our net contracts exceeded the prior year’s same quarter. It also marked the first quarterly sequential unit increase in our backlog in more than three years,” he said.

– Food name Sarah Lee beat estimates (before impairment charges), while revenue fell short of expectations due to big declines overseas. Heinz boosted its forecast for 2010, offering guidance that was much better than the consensus view, but warned of “unprecedented currency volatility” in the coming FY. Note that Nestle, the world’s biggest food company, pared its FY09 outlook after missing forecasts this morning.

– In tech, Applied Materials seems to have staunched the bleeding, with Q3 results at break-even, well ahead of analysts’ expectations for an $0.08 loss. Revenue was much better than expected. Solar names JA Solar and Rensola both reported quarterly losses. JA Solar’s loss was three times the expected amount. Rensola met consensus EPS estimates, but missed on the top line. JA Solar’s CEO said the company is seeing significant signs of market improvement in both end-market demand and financing.

– In currencies, follow-on risk aversion from the Shanghai stock sell-off and the European open seems to evaporated as equity indices in both Europe and the US rack up gains (with fresh lows in USD and JPY). EUR/USD was testing above the 1.42 handle after electing some minor sell-stops below the 1.41 level just a few hours ago. USD/JPY was back above the 96 level after probing 95.10. In Scandinavia, the Norwegian Central Bank surprised the market with hawkish rhetoric. The bank left its deposit rate unchanged at 1.25% (as expected) but acknowledged that it might be appropriate to start raising interest rate earlier than previously indicated. NOK rallied against the euro and dollar pairs as market participants seemed to be short on NOK. EUR/NOK was testing the 8.6770 level, down from the 8.81 level ahead of the comments.

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