Market Talk

A dose of cautionary comments on three things that seem to only go up lately: the euro, stocks and corporate earnings.

First on the euro, which surged through $1.43 today its highest level vs USD since January 2010, and looks as if it’s left any and all concerns about sovereign debt in the dust.

Nomura says in a report that it’s too early for the euro to shed that risk. “The uncertainties about the economic outlook, debt dynamics, and the political framework around managing sovereign insolvency are simply too great,” firm says.

It estimates “a debt restructuring isolated to Greece/Ireland/Portugal would trigger direct and indirect losses around $240bn for core Eurozone banks, while bank losses would rise to $480bn in a restructuring including Spain.” German banks have the largest exposure to the periphery, Nomura says, with estimated losses of $185B in a restructuring scenario involving Spain.

Implied risk premium on the euro “has compressed significantly since January,” firm says, as the single currency “decoupled from sovereign risk.” That process “has probably run too far at this point: a persistent risk premium is still needed.”

On to stocks and some thoughts from BofA Merrill small-cap strategist Steve DeSanctis. He points out that weaker economic news, higher energy prices and disaster in Japan tripped up stocks in early March, but a “liquidity driven rebound” has put the Russell 2000 within 1% of its all-time high.

“Volatility came tumbling down despite the fact that none of the earlier concerns…have been resolved,” he writes, and small caps “are now very close to the full year’s return we have been expecting.” DeSanctis says he’s been “taken back by the strength of the overall equity market and in small caps in particular given the economic backdrop and where absolute and relative valuations stand,” and thinks 1Q earnings estimates are too high. Continue reading…

Based on premarket futures, US stocks on track to run higher when regular trading gets underway as investors here watch a surging euro and rising European stocks.

Rally in Europe said to be pinned on hopes for the economy as ECB is expected to hike rates tomorrow to corral inflation. Solid German manufacturing data out today, but UK manufacturing wasn’t so hot. Seems basis for rally is a bit flimsy, particularly as a teetering Portugal had to pay an average of more than 5.1% on six-month T-bills in its auction today vs 2.98% a month ago.

Here in the U.S., Chicago Fed’s Midwest manufacturing index hit the tape at 8:30 a.m., and showed some improvement. The bank’s Midwest Manufacturing Index rose 1.3% to a seasonally adjusted 83.3 in February from a revised 82.2 in January, with a 3.5% rise in auto production helping the region outpace broader U.S. indicators. Mind you, that’s for February, before all the problems that erupted in March.

S&P futures up 7.50, DJ futures up 58. Ten-year note flat yield pushing 3.49%. Crude futures higher, Nymex crude at $108.50. Brent crude, meanwhile, is over $122, at $122.40/barrel.

- The Fed is often accused of being behind the curve, and for good reason. Look at this headline that ran earlier on the broadtape, quoting Dallas Fed’s Richard Fisher:

*DJ Fisher: Sees Early Signs Of Unconstructive Market Speculation

Early signs? Take a look at a chart of any commodity or major stock index. Early signs of unconstructive speculation? And this comes from a guy who’s considered to be one of the FOMC’s biggest hawks. Good heavens. Here’s his quote, reported by Newswires’ Frances Robinson in Brussels:

“We have abundant liquidity, now there’s excess liquidity, which is working through the system,” Fisher said. “There are in my view, early signs of speculative activity that I don’t consider constructive.”

If he’s only seeing “early signs,” how far behind the curve do you think the rest of the Fed gang is? By the way, Fisher quipped that protectionism is “the syphilis of economics.” Interesting analogy. What’s the gonorrhea of economics? Probably speculation. It’s bad, but you can get rid of it pretty quickly.

Meanwhile, Philly Fed’s Plosser is dishing up some hawkish comments, saying headline inflation is “all that matters,” and core is just for filtering noise. The frank talk is welcome, but stock market ignores him because his hawkish tendencies are well know.

- US stock markets seemed to find euro strength a source of comfort yesterday, and have frolicked with the single currency again today. But euro’s lost some zest in early afternoon trading and is catching some notice from stocks, which have since pulled back from their earlier highs.

As is often the drill, IBM and CAT together account for roughly 40% of the DJIA’s advance, at this point up 70.

- Now to the absurd file. JPMorgan strategist Thomas Lee takes the cake today for the headline on his morning US equity strategy note: “History showing post-nuclear disaster bounce is 9.6% for the next 3-mos plus negative investor sentiment point to upward bias in next few weeks.”

We kid you not. That’s what he wrote. After nuclear disasters, stocks usually bounce about 10% in the next three months. Uh, yes, sample size is a little small, so be careful taking this one to the bank, citizens.

Question for Mr. Lee: What are the returns for stocks three months after two regimes are deposed in North Africa, another nation erupts in civil war, a third European nation collapses financially and needs a bailout, and the world’s third-largest economy gets hit with a 9.0 earthquake, followed by a tsunami, followed by a nuclear crisis?

(Paul Vigna contributed to this post.)

US stock futures leaning slightly higher premarket, but not quite enough to suggest any rebound in the making.

Crude oil futures just a shade lower, not a material source of comfort with the price still hovering around $105/barrel. No top-tier economic data due, so geopolitics, action in oil and EUR/USD will likely be the key steering winds for stocks today.

Asian stocks generally higher overnight, while European markets currently mixed to lower. Euro giving back gains, flirts with slipping back below $1.39.

S&P futures down 0.40, DJ futures down 1. Ten-year note lower, yield at 3.51%. Nymex crude at $105.05.

Impact of rising oil prices seemed to rattle investors enough to send US stocks lower Friday, but somehow another two bucks added on to crude this morning — taking it to well above $106/barrel — appears to be little cause for concern.

Figure that one out.

Mood here may be enhanced by advances in European stock markets, and euro dashing above $1.40, though it’s hard to find a substantive reason behind Europe’s gains. Moody’s cut Greece’s credit rating another three notches.

Stocks may bounce at the open, but gains will be tested if oil continues its advance. Thin week for economic data, January consumer credit due at 3:00 p.m. ET.

S&P futures up 0.20, DJ futures up 4. Ten-year note lower, yield at 3.53%. Crude futures up 2% at $106.50, Brent futures up 1.6% at $177.77.

Stocks are back into rally mode, while the euro bounces around and the Treasury market flashes an inflation-warning sign.

Merck is leading the Dow lower, after halting part of a drug study, and this morning’s jobless claims were a real downer as well. But, hey, the euro’s rising because, you know, um, everything looks so good over in Europe. The Market Hub explains all.

Early mood is positive for US stocks, as Portugal’s bond sales are deemed a success.

Not a surprise, since central banks around the globe have every interest in making sure the auction went well. Euro has come off earlier highs, recently at $1.297; stocks in London post modest gains, while advances in Paris and Frankfurt are stronger.

Activity in Europe and its debt theatrics have steered US stocks so far this week, but focus should begin to shift more toward 4Q earnings as the flow of reports begins to pick up. Intel reports tomorrow, JPMorgan Friday. December import prices due at 8:30 a.m.; Fed’s latest Beige Book out at 2:00 p.m. ET.

S&P futures up 7.20; 10-yr note lower, yield at 3.39%.

Hope you’re not still wondering about the effectiveness of the Fed’s QE2 program, as there should be no more debate: Dow Industrials close at their highest level since August 2008; S&P 500′s highest close since early Sept 2008; go back almost three years to see Nasdaq close at this level.

Fed officials have proffered that one ambition for QE2 was to help increase stock prices. Well, mission accomplished so far. Sure, it’s lighter, pre-holiday trading, but gains are gains, right bulls?

Feel wealthy, citizens? Case closed.

Financials soar, followed by materials and energy. CAT, IBM and JPMorgan contribute 50% of the Dow’s gain. DJIA rises 55.03 to 11533.16, and Nasdaq Comp climbs 18.05 to 2667.61. S&P 500 ends 7.52 higher at 1254.60. Continue reading…

The euro earlier slumped to a session low $1.3072 vs US dollar (after earlier rising to $1.3202), continuation of a drop sparked when the Fed announced it will extend existing US dollar swap line facilities with a handful of foreign central banks.

US stocks appear generally oblivious to the develop, which could be chalked up to a simple focus on wrapping up the year’s business, and trying to grind out more gains in thinner, pre-holiday, formulaic and mechanical trading. Slap the blinders on and buy.

The Fed’s swap-line extension is telling — it’s reinforcement that the debt problems in Europe have a certain intractability, a stubbornness that won’t be dissolved by wishful thinking, promises of new “support mechanisms” or kind words from the Chinese. Continue reading…