There is a lot to cover this morning, so we will get right to it.

Both Bank of America (BAC) and Morgan Stanley (MS) surprised the market with better-than-feared results for the December quarter.  Both stocks are indicated to start the session about 5.0% higher, bolstered by a relief bid that is also carrying over to the broader market.

Specifically, the S&P futures are up five points and are trading 0.3% above fair value.  Most of those gains were logged after Bank of America and Morgan Stanley reported their results.  Prior to that, the futures were relatively flat.

That flat indication wasn't noticeable so much for the lack of buyers as it was for the lack of sellers, who have been sidelined the better part of the last month during which time the S&P 500 has risen 8.5%.

A gain of that magnitude in the condensed timeframe it has been achieved typically invites some profit-taking activity -- or some consolidation to put it in fancy market terms.

That hasn't happened, though, suggesting that there is a catch-up/chasing bid underpinning the market, which some pundits suggested shouldn't be doing so well with the sky set to fall in the eurozone.

Well, we're pleased to report that the sky is still standing in Europe -- grey clouds and all -- and is even starting to clear a bit with a round of successful debt auctions prior to, and after, S&P cutting its debt ratings on nine countries and other agencies threatening the same.

France and Spain both conducted successful auctions today amid strong demand for longer-term instruments. 

In particular, Spain sold EUR 6.1 bln of bonds with maturities ranging from 4-10 years, well above its target of EUR 3.5-4.5 bln.  Average yields on both the 7-yr and 10-yr maturities were below the prior auction and followed on the heels of bid-to-cover ratios that exceeded 2.0. 

There was concern that demand would be lacking for these longer-dated instruments, whose maturities fell beyond the 3-year maturity range of the ECB's long-term refinancing operation.  Seeing that wasn't the case has been taken as a good sign that the ECB's unconventional monetary approach is helping to ease funding strains.

In addition, there are reports that Greece is close to striking an agreement with private creditors on a debt writedown.  That news was allegedly a catalyst for yesterday's buying interest.

Either way, what is going on right now is that the sum of all fears is not adding up and the market is liking the new quotient where worst-case scenarios are now being divided by encouraging developments on the earnings and eurozone fronts, as well as reassuring economic data out of the U.S.

Few reports have been as reassuring as the weekly initial claims reports of late.  Today's report fits that mold, too, as initial clams declined by 50,000 to 352,000 (Briefing.com consensus 385,000) for the week ending January 14.  That is the lowest level of initial claims since the week of April 19, 2008, and it lowered the 4-week moving average by 3,500 to 379,000. 

It was said that seasonal adjustment problems might have played a part in the big drop in claims; regardless, it is clear that the trend in claims is improving.

This report should resonate further for two, important reasons:  (1) initial claims are a leading indicator and (2) it covers the survey period for the January nonfarm payrolls report and suggests we should see a healthy gain of 200,000+ for nonfarm payrolls.

Continuing claims for the week ending January 7 fell by a considerable 215,000 to 3.432 mln (Briefing.com consensus 3.600 mln). 

Moving on, the December CPI report also brought good news.  Total CPI was unchanged (Briefing.com consensus +0.1%), leaving it up 3.0% over the last 12 months versus 3.4% in November.  A decline in the energy index (-1.3%) offset increases in other indexes like food (+0.2%) and medical care services (+0.4%).

Core CPI, which excludes food and energy, was up an expected 0.1% in December.  Over the last 12 months, core CPI has risen 2.2%.  The takeaway is that inflation data are in a comfort zone for the Fed.

Finally, housing starts declined 4.1% in December to a seasonally adjusted annualized rate of 657,000 (Briefing.com consensus 673,000).  The drop was led by a 13% decline in starts of multi-family units.  Single-family starts, meanwhile, rose 4.4% to 470,000.

Building permits were at a seasonally adjusted annual rate of 679,000 (Briefing.com consensus 680,000), down just 0.1% from November.  Accordingly, this specific component shouldn't produce any surprises in next week's Leading Indicators report. 

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.