Barchart Morning Call
Overnight Developments
- Global stocks are trading higher with the European Euro Stoxx 50 index up +1.03% and at an 8-1/2 month high and March S&Ps up +1.60 points at a fresh contract high. The dollar index slipped to a 1-3/4 month low and most commodities strengthened after Euro-Zone finance ministers pledged to strengthen the safety net for debt-strapped countries. After a meeting with Euro-Zone finance ministers in Brussels yesterday, European Union Economic and Monetary Affairs Commissioner Rehn said, "We shall improve our current existing financial backstops so that the so-called market forces cannot have even the slightest doubt about our capacity to act even in the most stresses scenarios." Also helping to boost European stocks was the larger-than-expected increase in the Jan German ZEW survey of economic sentiment, which rose +11.1 to 15.4, a 6-month high. European bank stocks rallied after Belgium's finance minister pushed for a "common view" on bank stress tests with the IMF and said greater transparency in stress tests can be achieved by having "the same criteria in the US and Europe." Undercutting stock market gains was a 4.5% slump in Apple stock in European trading after CEO Jobs announced he would take a leave of absence to focus on his health. The British pound surged to a 1-3/4 month high against the dollar after Dec UK CPI rose more-than-expected and climbed to a 2-year of +3.7% y/y, which fueled speculation that the BOE may need to raise interest rates.
- The Asian stock markets today closed mostly higher with Japan up +0.15%, Hong Kong -0.01%, China +0.11%, Taiwan +0.70%, Australia +0.81%, Singapore +0.34%, South Korea -0.16%, India +1.11%. Asian technology stocks closed higher and led the broader market with gains after the Nikkei newspaper reported Elpida Memory, the world's third-largest maker of computer memory chips, will raise prices on its dynamic random-access memory chips by 10% as early as this month. China's Ministry of Commerce reported that foreign direct investment in China rose +17.4% y/y in 2010 to a record $105.7 billion, which underscores global confidence in the Chinese economy and puts pressure on the PBOC's policy of restraining yuan appreciation. India's Sensix Stock Index closed higher after Tata Consultancy Services Ltd., India's biggest software services company, posted record profit.
- March S&Ps this morning are trading up +1.60 points and posted a frech contract high in overnight trade. The US stock market last Friday shook off early weakness on China's decision to raise bank reserve requirements and finished on its high after JPMorgan Chase reported record profits: Dow +0.47%, S&P 500 -0.17%, Nasdaq Composite -0.07%. The Nasdaq posted a 9-3/4 year high and the Dow and S&P 500 posted 2-1/3 year highs. Bullish factors for stocks included (1) the larger-than-expected increase in Dec industrial production which posted its biggest gain in 5 months (+0.8% versus expectations of +0.5%), (2) the larger-than-expected jump in Dec capacity utilization which rose to its highest level in 2-1/3 years (+0.6 to 76.0 versus expectations of +0.4 to 75.6%), (3) strength in semiconductor-companies after Intel, the world's biggest chipmaker, said it would boost spending on plants and equipment this year, and (4) a rally in financial stocks after JPMorgan Chase, the second-largest US bank by assets, posted a record $4.83 billion profit for Q4, helped by $2 billion in reserve reductions as credit quality and the US economy improved.
- Bearish factors included (1) carry-over weakness from a plunge in European and Asian stock markets after China raised banks reserve requirements for the fourth time in 2 months, which may slow its economy and the global economy as well, (2) the weaker-than-expected Dec US retail sales (+0.6% and +0.5% less autos versus expectations of +0.8% and +0.7% less autos, (3) the unexpected decline in the Jan US University of Michigan consumer confidence (-1.8 to 72.7 versus expectations of +1.0 to 75.5), and (4) concern that the European sovereign-debt crisis may worsen after Fitch Ratings cut Greece's long-term foreign and local currency issuer default ratings to BB+, or junk, from BBB- with a negative outlook.
- Apple (APPL) slipped 4.5% in pre-market trading after the company reported that CEO Steve Jobs will take a leave of absence to focus on his health, leaving Tim Cook in charge for the third time in 7 years.
- March 10-year T-notes this morning are up +2.5 ticks. T-note prices last Friday climbed early to a 1-1/4 month high on weak economic data high but then shed their gains and closed lower after the stock market rallied: TYH11 -8, FVH11 -3.2, EDM11 unchanged. Bearish factors included (1) the larger-than-expected gain in Dec CPI which posted its biggest monthly increase in 1-1/2 years (+0.5% m/m and +1.5% y/y versus expectations of +0.4% m/m and +1.3% y/y), (2) the larger-than-expected increase in Dec industrial production which posted its biggest gain in 5 months (+0.8% versus expectations of +0.5%), (3) the larger-than-expected jump in Dec capacity utilization which rose to its highest level in 2-1/3 years (+0.6 to 76.0 versus expectations of +0.4 to 75.6%), and (4) reduced safe-haven demand for Treasuries after the S&P 500 rallied to a 2-1/3 year high. Bullish factors included (1) the weaker-than-expected Dec US retail sales (+0.6% and +0.5% less autos versus expectations of +0.8% and +0.7% less autos, (2) the unexpected decline in the Jan US University of Michigan consumer confidence (-1.8 to 72.7 versus expectations of +1.0 to 75.5), (3) increased safe-haven demand for Treasuries after Fitch Ratings cut Greece's long-term foreign and local currency issuer default ratings to BB+, or junk, from BBB- with a negative outlook, and (4) the Fed's action to buy $7.306 billion of Treasuries as part of its QE2 asset-purchase program.
- The dollar index this morning is weaker and at a 1-3/4 month low with the dollar/yen -0.14 yen and the euro/dollar +1.11 cents. The dollar index last Friday rebounded from a 2-week low to settle little changed: Dollar Index -0.029, USDJPY +0.186, EURUSD +0.00096. Bearish factors included (1) weaker-than-expected US economic data on retail sales and consumer confidence, (2) strength in the euro after euro supportive comments from ECB Council member Weber who said "the economic outlook has brightened considerably" and that inflation risks "could well move to the upside," (3) the action by Citigroup to revise its forecast for the ECB's first rate increase to the second half of this year from the first quarter of 2012, and (4) the recommendation from BNP Paribas that investors buy the euro against the dollar after recent comments from ECB President Trichet and fellow council member Weber "are a significant change in tone" and will prompt the market to price in earlier rate hikes from the ECB. Bullish factors included (1) the stronger-than-expected Dec US industrial production and capacity utilization, and (2) the prediction from Brown Brothers Harriman that he euro may weaken to $1.18 by Jun as the European debt crisis weighs on sentiment.
- February crude oil prices this morning are trading down -17 cents a barrel and February gasoline -0.03 of a cent per gallon. Crude oil and gasoline prices last Friday settled higher on a weak dollar and on Royal Dutch Shell's action to shut a 340,000 barrel-a-day refinery in Texas for unscheduled repairs: CLG11 +0.14, RBG11 +4.87. Bullish factors included (1) the fall in the dollar index to a 2-week low, which boosts investment demand in commodities, (2) the bigger-than-expected increases in Dec US industrial production and capacity utilization, which signals strength in the economy that may lead to increased energy demand, and (3) strength in gasoline after Royal Dutch Shell Plc shut a 340,000 barrel-a-day refinery in Texas for unscheduled repairs, which may limit gasoline supplies. Bearish factors included (1) China's action to boost banks reserve ratio requirements for the fourth time in 2 months, which may slow its economy and energy demand, and (2) the weaker than expected Dec US retail sales along with an unexpected drop in Jan US University of Michigan consumer confidence, which signals a possible slowdown in consumer spending that may limit fuel demand.
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