Overnight Developments
- Global stocks are trading mixed with the European Euro Stoxx 50 index up +0.10% and March S&Ps down -0.30 of a point. As expected, the BOE kept its benchmark interest rate unchanged at 0.50% and its asset purchase target at 200 billion pounds. Treasuries are little changed and the dollar index fell to a 1-week low after strong demand was seen at a Spanish auction of 5-year bonds today. Investors bid for 2.1 times the 3 billion euros ($3.9 billion) of Spanish 5-year bonds today, more than the previous auction of 5-year bonds on Nov 4 when investors bid for only 1.6 times the amount offered. Spanish banks rallied after the auction with Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, Spain's largest banks, up over 4%. Weakness in retailers undercut European stock prices as Tesco Plc fell 1.6% after Britain's biggest retailer reported holiday sales growth that missed estimates as snowstorms kept Britons from visiting out-of-town supermarkets. Dixons Retail Plc slumped 7.3% after Britain's largest consumer-electronics retailer said earnings for fiscal 2011 are now likely to be "around the bottom end" of analysts' estimates.
- The Asian stock markets today closed mixed with Japan up +0.73%, Hong Kong +0.47%, China -0.03%, Taiwan +0.12%, Australia +1.50%, Singapore +0.34%, South Korea -0.24%, India -1.80%. Strength in commodity producers pushed Japan's Nikkei 225 Stock Index up to an 8-month high and Asian shipbuilders advanced on speculation orders will increase. Nov Japan machine orders unexpectedly fell -3.0% m/m, weaker than expectations of a +2.0% m/m gain, which signals companies are reluctant to increase spending on factories and equipment because of concern about the strong yen's effect. South Korea's Kospi Stock Index closed lower and the won rose after the BOK raised the 7-day repurchase rate by 25 bp to 2.75%. BOK Governor Kim Choong Soo said inflationary pressures will likely gather pace and the South Korean economy will probably post "sold growth." The rate increase adds to a combined half a percentage-point rise in July and Nov from a record low as South Korea attempts to tackle price pressures spurred by economic growth and foreign capital inflows.
- March S&Ps this morning are trading down -0,30 of a point. The US stock market yesterday shot higher and finished at its best level in over 2 years: Dow +0.72%, S&P 500 +0.90%, Nasdaq Composite +0.75%. The Nasdaq rose to a 9-3/4 year high and the Dow and the S&P 500 posted 2-1/3 year highs. Bullish factors for stocks included (1) carry-over support from a rally in European stocks as sovereign-debt concerns eased after Portugal successfully auctioned 10-year debt at lower yields than a previous auction along with speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn called for a "comprehensive" plan to contain the sovereign debt crisis, (2) strength in bank stocks after Wells Fargo raised its rating on the largest US banks to "overweight" from "market weight," saying dividend payout ratios may double this year, (3) a rally in energy producers after crude oil gained when weekly crude inventories fell more than expected, and (4) the Fed's Beige Book that said holiday-season spending and increased manufacturing drove an economic expansion in Nov and Dec, and that businesses are cautiously optimistic about their 2011 outlooks.
- Bearish factors included (1) the Fed's Beige Book that stated housing markets were "weak and sluggish" across a majority of regions, which may limit growth in the economy, and (2) the prediction from well-known bank analyst Meredith Whitney that she expects more than 1 million job losses among state and local governments as they increase their austerity measures in an attempt to trim their budget deficits.
- Deere & Co. (DE) climbed 1.2% in European trading after JPMorgan Chase raised its recommendation for the company to "overweight" from "neutral."
- March 10-year T-notes this morning are down -2 ticks. T-note prices yesterday settled nearly flat after strong demand for the Treasury's 10-year T-note auction helped the market overcome early losses: TYH11 +0.5, FVH11 unchanged, EDM11 +2.5. Bullish factors included (1) comments from St. Louis Fed President Bullard who said its "too soon" to reduce the Fed's QE2 asset-purchase program, (2) strong demand for the Treasury's $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 3.30, higher than the 10-auction average of 3.14 and the strongest in 9 months. Bearish factors included (1) reduced safe-haven demand for Treasuries after the stock market rallied and on speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn called for a "comprehensive" plan to contain the sovereign debt crisis, (2) an upbeat Fed Beige Book that said the economy strengthened the last 2 months of last year and that businesses are cautiously optimistic about their 2011 outlooks, and (3) supply pressures ahead of the Treasury's $13 billion auction of 30-year T-bonds on Thu.
- The dollar index this morning is weaker and at a 1-week low with the dollar/yen -0.01 yen and the euro/dollar +0.41 cents. The dollar index yesterday settled sharply lower: Dollar Index -0.815, USDJPY -0.245, EURUSD +0.01587. Bearish factors included (1) strength in the euro after Portugal's borrowing costs fell from a month ago after a successful auction of 10-year notes, which temporarily eases sovereign-debt concerns, (2) speculation that European leaders will increase their efforts to stem the debt crisis after European Union Economic and Monetary Affairs Commissioner Rehn said that Europe's bailout fund "should be reinforced and the scope of its activity widened," (3) the stronger-than-expected Nov Euro-Zone industrial production, which is euro positive, and (4) euro supportive comments from PBOC Deputy Governor Yi Gang who said that China is a long-term investor in European financial markets and will continue that policy. Bullish factors included (1) apprehension ahead of Spain's and Italy's debt auctions on Thursday, which may see increased safe-haven demand for the dollar as the indebted European nations struggle to fund their deficits, and (2) the warning from Nobel Prize-winning economist Pissarides that the European Union doesn't have the resources to rescue Spain from a full-blown fiscal crisis, which could lead to the end of the euro.
- February crude oil prices this morning are trading down -16 cents a barrel and February gasoline is +0.49 of a cent per gallon. Crude oil and gasoline prices yesterday finished mixed: CLG11 +0.75, RBG11 -1.53. Feb crude climbed to a 1-week high. Bullish factors included (1) the weaker dollar, which boosts investment demand in commodities, (2) the larger-than-expected decline in weekly crude inventories which dropped to their lowest level in 11 months (-2.15 million bbl to 333.1 million bbl versus expectations of -1.4 million bbl), and (3) the rally in the S&P 500 Index to a 2-1/3 year high, which boosts confidence in the economic outlook and energy demand. Bearish factors included (1) the restarting of the Trans Alaska pipeline, after it was closed for several days to repair a leak, (2) the larger-than-expected increases in weekly gasoline and distillate inventories (gasoline +5.08 million bbl versus expectations of +2.12 million bbl and distillate inventories +2.65 million bbl versus expectations of +1.0 million bbl), and (3) reduced US gasoline demand after the 4-week average slipped -1.5% to 9.07 million barrels a day.
Jim Van Meerten is a professional investor with over 40 year experience in investing in stocks, mutual funds and ETFs. He shares his knowledge on Barchart in his daily blogs -- Barchart Portfolio Blogs.
Through Marketocracy Capital Management you can have a Separately Managed Account that mirrors his Barchart Van Meerten New High portfolio.
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