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Overnight Developments
Global Financial Calendar
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- Global stocks are mixed with the European Euro Stoxx 50 down -0.17% and Sep S&Ps up +4.80 points. European stocks weakened, the dollar index fell to a 2-week low and most commodities gained after German Chancellor Merkel and French President Sarkozy rejected an expansion of the 440 billion-euro European rescue fund and rebuffed calls for joint euro borrowing. European bank and exchange stocks led the market lower after Chancellor Merkel and President Sarkozy proposed a tax on financial transactions. Treasuries and bunds moved higher after credit-default swaps to insure European government debts rose, but Treasuries fell back after St. Louis Fed President Bullard said that the Fed's pledge to keep interest rates near zero doesn't signal a third stimulus program. The British pound weakened against the dollar after Jul UK jobless claims rose +37,100, larger than expectations of +20,000 and the biggest increase in 2 years. Limiting declines in European stocks was a decrease in price pressures after the Jul Euro-Zone core CPI rose +1.2% y/y, weaker than expectations of +1.6% y/y.
- The Asian stock markets today closed mixed with Japan down -0.55%, China -0.40%, Australia +1.33%, South Korea +0.50%, India +0.66%. Asian stocks closed lower after European leaders failed to come up with concrete solutions to the region's debt crisis, which revived concerns the global economy may stagnate and curb the earnings of Asian exporters. Asian semiconductor stocks fell after Dell missed analysts' sales estimates and cut its revenue forecast. Chinese property developers and bank stocks moved lower after the China Business News Daily reported that PBOC adviser Li Daokui said China will not introduce additional stimulus measures if the economy weakens and will "basically" maintain its existing monetary policy direction.
- September S&Ps this morning are trading up +4.80 points. The US stock market yesterday settled lower after weaker-than-expected Q2 Euro-Zone GDP raised global economic growth concerns: Dow Jones -0.67%, S&P 500 -0.97%, Nasdaq Composite -1.24%. Bearish factors included (1) carry-over weakness from a decline in European stocks on concerns over an economic slowdown after Q2 German GDP rose +0.1% q/q and +2.7% y/y, weaker than expectations of +0.5% q/q and +3.1% y/y and Q2 Euro-Zone GDP expanded +0.2% q/q and +1.7% y/y, weaker than expectations of +0.3% q/q and +1.8% y/y, (2) a slump in homebuilders after the larger-than-expected drop in Jul US building permits (-3.2% to 597,000 versus expectations of -1.9% to 605,000), (3) the unexpected increase in Jul US import prices that posted their biggest annual increase in nearly 3 years (+0.3% m/m and +14.0% y/y versus expectations of -0.1% m/m and +13.4% y/y), and (4) weakness in exchange operators on concern that a proposal by French President Sarkozy for France and Germany to implement a financial-transaction tax will curb trading volumes.
- Bullish factors included (1) the action by Fitch Ratings to affirm its AAA credit rating for the US, (2) the larger-than-expected increase in Jul industrial production which posted its biggest gain this year (+0.9% versus expectations of +0.5%), and (3) the larger-than-expected gain in Jul capacity utilization which climbed to its best level in 2-3/4 years (+0.6 to 77.5% versus expectations of +0.3 to 77.0%).
- Staples (SPLS) gained 4.4% in European trading after the company projected earnings per share for the year of $1.39 to $1.45, higher than analysts' estimates of $1.37.
- Dell (DELL) sank 8.7% in European trading after the company late yesterday reported Q2 revenue of $15.7 billion, below analysts' estimates of $15.8 billion and after it cut its sales growth projections for this year to 1% to 5%, down from a previous range of 5% to 9%.
- September 10-year T-notes this morning are trading down -2.5 ticks. T-note prices yesterday strengthened as European economic growth slowed and after Fitch Ratings affirmed the AAA credit rating of the US: TYU11 +16.5, FVU11 +7.2, EDZ11 +2.0. Bullish factors included (1) the weaker-than-expected Q2 German GDP (+0.1% q/q and +2.7% y/y versus expectations of +0.5% q/q and +3.1% y/y), which sent stocks lower and boosted the safe-haven demand for Treasuries, (2) the action by Fitch Ratings to affirm its AAA credit rating for the US, and (3) the larger-than-expected drop in Jul US building permits (-3.2% to 597,000 versus expectations of -1.9% to 605,000). Bearish factors included (1) the unexpected increase in Jul import prices that posted their biggest annual increase in nearly 3 years (+0.3% m/m and +14.0% y/y versus expectations of -0.1% m/m and +13.4% y/y), (2) the larger-than-expected increase in Jul industrial production which posted its biggest gain this year (+0.9% versus expectations of +0.5%), (3) the larger-than-expected gain in Jul capacity utilization which climbed to its best level in 2-3/4 years (+0.6 to 77.5% versus expectations of +0.3 to 77.0%), and (4) reduced safe-haven demand for Treasuries after French President Sarkozy said Germany and France are working on "ambitious" joint proposals to defend the euro, which reduced European sovereign-debt concerns.
- The dollar index this morning is weaker and at a 2-week low with the dollar/yen -0.31 yen and the euro/dollar +0.60 cents. The dollar index yesterday settled higher after Fitch Ratings affirmed its AAA credit rating for the US and after the euro weakened when Germany's Q2 GDP was weaker than expected: Dollar Index +0.174, USDJPY -0.038, EURUSD -0.00367. Bullish factors included (1) the action by Fitch Ratings to affirm its AAA credit rating for the US, citing the role of the US in the global financial system along with its diverse economy, (2) the weaker-than-expected Q2 German and Euro-Zone GDP, which weakened the euro on concern that Euro-Zone nations will struggle to rein in their budget deficits as the economy slows, and (3) the stronger than expected Jul US industrial production and capacity utilization, which signals economic growth and is dollar supportive. Bearish factors included (1) euro supportive comments from French President Sarkozy who said he and German Chancellor Merkel share an "absolute determination" to defend the euro and (2) strength in the Chinese yuan which rose to 6.3820 against the dollar, the strongest level in 17-years on speculation China will tolerate the yuan's strength to contain inflation.
- Sep crude oil prices this morning are up +$1.14 a barrel and Sep gasoline is +4.35 cents per gallon. Sep crude oil and gasoline prices yesterday moved lower after the dollar strengthened and after Q2 German GDP nearly stalled, which fueled concern the global economy and energy demand were slowing: CLU11 -$1.23, RBU11 -2.07. Bearish factors included (1) dollar strength, which diminishes investment demand in commodities, (2) the weaker-than expected Q2 German and Euro-Zone GDP, which signals weakened energy consumption and demand, and (3) the prediction from China's State Information Center that Q3 China GDP may slow to 9.2% y/y from 9.5% y/y in Q2, which would lead to a decrease in Chinese energy demand. Bullish factors included (1) the stronger-than-expected Jul US industrial production and (2) the outlook for weekly DOE crude inventories to fall to a 5-month low on Wednesday. Expectations for the weekly DOE inventories are for crude oil to fall -250,000 bbl, gasoline supplies to drop -1.38 million bbl, distillate stockpiles to increase +550,000 bbl and the refinery capacity rate to rise +0.3 to 89.7%.
Global Financial Calendar
| Wednesday 8/17/11 | |
|---|---|
| United States | |
| 0700 ET | Weekly MBA mortgage applications, previous +21.7% with purchase mortgage sub-index -0.9% and refinancing mortgage sub-index +30.4%. |
| 0830 ET | Jul PPI expected +0.1% m/m and +7.0% y/y, Jun -0.4% m/m and +7.0% y/y. Jul PPI ex food & energy expected +0.2% m/m and +2.3% y/y, Jun +0.3% m/m and +2.4% y/y. |
| 1320 ET | Dallas Fed President Richard Fisher speaks at a community forum on Fed functions and monetary policy in Midland, TX. |
| United Kingdom | |
| 0430 ET | Minutes of the Aug 3 and Aug 4 BOE monetary policy meeting. |
| 0430 ET | Jul UK jobless claims change expected +20,000, Jun +24,500. Jul claimant count rate expected 4.7%, Jun 4.7%. |
| 0430 ET | Jun UK avg weekly earnings expected +2.3% 3-mo/year-overyear, May +2.3% 3-mo/year-overyear. |
| 0430 ET | Jun UK avg weekly earnings ex-bonus expected +2.3% 3-mo/year-over-year, May +2.1% 3-mo/year-over-year. |
| 0430 ET | Jun UK ILO unemployment rate expected 7.7% 3-months, May 7.7% 3-months. |
| Euro-Zone | |
| 0500 ET | Jul Euro-Zone CPI expected -0.6% m/m and +2.5% y/y, Jun unchanged m/m and +2.5% y/y. |
| 0500 ET | Jul Euro-Zone core CPI expected +1.6% y/y, Jun +1.6% y/y. |
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