- Global stocks this morning are lower with the Euro Stoxx 50 down -0.65% and Mar S&Ps down -3.10 point. The dollar index strengthened to an 11-month high and most commodities fell with gold at a 1-3/4 month low. Italy sold 3 billion euros of 5-year bonds, the maximum target for the auction, at 6.47%, up from 6.29% at a similar auction last month and the highest yield since 1997. The euro slipped to a fresh 11-month low against the dollar after data from the Bank of Spain showed that Spanish lenders borrowed an average 98 billion euros from the ECB in Nov, the most in 14 months and a sign that banks are struggling to access other sources of finance. European stocks were undercut after Oct Euro-Zone industrial production unexpectedly fell -0.1% m/m and rose +1/3% y/y, weaker than expectations of unchanged m/m and +2.1% y/y. Stocks and the euro also fell after Germany's Ifo institute lowered it 2011 GDP forecast for Germany this year to 3.0% from a previous projection of 3.3% and slashed its 2012 GDP forecast for Germany to 0.4% from 2.3%.
- Asian stocks today closed lower with Japan down -0.39%, China -1.01%, Australia -0.07%, South Korea -0.46%, India -0.76%. Asian stocks fell after the Fed refrained from providing additional stimulus and after Nov U.S. retail sales rose at the slowest pace in 5 months, clouding the earnings outlook for Asian exporters. China's Shanghai Stock Index tumbled to a 2-1/2 year low after money supply in China grew at its slowest pace in a decade, increasing the risk of a deeper slowdown. Nov China M2 money supply rose +12.7% y/y, weaker than expectations of +12.8% y/y and the slowest pace of growth since May 2001. Losses in Japanese stocks were limited as the yen fell to a 1-week low against the dollar, a positive for Japanese exporters.
- March S&Ps this morning are trading down -3.10 points. The US stock market yesterday rallied early as European debt concerns temporarily eased and energy producers gained on strength in crude oil but prices shed their gains and settled lower on disappointment the Fed did not provide further stimulus measures following the FOMC meeting: Dow Jones -0.55%, S&P 500 -0.87%, Nasdaq Composite -1.26%. The S&P 500 and the Dow posted 1-1/2 week lows and the Nasdaq fell to a 2-week low. Bearish factors included (1) the smaller-than-expected increase in Nov U.S. retail sales which rose at the slowest pace in 5 months (+0.2% and +0.2% less autos versus expectations of +0.5% and +0.4% less autos), (2) concern the European debt crisis may not be resolved anytime soon after Reuters reported that German Chancellor Merkel told German lawmakers that the 500 billion euro cap on Europe's planned permanent bailout fund will stay in place, which signals Germany is opposed to increasing the size of the bailout plan and shows division among Euro-Zone members on how to stem the region's debt crisis, (3) concern over the European banking system as default fears among European lenders have led them to rely on the ECB for their funding needs after ECB data showed Euro-Zone financial institutions borrowed 291.6 billion euros from the ECB in its weekly refinancing operation, the most in 2-1/2 years, and (4) disappointment the Fed refrained from providing additional stimulus measures following its 1-day FOMC meeting in which policy makers stated "The economy has been expanding moderately, notwithstanding some apparent slowing in global growth."
- Bullish factors included (1) strength in energy producers after crude oil rallied sharply, (2) reduced European debt concerns after Spain sold 4.94 billion euros of 12-month and 18-months bills, larger than the maximum target of 4.25 billion euros the Treasury set for the sale, and (3) the unexpected increase in the Dec German ZEW survey of economic sentiment, which posted its first gain in 10 months and reduces concern that the European debt crisis will cripple the German economy, Europe's largest.
- March 10-year T-notes this morning are down -2 ticks. T-note prices yesterday erased early losses after strong demand was seen at the Treasury's $21 billion 10-year auction and prices gained further and settled higher after stocks tumbled when the Fed refrained from providing additional stimulus at the conclusion of its 1-day FOMC meeting: TYH2 +9, FVH2 +0.2, EDM2 -1.5. Bullish factors included (1) the smaller-than-expected increase in Nov U.S. retail sales that rose at the slowest pace in 5 months (+0.2% and +0.2% less autos versus expectations of +0.5% and +0.4% less autos), (2) increased safe-haven demand for Treasuries on concern the European debt crisis may not be resolved anytime soon after Reuters reported that German Chancellor Merkel rejected raising the upper limit of funding for another rescue mechanism, (3) stellar demand for the Treasury's $21 billion auction of 10-year T-notes that had a bid-to-cover ratio of 3.53, stronger than the 12-auction average of 3.09 and as indirect bidders took 61.9% of the auction, well above the 2-auction average of 47.1%, and (4) increased safe-haven demand for Treasuries when stocks slumped after the Fed refrained from providing additional stimulus measures after the conclusion of the 1-day FOMC meeting. Bearish factors included (1) reduced European debt concerns after Dec ZEW German economic sentiment unexpectedly rose and Spain sold 4.94 billion euros of 12-month and 18-month bills, larger than the maximum target of 4.25 billion euros the Treasury set for the sale, and (2) supply pressures ahead of the Treasury's $13 billion auction of 30-year T-bonds on Wed.
- The dollar index this morning is stronger and posted a fresh 11-month high with the dollar/yen +0.05 yen and the euro/dollar -0.51 cents. The dollar index yesterday shook off early weakness and rallied sharply to an 11-month high as the euro plunged on concern European leaders won't agree on ways to expand the region's rescue capabilities: Dollar Index +0.708, USDJPY +0.077, EURUSD -0.01508. Bullish factors for the dollar included (1) the slump in the euro to a 11-month low against the dollar after a report from Reuters that said German Chancellor Merkel told German lawmakers that the 500 billion euro cap on Europe's planned permanent bailout fund will stay in place, which signals Germany is opposed to increasing the size of the bailout plan and shows division among Euro-Zone members on how to stem the region's debt crisis, (2) comments from Fitch Ratings who said last week's EU summit "did little" to ease pressure on Euro-Zone sovereign bond ratings, (3) increased concern of default among European lenders after ECB data showed Euro-Zone financial institutions borrowed 291.6 billion euros from the ECB in its weekly refinancing operation, the most in 2-1/2 years, and (4) increased dollar demand from European banks after the 3-month cross-currency swap, the rate banks pay to convert euro payments into dollars, rose to a 2-week high of 128 bp below the euro interbank offered rate. Bearish factors included (1) euro positive comments from Slovakian bank President and ECB Council member Makuch who said the ECB's founding treaty prevents it from making large-scale bond purchases, (2) the unexpected increase in the Dec German ZEW survey of economic sentiment, which posted its first gain in 10 months and is euro positive, and (3) strong demand for a Spanish auction of 12-month and 18-month bills in which Spain sold 4.94 billion euros of the bills, larger than the maximum target of 4.25 billion euros the Treasury set for the sale.
- Jan crude oil prices this morning are down -$1.44 a barrel and Jan gasoline is -2.38 cents per gallon. Crude oil and gasoline prices yesterday moved higher after German economic sentiment unexpectedly increased this month along with heightened Middle East tensions after Iran said its military is set to conduct drills for closing the Strait of Hormuz: CLF12 +$2.37, RBF12 +6.18. Jan gasoline posted 1-week high. Bullish factors included (1) the unexpectedly increase in the Dec German ZEW survey of economic sentiment that posted its first increase in 10 months and is positive for economic growth and energy demand and (2) speculation global crude supplies could be disrupted after Iran's Fars news agency reported that Iran's military will hold drills to close the Strait of Hormuz, where according to the U.S. DOE about a sixth of global crude supplies flow each day. Bearish factors included (1) the rally in the dollar index to an 11-month high, which discourages investment demand in commodities and (2) the smaller-than-expected increase in Nov U.S. retail sales, which signals weakness in consumer spending that is negative for fuel demand and consumption. Expectations for the weekly inventory report from the DOE on Wed are for crude stockpiles to fall -2.5 million bbl, gasoline supplies to climb +1.0 million bbl, distillate inventories to rise +1.0 million bbl and the refinery utilization rate to remain unchanged at 87.7%.
Global Financial Calendar
|0700 ET||Weekly MBA mortgage applications, previous +12.8% with purchase mortgage sub-index +8.3% and refinancing sub-index +15.3%.|
|0830 ET||Nov import price index expected +1.0% m/m and +10.1% y/y, Oct -0.6% m/m and +11.0% y/y.|
|0830 ET||Atlanta Fed President Dennis Lockhart speaks at the Midtown Alliance annual meeting in Atlanta.|
|1300 ET||Treasury auctions $13 billion 30-year T-bonds.|
|n/a||OPEC meets in Vienna.|
|0430 ET||Nov U.K. jobless claims change expected +13,700, Oct +5,300. Nov claimant count rate expected 5.1%, Oct 5.0%.|
|0430 ET||Oct U.K. avg weekly earnings expected +2.0% 3-mo/year-over-year, Sep +2.3% 3-mo/year-over-year.|
|0430 ET||Oct U.K. avg weekly earnings ex-bonus expected +1.7% 3-mo/year-over-year, Sep +1.7% 3-mo/year-over-year.|
|0430 ET||Oct U.K. ILO unemployment rate expected 8.3% 3-months, Sep 8.3% 3-months.|
|0500 ET||Oct Euro-Zone industrial production expected unchanged m/m and +2.1% y/y, Sep -1.9% m/m and +2.4% y/y.|
|0830 ET||Nov Canada leading indicators expected +0.3% m/m, Oct +0.2% m/m.|
|0830 ET||Oct Canada manufacturing sales expected -0.6% m/m, Sep +2.6% m/m.|
|1850 ET||Q4 Japan Tankan large manufacturers index expected -2, Q3 +2. Q4 Tankan non-manufacturing index expected +1, Q3 +1.|
|2130 ET||Dec China HSBC flash manufacturing PMI, Nov 48.0.|