- Global stocks are mostly lower with the European Euro Stoxx 50 down -0.49% and June S&Ps down -3.90 points. Treasuries are higher and the dollar is little changed as the market awaits the US May payrolls report later this morning. The euro is little changed as European Union and IMF officials today complete a review of Greece's plan for 78 billion euros ($113 billion) in asset sales and austerity measures as they prepare for the nation's second bailout in little more than a year. The British pound slipped to a 1-week low against the dollar after May UK PMI services fell -0.5 to 53.8, weaker than expectations of -0.1 to 54.2. A drop in EON AG and RWE AG, Germany's biggest utilities, is weighing on European stocks after Financial Times Deutschland reported that Germany's four largest electric companies will lose about 3.5 billion euros in sales per year from the permanent shut down of 8 out of Germany's 17 nuclear power plants. Limiting stock declines was the unexpected upward revisions of May German PMI services to 56.1 from the originally reported 54.9, and to the May Euro-Zone PMI composite to 55.8 from the originally reported 55.4.
- The Asian stock markets today closed mixed with Japan down -0.66%, Hong Kong -1.31%, China +1.04%, Taiwan +0.61%, Australia -0.38%, Singapore -0.47%, South Korea +0.03%, India -0.64%. Most Asian markets closed lower on concern recent economic data that point to a slowdown in the US economy will lead to weakened demand for Asian goods. A rally in the yen to a 2-1/2 week high against the dollar undercut Japanese exporters, while Prime Minister Kan's pledge to step down sparked a contest to select the next Japanese leader. Kan survived a no-confidence vote in parliament yesterday, but the process of selecting a new leader may add to delays in reconstruction from the March earthquake and to approval of plans to boost taxes and shrink the deficit needed to restore growth and ease credit concerns.
- June S&Ps this morning are tradingdown -3.90 points ahead of May US nonfarm payrolls. The US stock market yesterday settled mixed as concern the economy is slowing weighed on prices: Dow Jones -0.34%, S&P 500 -0.12%, Nasdaq Composite +0.15%. The Dow and S&P 500 fell to 1-1/2 month lows while the Nasdaq slipped to a 1-week low. Bearish factors for stocks included (1) the smaller-than-expected drop in weekly initial unemployment claims (-6,000 to 422,000 versus expectations -7,000 to 417,000), (2) the larger than expected decline in Apr factory orders which posted their largest monthly drop in 11 months (-1.2% versus expectations of -1.0%), (3) weakness in financial stocks after Moody's Investors Service placed the deposit, senior debt and senior subordinated debt ratings of Bank of America, Citigroup and Wells Fargo and their subsidiaries on review for possible downgrade, and (4) the sell-off in retailers after May sales trailed analysts' estimates amid rising prices and soaring gasoline costs.
- Bullish factors included (1) reduced concerns over the European debt crisis after German Chancellor Merkel said the European Union remains committed to the euro and the outlook for German growth is "very positive," and (2) a rally in for-profit colleges after the US Education Department gave the industry more time to comply with rules that will cut off federal aid to institutions whose students struggle the most to repay their government loans.
- September 10-year T-notes this morning are up +6 ticks. T-note prices yesterday fluctuated on either side of unchanged until late morning as weaker-than-expected economic data supported prices but T-notes headed lower in the afternoon and finished with modest losses after Moody's warned it may put the US government's rating under review: TYU11 -11, FVU11 -6.2, EDZ11 -0.5. Sep T-notes posted a 6-month nearest-futures high but erased their gains and closed lower. Bearish factors included (1) long-liquidation and position squaring ahead of Friday's all-important monthly payrolls report, (2) reduced concerns over the European debt crisis which cut the safe-haven demand for Treasuries after German Chancellor Merkel said the European Union remains committed to the euro and the outlook for German growth is "very positive," and (3) the warning from Moody's Investors Service that it will place the US government's rating under review for possible downgrade if there is no progress on increasing the statutory debt limit in coming weeks. Bullish factors included (1) the smaller-than-expected drop in weekly initial unemployment claims (-6,000 to 422,000 versus expectations -7,000 to 417,000), (2) the larger than expected decline in Apr factory orders which posted their largest monthly drop in 11 months (-1.2% versus expectations of -1.0%), and (3) increased safe-haven demand for Treasuries over debt concerns in the banking sector after Moody's Investors Service placed the deposit, senior debt and senior subordinated debt ratings of Bank of America, Citigroup and Wells Fargo and their subsidiaries on review for possible downgrade.
- The dollar index this morning is little changed with the dollar/yen -0.33 yen and the euro/dollar +0.02 cents. The dollar index yesterday slid to a 3-1/2 week low and finished modestly lower after comments from German Chancellor Merkel lifted the euro while weaker-than-expected US economic data undercut the dollar: Dollar Index -0.344, USDJPY -0.052, EURUSD +0.01621. Bearish factors included (1) comments from German Chancellor Merkel who said the European Union remains committed to the euro and the outlook for German growth is "very positive," (2) weaker-than-expected US economic data on weekly jobless claims and Apr factory orders, which indicate economic weakness and is dollar negative, and (3) the warning from Moody's that it will place the US government's rating under review for possible downgrade if there is no progress on increasing the statutory debt limit in coming weeks. Bullish factors included (1) increased safe-haven demand for the dollar after credit-default swaps to insure Portuguese and Irish government debt rose to records, which indicate the European sovereign-debt crisis may worsen, and (2) the early slide in stock prices which also boosted the safe-haven demand for the dollar.
- July crude oil prices this morning are trading down -87 cents a barrel and July gasoline -1.50 cents per gallon. Crude oil and gasoline prices yesterday fell to 1-week lows and finished mixed as an increase in fuel demand and a weak dollar offset weaker-than-expected economic data and an unexpected increase in weekly crude inventories: CLN11 +$0.11, RBN11 -0.73. Bearish factors included (1) weaker-than-expected US economic data that showed a smaller-than-expected decline in weekly US jobless claims along with the biggest monthly decline in Apr factory orders in 11 months, which suggests economic weakness that may curtail energy demand, (2) the unexpected increase in weekly DOE crude oil inventories for a second week (+2.88 million bbl versus expectations of -1.6 million bbl), and (3) the larger-than-expected rise in weekly DOE gasoline supplies (+2.55 million bbl versus expectations of +800,000 bbl). Bullish factors included (1) the drop in the dollar index to a 3-1/2 week low, which boosts investment demand in commodities, and (2) increased demand after US gasoline demand in the week ended May 27 rose +4.5% w/w to 9.43 million barrels a day, the highest in 9 months.
Global Financial Calendar
|0830 ET||May nonfarm payrolls expected +170,000, Apr +244,000. May private payrolls (ex-government) expected +180,000, Apr +268,000. May unemployment rate expected -0.1 to 8.9%, Apr +0.2 to 9.0%. May manufacturing payrolls expected +10,000, Apr +29,000. May avg hourly earnings all employees expected +0.2% m/m, Apr +0.1% m/m and +1.9% y/y. May avg weekly hours all employees expected unchanged at 34.3 hours, Apr unchanged at 34.3 hours.|
|0830 ET||USDA weekly export sales.|
|1000 ET||May ISM non-manufacturing index expected +1.2 to 54.0, Apr -4.5 to 52.8.|
|1230 ET||Fed Governor Daniel Tarullo speaks on the international discussions on new financial regulation at the Peterson Institute for International Economics.|
|1530 ET||Boston Fed President Eric Rosengren will be the keynote speaker at the Stanford Finance Forum at Stanford University.|
|0300 ET||ECB Executive Board member Jose Manuel Gonzalez-Paramo, Bank of Spain Governor Miguel Angel Fernandez Ordonez and IMF Director of Capital Markets Jose Vinals speak at a conference in Sitges, Spain.|
|0400 ET||Revised May Euro-Zone PMI composite expected no change at 55.4.|
|0350 ET||Revised May French PMI services expected no change at 62.8.|
|0355 ET||Revised May German PMI services expected no change at 54,9.|
|0430 ET||May UK PMI services expected -0.1 to 54.2, Apr -2.8 to 54.3.|