- Global stocks this morning are lower with the Euro Stoxx 50 down -0.17% and Dec S&Ps down -7.80 points at a 1-1/4 month low. Stocks and commodities weakened while Treasuries and the dollar index rose to 1-1/2 month highs after credit default swaps to insure European government debt rose to a record. Stocks rebounded from their lows however, after the PBOC unexpectedly cut the reserve ratio for some banks by 50 bp. The euro slumped to a 1-1/2 month low against the dollar when the 10-year German bund yield jumped 12 bp to a 3-week high after Germany failed to get bids for 35% of the 10-year bonds offered for sale today, raising concern that Europe's debt crisis is driving investors away from the region. The British pound slumped to a 1-1/4 month low against the dollar and the 10-year gilt yield dropped to 2.104%, the lowest since Bloomberg began collecting the data in 1992, after the minutes of the Nov 9-19 BOE policy meeting showed some officials said an increase in stimulus may be needed. Also weighing on stocks was the -1.2 point decline in the Nov German manufacturing PMI to a 2-1/3 year low of 47.9, weaker than expectations of -0.6 to 48.5, while Sep Euro-Zone industrial new orders tumbled -6.4% m/m, weaker than expectations of -2.7% and the biggest decline in 2-1/2 years.
- Asian stocks today closed lower with Japan closed for holiday, China down -0.98%, Australia -1.98%, South Korea -2.57%, India -2.27%. Asian stocks were undercut after a mining tax was approved in Australia, reports showed the U.S. economy slowed, and China's manufacturing may have contracted. Australian mining stocks and raw material producers fell after Australia's House of Representatives passed a law taxing mining profits. Asian exporters fell after Q3 U.S. GDP was unexpectedly revised lower and the Nov China HSBC flash manufacturing PMI slid -3.0 to 48.0, the biggest rate of contraction since Mar 2009. After the Chinese markets closed, the PBOC said the 16.5% reserve requirement for more than 20 rural cooperative banks will expire this month and revert back to 16.0%.
- December S&Ps this morning are trading down -7.80 points at a 1-1/4 minth low. The US stock market yesterday fluctuated between gains and losses early and finally settled lower as the unexpected downward revision to Q3 U.S. GDP offset signs the Fed may provide more stimulus: Dow Jones -0.46%, S&P 500 -0.41%, Nasdaq Composite -0.07%. The S&P 500 posted a 1-1/4 month and the Dow fell to a 1-month low. Bearish factors included (1) concern European leaders have no alternative plan to stem the region's sovereign-debt crisis after a senior lawmaker in German Chancellor Merkel's coalition said here was no "new bazooka to pull out of the bag" to end the region's debt crisis, (2) comments from European Commission President Barroso who said the Euro-Zone debt crisis is "severe and systemic" and (3) the unexpected downward revision to Q3 U.S. GDP (+2.0% annualized versus expectations of no change at 2.5% annualized).
- Bullish factors included (1) the action by the IMF to revamp its credit line as it started a new program called the Precautionary and Liquidity Line, which can be tapped by countries with strong economies currently facing short-term liquidity needs and may help stem the European debt crisis, (2) the minutes of the Nov 1-2 FOMC meeting in which some Fed members believed the economic outlook may warrant more easing, and (3) data from the Labor Department that showed payrolls increased in 39 states in Oct and the jobless rate fell in 36, which indicates the labor market is steadying across most of the U.S.
- December 10-year T-notes this morning are down -0.5 of a tick. T-note prices yesterday settled higher after Q3 U.S. GDP was unexpectedly revised lower, Fed members hinted at further easing in the Nov 1-2 FOMC meeting minutes and strong demand was seen at the Treasury's $35 billion 5-year T-note auction: TYZ11 +7, FVZ11 +4.5, EDH12 +3.0. Bullish factors included (1) the unexpected downward revision to Q3 U.S. GDP (+2.0% annualized versus expectations of no change at 2.5% annualized), (2) increased safe-haven demand for Treasuries on concern European leaders have no alternative plan to stem the region's sovereign-debt crisis after a senior lawmaker in German Chancellor Merkel's coalition said here was no "new bazooka to pull out of the bag" and end the region's debt crisis, (3) comments from European Commission President Barroso who said the Euro-Zone debt crisis is "severe and systemic," (4) strong demand for the Treasury's $35 billion auction of 5-year T-notes that had a bid-to-cover ratio of 3.15, higher than the 12-auction average of 2.79, and (5) the minutes of the Nov 1-2 FOMC meeting in which some Fed members believed the economic outlook may warrant more easing. Bearish factors included (1) reduced safe-haven demand for Treasuries after the action by the IMF to revamp its credit line as it started a new program called the Precautionary and Liquidity Line, which can be tapped by countries with strong economies currently facing short-term liquidity needs and (2) supply pressures ahead of the Treasury's $29 billion auction of 7-year T-notes on Wed.
- The dollar index this morning is stronger and at a 1-1/2 month high with the dollar/yen +0.25 yen and the euro/dollar -1.20 cents. The dollar index yesterday moved lower as the Nov 1-2 FOMC meeting minutes hinted at further easing and after Q3 U.S. GDP was unexpectedly revised lower: Dollar Index -0.034, USDJPY +0.086, EURUSD +0.00157. Bearish factors included (1) comments from European Commission President Barroso who said he expects the newly formed Italian government under Prime Minister Monti to succeed in narrowing Italy's budget deficit and bolstering its economy, (2) the unexpected downward revision to Q3 U.S. GDP, which indicates economic weakness and is dollar negative, and (3) the minutes of the Nov 1-2 FOMC meeting in which some Fed members believed the economic outlook may warrant more easing, which would further undercut the dollar's interest rate differentials. Bullish factors for the dollar included, (1) the action by Standard and Poor's and Moody's Investors Service to reaffirm the credit rating of the U.S. despite the failing of the Congressional supercommittee to enact any budget cuts and (2) euro negative comments from a finance spokesperson for German Chancellor Merkel who said "we haven't any new bazooka to pull out of the bag" to end the European sovereign debt crisis, which bolstered safe-haven demand for the dollar on concern European leaders are running out of options to solve the region's debt crisis.
- Jan crude oil prices this morning are down -$1.61 a barrel and Jan gasoline is -3.74 cents per gallon. Crude oil and gasoline prices yesterday finished higher as the dollar weakened and after new sanctions against Iran raised geo-political risks in the Middle East: CLF12 +$1.09, RBF12 +6.63. Bullish factors included (1) the weaker dollar, which boost investment demand in commodities, (2) the actions by the U.S., Canada and the U.K, to target Iran's central bank and oil industry with additional sanctions to cut off the Iranian regime from international financial transactions, which raises tensions in the region and increases the risk of disruption of Middle Eastern oil supplies, (3) the economic forecast by the World Bank for Chinese GDP growth of 8.4% next year, which should maintain China's enormous appetite for crude supplies, and (4) the statement from Iraq's oil minister that he expects OPEC to cut crude production at the cartel's meeting next month. Bearish factors included (1) the unexpected downward revision in Q3 U.S. GDP, which signals reduced energy consumption, (2) the early slide in the S&P 500 to a 1-1/4 month low, which reduces confidence in the economic oulook and energy demand, and (3) the outlook for an increase in weekly crude and gasoline supplies when the DOE releases its weekly inventory figures in Wed. Expectations for the weekly inventory report from the DOE are for crude supplies to rise +950,000 bbl, gasoline stockpiles to increase 1.1 million bbl, distillate inventories to fall -1.13 million bbl and the refinery utilization rate to increase +0.5 to 85.3%.
Global Financial Calendar
|0700 ET||Weekly MBA mortgage applications, previous -10.0% with purchase mortgage sub-index -2.3% and refinancing sub-index -12.0%.|
|0830 ET||Oct durable goods orders expected -1.2% and unchanged ex transportation, Sep-0.6% and +1.8% ex transportation.|
|0830 ET||Oct personal spending expected +0.3%, Sep +0.6%. Oct personal income expected +0.3%, Sep +0.1%. Oct PCE deflator expected +2.7% y/y, Sep +2.9% y/y, Oct PCE core deflator expected +0.1% m/m and +1.7% y/y, Sep unchanged m/m and +1.6% y/y.|
|0830 ET||Weekly initial unemployment claims expected +2,000 to 390,000, previous -5,000 to 388,000. Weekly continuing claims expected +13,000 to 3.621 million, previous -57,000 to 3.608 million.|
|0955 ET||Final Nov U.S. University of Michigan consumer confidence expected +0.3 to 64.5, previous +3.3 to 64.2.|
|1300 ET||Treasury auctions $29 billion 7-year T-notes.|
|1630 ET||Weekly money supply report and Fed balance sheet.|
|0245 ET||Nov French business confidence indicator expected -2 to 95, Oct -2 to 97.|
|0300 ET||Nov French PMI manufacturing expected -0.5 to 48.0, Oct +0.3 to 48.5.|
|0300 ET||Nov French PMI services expected +0.2 to 44.8, Oct -6.9 to 44.6.|
|0330 ET||Nov German PMI manufacturing expected -0.6 to 48.5, Oct -1.2 to 49.1.|
|0330 ET||Nov German PMI services expected -0.6 to 50.0, Oct +0.9 to 50.6.|
|0400 ET||Nov Euro-Zone PMI composite expected -0.4 to 46.1, Oct -2.6 to 46.5.|
|0500 ET||Sep Euro-Zone industrial new orders expected -2.7% m/m and +6.1% y/y, Aug +2.0% m/m and +6.2% y/y.|
|0500 ET||ECB Vice President Vitor Constancio speaks on ?The future of the international monetary system? at a forum in London.|
|0430 ET||Minutes of the Nov 9-10 BOE policy meeting.|
|n/a||Japanese markets closed for Labor Thanksgiving Day.|