Barchart Morning Call
Mon, 14 May 2012 07:00:00 -0500
Overnight Developments- E-mini S&Ps this morning are down 12.50 points (-0.93%) on the lack of a
Greek government and the poor showing of German Chancellor Merkel's CDU party in
Sunday's state elections. Commodity prices are generally trading sharply lower
with crude oil down 2.05%, gold down 1.40%, copper down 2.23%, and agricultural
commodities mostly lower. The dollar index is up 0.30% on safe-haven demand and
EUR/USD is down 0.35%. June 10-year T-note prices are up 12 ticks this morning
on safe-haven demand. European stocks are trading sharply lower with the Euro
Stoxx 50 down 1.87%. The Greek stock market this morning is sharply lower by
4.92%. Greek President Papoulias will try again today to broker a coalition but
there does not appear to be much hope after his efforts failed over the weekend.
If there is no government, then an interim government will be appointed and
Greek voters will go back to the polls in June. That means that the markets will
have to wait a month for a new attempt at forming a government, at which time
the anti-bailout forces are likely to have even more seats in the Parliament.
ECB Governing Council member Patrick Honohan said on Saturday that Greek
withdrawal from the Eurozone "is not necessarily fatal, but it is not
attractive." Eurozone officials are now starting to admit the possibility that
Greece may be destined to leave the Eurozone. European stocks are also trading
lower after German Chancellor Merkel's Christian Democratic Union (CDU) in
Sunday's elections had its worst showing in post-war history in the German state
of North Rhine-Westphalia. That is likely make the European debt crisis even
worse as Ms. Merkel becomes even less willing to provide concessions and
bailouts to troubled European countries as she heads to federal elections in
autumn 2013. Adding to the bad European news, the Eurozone March industrial
report this morning showed a decline of -0.3% m/m and -2.2% y/y, which was
weaker than market expectations of +0.5% m/m and -1.8% y/y. European bond yields
are sharply higher today with the Spanish 10-year bond yield rising by 28 bp to
6.28%. Italy's 10-year bond yield is up 23 bp to 5.74%. Spanish 5-year credit
default swaps this morning are up 21 bp at a record high of 538 bp. Asian stock
markets today closed mostly lower: Japan +0.23%, Hong Kong -1.15%, China -0.81%,
Taiwan -0.33%, Australia +0.28%, Singapore -0.67%, South Korea +0.04%, India
-0.47%. China's central bank over the weekend cut its reserve requirement ratio
for large banks by 50 bp to 20.0%. That should free up $65-70 billion of bank
lending. India's April wholesale inflation rate rose to +7.23% y/y from +6.89%
y/y in March, reducing the scope of India's central bank to cut rates in
response to weaker economic growth. The markets had been looking for a decline
to +6.67%.
- June E-mini S&Ps this morning are trading -12.50 (-0.93%) on the sharp
-1.82% sell-off in European stocks and the bad European news, which includes the
lack of a Greek coalition government, the poor showing of Chancellor Merkel's
party in Sunday's German state election, and the 0.3% decline in Eurozone
industrial production. US stocks on Friday closed mildly lower: S&P 500
-0.34%, Dow Jones -0.27%, Nasdaq 100 -0.01%. The U.S. stock market was undercut
on Friday by weak bank stocks after JPMorgan late Thursday afternoon reported a
$2 billion trading loss and subsequently received credit rating downgrades on
Friday. U.S. stocks were also undercut Friday by disappointing Chinese economic
data. China's April industrial production eased to +9.3% y/y from +11.9% y/y in
March and was weaker than the market consensus of +12.2% y/y. China's April
retail sales eased to +14.1% y/y from +15.2% in March and was weaker than market
expectations of +15.1%. Stocks on Friday continued to see downward pressure from
the ongoing Greek political turmoil as the parties by Friday's U.S. stock market
close had yet to find a way to form a coalition government. On the positive
side, the U.S. stock market on Friday was boosted by the 1.4 point rise in the
U.S. consumer confidence index to a new 4-year high of 77.8, taking out the
previous 4-year high of 77.4 posted in Feb 2011.
- June 10-year T-notes this morning are trading +12 ticks on increased
safe-haven demand with the sharp sell-off in global stocks and worries about
Greece. T-note prices on Friday closed higher: TYM2 +9.5, FVM2 +3.5. T-notes on
Friday were boosted by continued safe-haven demand with lower stocks and on
concern about JPMorgan's $2 billion trading loss, which JPMorgan's CEO said
could get worse before it's over. The T-note market continued to see support
from the Greek political situation, which could yet result in a Greek default
and exit from the euro. The dollar index this morning is trading +0.24 points
(+0.30%) on safe-haven demand with the sharp sell-off in European stocks.
EUR/USD is down -0.45 cents (-0.35%) and USD/JPY is down -0.04 yen. The dollar
index on Friday closed slightly higher: Dollar Index +0.13, EUR/USD -0.0019,
USD/JPY unch. The dollar index on Friday extended the 2-week rally and posted a
new 2-month high. The dollar has rallied in the past two weeks mainly on the
Greek political troubles and on the political austerity backlash in Europe,
which may eventually produce an even more stimulative policy from the ECB and
thereby further undercut the euro. The European Commission last Friday
reaffirmed its forecast that the Eurozone economy will decline -0.3% in 2012,
and then recover mildly to show 1% growth in 2013. June crude oil prices this
morning are sharply lower by -$1.98 (-2.05%) and July gasoline is down 1.91
cents (-1.71%). Oil prices are lower on sharply lower stock prices and worries
about global economic growth. In addition, Saudi Oil Minister Ali al-Naimi on
Sunday said that crude oil prices should fall because global supply is
outweighing demand. He said, "We want a lower price than where it is right now.
We need to get the price to a level of around $100 a barrel" for London Brent
crude oil. June Brent crude last Friday fell by 0.8% to $112.26, which means Mr.
Naimi is calling for another 11% drop in oil prices from last Friday's level.
Crude oil and gasoline prices on Friday closed mixed: CLM12 -0.95, RBM2 -0.0094.
Oil prices were undercut on Friday by the weaker-than-expected Chinese
industrial production report (+9.3% y/y versus expectations of +12.2%),
continued heavy hedge-fund selling of commodities, and ongoing concern about the
global economy. The International Energy Agency on Friday raised its estimate
for 2012 world oil consumption by a “modest” 80,000 bpd. The markets this week
will be watching to see if there is another new 21-1/2 year high in U.S. oil
inventories. The Seaway Pipeline is scheduled to be reversed late this week,
which should produce a slow drawdown in oil inventories at the Cushing, Oklahoma
hub as the oil will start moving from Cushing to refineries on the coast of the
Gulf of Mexico. The process of transporting oil from North Dakota and Canada to
the Gulf of Mexico will become much more efficient after the Seaway Pipeline
reversal.
Global Financial Calendar
| Monday 5/14/12 | |
|---|---|
| United States | |
| 1100 ET | USDA weekly grain export inspections. |
| 1130 ET | Weekly 3-mo and 6-mo T-bill auctions. |
| 1600 ET | USDA Crop Progress |
| GE | |
| 0200 ET | German Apr wholesale price index, Mar +0.9% m/m and +2.2% y/y. |
| Euro-Zone | |
| 0500 ET | Eurozone Mar industrial production expected +0.4% m/m and -1.4% y/y, Feb +0.8% m/m and -1.5% y/y. |
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