Barchart's Morning Call 6/22

Barchart Morning Call

Fri, 22 Jun 2012 07:00:00 -0500

Overnight Developments

• Sep E-mini S&Ps are trading higher by +0.49% led by a 3.9% increase in Morgan Stanley after the company was only downgraded two levels by Moody's Investors Service, rather than the three that the rating's company previously said was possible. Commodities are mixed with copper down -0.15% to a 2-week low, while crude oil is up 0.55% after prices rebounded from an 8-1/2 month low. The dollar index rose to a 1-week high with EUR/USD little changed, while JPY/USD slipped to a 5-week low.
• The Euro Stoxx 50 index is trading down -0.08% after German business confidence fell more than expected to a 2-year low, while European bank stocks are weak with Credit Suisse AG down nearly 2% after its credit rating was cut three levels by Moody's. Spanish and Italian bond yields rose with 10-year Italian bond yields up 9 bp to 5.84% and Spanish 10-year yields up 7 bp to 6.68% on concern German Chancellor Merkel, who meets today for a summit in Rome with Italian Prime Minister Monti, Spanish Prime Minister Rajoy and French President Hollande, will block proposals to use the Euro-Zone bailout facilities to buy distressed European sovereign debt. Asian stocks today closed lower with Japan -0.29%, China closed for holiday, Australia -0.96%, South Korea -2.52% and India -0.35%.
• The German Jun IFO business climate fell -1.6 to 105.3, weaker than expectations of a -1.3 point decline to 105.6 and its lowest reading in 2 years.
• The IMF said Europe's crisis has reached a "critical stage" and that Euro-Zone countries must share debt and use rescue funds to recapitalize troubled banks directly to ensure the survival of the currency union.
• According to two consulting firms hired by the Spanish government to conduct stress tests on Spanish lenders, Spain's banks would need as much as 62 billion euros in capital to withstand a worst-case scenario.
• Spanish bank stocks rallied after the ECB late yesterday said it will relax rules on the collateral lenders can use for funding. The ECB lowered the minimum rating threshold for mortgage-backed securities to BBB- from A-. Spanish banks had been unable to use some securities as collateral because their ratings were too low.
• India's rupee fell to a record low today of 57.27 per dollar on concern slower economic growth will reduce capital inflows. Q1 India GDP expanded at a 5.3% pace q/q, the weakest pace in 9 years.
• Late yesterday after the U.S. markets closed, Moody's downgraded Morgan Stanley, Credit Suisse Group AG and 13 other international banks, citing "risk of outsized losses inherent to capital market activities."
  Market Comments
  • Sep E-mini S&Ps this morning are trading up +6.50 points (+0.49%). The stock market on Thursday closed sharply lower: S&P 500 -2.23%, Dow Jones -1.96%, Nasdaq 100 -2.53%. Bearish factors on Thursday included very weak Philadelphia Fed report, the weak European and Chinese PMI reports, notification from Moody's that it would downgrade global banks after the close, and a recommendation from a Goldman Sachs analyst to short the S&P 500 index for a 5% downside trade. Weak economic data on Friday included the June Philadelphia Fed manufacturing index (down 10.8 points to -16.6), the decline in the June manufacturing PMIs for the Eurozone to 44.8 from May's 45.1 and for Germany to 44.7 from May's 45.2, and the decline in the China HSBC flash manufacturing PMI by 0.3 points to a 1-1/2 year low of 48.1 from May's 48.4. The Chinese HSBC manufacturing PMI has been below 50 for eight straight months.
  • Sep 10-year T-notes this morning are trading down -6 ticks. Sep 10-year T-note prices on Thursday closed mildly higher: TYU2 +4.5, FVU2 +3. T-note prices on Thursday closed mildly higher on increased safe-haven demand tied to the sharp sell-off in stocks and the weak U.S. economic data. There was also some carry-over support from the FOMC's announcement on Wednesday that it will purchase another $267 billion of 6-year to 30-year securities through year-end under its Operation Twist program.
  • The dollar index this morning is trading higher and at a 1-week high with EUR/USD +0.08 and USD/JPY unchanged. The dollar index on Thursday rallied sharply: Dollar Index +0.77 (+0.94%), EUR/USD -0.0156 (-1.23%), USD/JPY +0.75 (+0.94%). The dollar rallied on increased safe-haven demand with the sharp sell-off in the U.S. stock market, the weak U.S., European and Chinese economic data, and Moody's downgrade of 15 global banks. In addition, EUR/USD saw weakness as Germany appears to be taking a hard line on negotiations with Greece over easier austerity terms, which is likely to cause even more voter unrest across Europe.
  • Aug WTI crude oil prices this morning are up +0.43 (+0.55%) and Aug gasoline is +1.38 cents per gallon (+0.56%). Crude oil and gasoline prices on Thursday closed sharply lower: CLQ2 -3.20 (-3.93%), RBQ2 -0.0518 (-2.07%). Crude oil prices on Thursday fell sharply due to the rally in the dollar and the fresh economic data that indicated weaker global economic growth. Crude oil prices also continued to see weakness from Wednesday's weekly DOE report, which showed an unexpected 2.86 mln bbl rise in U.S. crude oil inventories to a 22-year high even though the refinery utilization rate is very high at 91.9% and should be causing a drawdown in oil inventories. The petroleum markets are carefully watching a big storm in the Gulf of Mexico that has a 70% chance of developing into a tropical cyclone and causing some disruptions to oil rigs in the Gulf and refineries on the Gulf coast.
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    Today's U.S. Earnings Reports Earnings reports (sorted by mkt cap): CCL-Carnival (consensus $0.08), DRI-Darden Restaurants (1.15).
    Global Financial Calendar
    

    Friday 6/22/12
    United States
    1400 ET	USDA Cattle on Feed report.
    1500 ET	USDA May Cold Storage.
    Japan
    0100 ET	Japan May supermarket sales, Apr -1.9% y/y.
    Germany
    0400 ET	German June IFO business climate index expected 105.6, May 106.9. June IFO current assessment index expected 112.0, May 113.3. June IFO expectations index expected 99.8, May 100.9.
    CHI
    n/a	Chinese markets closed for Dragon Boat Day holiday.

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