Barchart Morning Call 7/25

Barchart Morning Call

BC - Wed Jul 25, 7:00AM CDT

Overnight Developments

• Sep E-mini S&Ps are trading mildly higher by +0.41% on the +0.91% rally in European stocks as ECB council member Nowotny floated a possible trial balloon about the ECB giving a banking license to the ESM bailout facility. E-mini S&Ps have been able to shake off the 5% sell-off in Apple this morning on its disappointing quarterly earnings report released late-Tuesday and a weaker-than-expected German IFO business confidence report. Commodity prices are up by an average +0.52% today with crude oil up +0.20%, gold up +0.99%, copper up +0.58%, and agricultural prices trading mostly higher. The dollar index this morning is down -0.44% while EUR/USD is sharply higher by +0.84%. Sep 10-year T-notes are down 6.5 ticks.
• Asian stocks today closed lower almost across the board: Japan -1.44%, Hong Kong -0.14%, China -0.67%, Taiwan -0.42%, Australia -0.22%, Singapore -0.25%, South Korea -0.25%, South Korea -1.34%, India -0.43%, Turkey +0.38%. Chinese stocks today fell to a 3-year low after the IMF warned of downside risks to the economy and on market doubts that the government will loosen property curbs.
• The IMF said the Chinese economy faces significant downside risks but that China is "well placed to respond forcefully, if needed, to a deterioration in the external environment, in particularly through fiscal policy." The IMF said the Chinese economy relies too much on investment and needs to boost consumption and channel investor savings away from housing.
• Apple late Tuesday disappointed the market by reporting iPhone sales of 26 million in fiscal-Q3 that were below the market consensus of 28.4 million. Lagging iPhone sales caused Apple to miss the consensus quarterly revenue and EPS estimates for only the second time since 2003. Fiscal Q3 EPS of $9.32 was well behind the consensus of $10.37. Lagging iPhone sales are due to customers waiting to buy an iPhone until the next model comes in and to increased competition.
• Germany today sold 3 billion euros on 30-year bonds, which was in line with its intended target. The average yield on the bonds was a record low 2.17%, down from 2.41% at the last 30-year bond auction on April 25.
• ECB council member Ewald Nowotny said that he sees arguments in favor of granting the ESM bailout fund a banking license, although he added that he is not aware that the ECB is actively considering the matter. A banking license would allow the ESM to borrow large amounts of cash from the ECB and greatly expand its bailout capacity beyond the current 500 billion euros (100 billion euros of which is going toward the Spanish bailout). The operation of the ESM has been delayed until at least September as the German Constitutional Court considers an initial Sep 12 preliminary ruling on a constitutional challenge to the ESM and the fiscal pact.
• Japan's seasonally adjusted trade balance report was better than expected and that was mildly bullish for the yen and bearish for USD/JPY. Japan's June seasonally adjusted trade deficit was -300.8 billion yen, narrower than the expected deficit of -402 billion yen. June exports fell -2.3% y/y, which was better than market expectations for a -3.0% y/y decline.
• Germany's July IFO business climate index fell to 103.3 from a revised 105.2 in June, which was weaker than market expectations of 104.5. That was the third consecutive monthly decline and the lowest level in more than two years. The July IFO current assessment index fell to 111.6 from 113.9 in June, which was weaker than market expectations of 113.0. The July IFO expectations index fell to 95.6 from a revised 97.2 in June, which was weaker than market expectations of 96.8.
• UK Q2 GDP fell -0.7% q/q and -0.8% y/y, which was substantially weaker than market expectations of -0.2% q/q and -0.3% y/y. Q2 was the worst quarter in three years and added to the -0.3% q/q decline seen in Q1, leaving the UK in a recession. However, part of the reason for the decline was technical and was related to extra holidays due to the Queen's Jubilee and the wettest Q2 on record that helped cause a 5.2% plunge in construction.
  Market Comments
  • Sep E-mini S&Ps this morning are up 5.50 points (+0.41%) thanks to higher European stocks and some short-covering after the 3-session decline. E-mini S&Ps have been able to shake off today's 5% sell-off in Apple and negative German IFO business confidence news. The U.S. stock market on Tuesday closed sharply lower for the third straight session: S&P 500 -0.90%, Dow Jones -0.82%, Nasdaq 100 -0.87%. Bearish factors included (1) the sharp drop in the July Richmond Fed manufacturing index to -17 from a revised -1 in June, (2) weaker-than-expected German PMI reports for manufacturing (-1.7 to 43.3) and services (-0.2 to 49.7), (3) the further rise in the Spanish 10-year bond yield by 12 bp to 7.57% and the 26 bp rise in the Italian bond yield to 6.57%, (4) Moody's late-Monday change to a negative outlook for the Aaa ratings for Germany, the Netherlands, and Luxembourg, (5) the cut in earnings guidance by UPS, which had negative implications for U.S. economic growth, and (6) a Reuters report quoting European officials as saying that Greece is likely to miss its debt reduction targets. Stock prices on Tuesday received some support from (1) the Monday night's news that China's July manufacturing PMI from HSBC/Markit rose by 1.3 points to 49.5 from 48.2 in June, and (2) a Wall Street Journal report on Tuesday saying that the Fed is getting closer to taking additional stimulus steps.
  • Sep 10-year T-notes this morning are down 6.5 ticks on today's rally in E-mini S&Ps and European stocks. Sep 10-year T-note prices on Tuesday closed higher: TYU2 +6.5, FVU2 +1.25. T-notes received another boost on Tuesday on the sharp sell-off in the U.S. stock market and the increased concern about Europe.
  • The dollar index this morning is down -0.37 points (-0.44%) and EUR/USD is up +0.0101 (+0.84%) on technical reactions tied to ECB council member Nowotny's favorable view of giving the ESM a banking license. USD/JPY is slightly higher by +0.05 (+0.06%). The dollar index on Tuesday closed higher: Dollar index +0.299 (+0.36%), EUR/USD -0.0056 (-0.46%), USD/JPY -0.22 (-0.28%). The dollar index on Tuesday posted another new 2-year high and EUR/USD posted a new 2-year low. The dollar index rallied on Tuesday and as crunch time is coming for Greece and as the Spanish bond yield is now above 7.50%.
  • Sep WTI crude oil prices this morning are mildly higher by +0.18 (+0.20%) but Sep gasoline is down -0.0259 (-0.95%). Crude oil and gasoline prices on Tuesday closed mixed: CLU2 +0.36 (+0.41%), RBU2 -0.0308 (-1.37%). Crude oil prices on Tuesday closed mildly higher on some short-covering after the sharp sell-off seen in the previous two sessions. There were no reports of any progress in Tuesday's round of negotiations at the technical level between Iran and the world powers over Iran's nuclear program. The market consensus for Wednesday's weekly DOE report is for a 1.5 million barrel drop in crude oil inventories for the fifth consecutive weekly decline, a 500,000 barrel drop in gasoline inventories, a 1 million barrel increase in distillate inventories, and a 0.5 point drop in the refinery utilization rate to 91.5% of capacity from 92.0% last week.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): Pepsico (Consensus $1.10), V-Visa (1.45), COP-ConocoPhillips (1.19), BMY-Bristol-Myer-Squibb (0.48), BA-Boeing (1.12), CAT-Caterpillar (2.28), LLY-Eli Lilly (-0.77), SO-Southern (0.68), F-Ford Motor (0.29), LVS-Las Vegas Sands (0.60), PX-Praxair (1.42), ACE-ACE Ltd (1.91), GD-General Dynamics (1.74), WLP-Wellpoint (2.08), EQR-Euity Residential (0.12), ALXN-Alexion Pharm (0.36), TMO-Thermo Fisher (1.16), GLW-Corning (0.31), LO-Lorillard (2.32), CCI-Crown Castle (0.17), NOC-Northrop Grumman (1.61), T Rowe Price (0.81), WFM-Whole Foods Market (0.61), HES-Hess Corp (1.38), Citrix Systems (0.60), AVB-Avalonbay (0.65), TEL-TE Connectivity (0.78), MSI-Motorola Solutions (0.69), HCA-HCA Holdings (0.78), REGN-Regeneron Pharm (0.50), ORLY-O'Reilly Automotive (1.14), CBE-Cooper Industries (1.12), AMP-Ameriprise (1.34).
    Global Financial Calendar
    

    Wednesday 7/25/12
    United States
    0700 ET	Weekly MBA mortgage applications, previous +16.9%, purchase sub-index -0.1%, refi sub-index +21.6%.
    1000 ET	June new home sales expected +0.4% to 371,000, May +7.6% to 369,000.
    1030 ET	DOE Weekly Petroleum Status Report.
    1300 ET	Treasury sells $35 bln in 5-year T-notes.
    Germany
    0400 ET	Jul German IFO business climate expected -0.8 to 104.5, Jun 105.3. Jul IFO current assessment expected -0.9 to 113.0, Jun 113.9. Jul IFO expectations expected -0.5 to 96.8, Jun 97.3.
    United Kingdom
    0430 ET	UK Q2 GDP expected -0.2% q/q and -0.3% y/y, Q1 -0.3% q/q and -0.2% y/y.
    0600 ET	Jul UK CBI trends total orders expected -10, Jun -11. Jul CBI trends selling prices expected 0, Jun 2. Jul CBI business optimism expected 0, June 22.
    Japan
    1950 ET	Jun Japan corporate service price index expected unch y/y, May +0.1% y/y.

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