Overnight Developments
- Dec E-mini S&Ps this morning are slightly higher by +0.12% and commodities are up +0.08% on the BOJ's unexpected action to increase its asset-purchase program. Asian stocks closed higher nearly across the board today on the BOJ's action with Japanese stocks up +1.19% and Chinese stocks up +0.49%. The Euro Stoxx 50 index this morning is slightly lower by -0.08%. Commodity prices are slightly lower on balance on this morning with Oct crude oil down -0.61%, Dec gold up +0.27%, Dec copper up +0.53%, grain prices up about 1.5% on average, and livestock and softs trading lower. The dollar index is slightly higher this morning by +0.14%, while EUR/USD is down -0.36% and USD/JPY is little changed.
- The Bank of Japan today unexpectedly increased the size of its asset-purchase fund by 10 trillion yen ($126 billion) to 55 trillion yen ($695 billion). The BOJ also dropped a minimum yield requirement for its 1.8 trillion yen in monthly securities purchases. The BOJ downgraded its assessment of the Japanese economy, saying that Japanese economic growth has "come to a pause" and that overseas economies have moved "somewhat deeper into a deceleration phase." The BOJ took the action in part to keep up with the Fed on its QE3 program and try to prevent further strength in the yen, which hurts Japanese exporters and the Japanese economy.
- Eurozone July construction output fell -0.3% m/m and -4.7%, seeing continued weakness after June's report of a revised -0.6% m/m and -2.8% y/y.
- Spanish bond yields fell today after Spanish Prime Minister Rajoy said his government is committed to reducing the budget deficit. The markets are waiting to see how Spain will fare in selling 4.5 billion euros of 3-year and 10-year bonds on Thursday. Spanish 2-year yields today fell by 23 bp to 3.11%.
- China's Aug foreign direct investment fell -1.4% y/y to $8.33 billion, which was the 9th drop in 10 months. The report at least was better than the -8.7% y/y decline seen in July and was stronger than market expectations of -5.8% y/y. The drop in foreign investment in China reflects the slowing Chinese economy and the reduced opportunities available to invest in China. The recent territorial dispute by China and Japan over the islands in the East China Sea will certainly further reduce future Japanese investment in China.
- Honda said that it will resume
operations at some of its factories on Thursday. Honda, along with other
Japanese manufacturers and retailers, closed factories and stores due to
protests against Japan since the weekend over the Chinese-Japanese territorial
dispute over islands in the East China Sea. The dispute will put a dent in
Chinese economic growth and will hurt the $340 billion in trade between the two
nations.
Market Comments- Dec E-mini S&Ps this morning are trading slightly higher by +1.75 (+0.12%) on the BOJ's expansion of its asset-purchase program. The S&P 500 index on Tuesday consolidated below last Friday's 4-3/4 year high and closed narrowly mixed: S&P 500 -0.13%, Dow Jones +0.09%, Nasdaq 100 +0.03%. Bullish factors included (1) the unexpected 3 point rise in the Sep homebuilder confidence index to a new 6-1/4 year high of 40, and (2) an improvement in the ZEW German and European confidence indexes among investors and analysts, although the indexes remained net pessimistic. Bearish factors included (1) continued worries about Chinese economic growth, particularly with the Chinese government encouraging protests against Japan over disputed islands for political reasons rather than focusing on getting the economy going, (2) the slow progress by Eurozone officials on getting Spain stabilized, and (3) FedEx's downgrade in its earnings guidance and its outlook for global economic growth.
- Dec 10-year T-notes this morning are up 5 ticks. Dec 10-year T-note prices on Tuesday closed mildly higher: TYZ2 +7, FVZ2 +3.25. T-notes received a boost from lower European and Chinese stocks and some short-covering after the decline seen over the past two weeks.
- The dollar index this morning is slightly higher by +0.11 points (+0.14%) and EUR/USD is down -0.0047 (-0.36%) in continued technical corrections after the sharp moves on QE3. USD/JPY is little changed this morning but is seeing support from today's BOJ's easing move. The dollar index on Tuesday closed slightly higher: Dollar index +0.18 (+0.22%), EUR/USD -0.0069 (-0.53%), USD/JPY +0.11 (+0.14%). The dollar received a boost from lower stocks in Europe and China, the 28 bp rise in the Spanish 10-year bond yield to 5.87% from last week's 5-month low of 5.59% as disappointment grows that Spain is not jumping on the chance for at least a line of credit from the ECB/ESM, and the sell-offs in European and Asian stocks that boosted safe-haven demand for the dollar.
- Oct WTI crude oil prices this morning are down -0.58 (-0.61%) and Oct gasoline is down -0.0060 (-0.21%) on expectations for a rise in DOE inventories today and on carry-over from Saudi Arabia's comments on Tuesday that it is willing to boost oil production through year-end to cap oil prices. Oct crude oil prices on Tuesday extended Monday's sharp sell-off: CLV2 -1.06 (-1.10%), RBV2 -0.0446 (-1.52%). Bearish factors included (1) long liquidation pressure, (2) concern about weak global economic growth with the downgrade in FedEx's assessment of the global economy, and (3) a report that Saudi Arabia will boost its oil production if needed to curb oil prices. Oil inventories in today's weekly DOE report are expected to show a second week of gains as supplies are replenished by imports and crude oil production in the Gulf after the disruptions by Hurricane Isaac, which made landfall on Aug 29. The market consensus for today's DOE report is for a +1 million barrel increase in crude oil inventories, a +1 million barrel increase in gasoline inventories, a +1 million barrel increase in distillate inventories, and a +1.0 point increase in the refinery utilization rate to 85.7%. Tuesday's API report partially supported expectations for a rise in DOE inventories today. The API on Tuesday reported that U.S. oil inventories rose +2.43 million barrels, Cushing oil inventories fell -705,000 barrels, gasoline inventories increased +135,000 barrels, and distillate inventories fell -1.12 million barrels.
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Today's U.S. Earnings Reports Earnings reports (ranked by market cap): GIS-General Mills (Consensus:$0.62), ADBE-Adobe (0.59), BBY-Bed Bath and Beyond (1.02), AZO-Autozone (8.40), Ascena Retail (0.29), CLC-Clarcor (0.69).
Global Financial Calendar
Barchart.com provides Financial Quotes, Charts and Technical Analysis for Stock and Commodity Traders.Wednesday 9/19/12 United States 0700 ET Weekly MBA mortgage applications, previous +11.1% with purchase sub-index +8.1% and refi sub-index +11.9%. 0830 ET Aug housing starts expected +2.6% to 765,000, July -1.1% to 746,000. Aug building permits expected -2.0% to 795,000, July +6.7% to 811,000. 0945 ET Kansas City Fed President Esther George delivers opening comments at Kansas City Fed conference "The future of workforce development." 1000 ET Aug existing home sales expected +2.0% to 4.56 mln, July +2.3% to 4.47 million. 1030 ET DOE Weekly Petroleum Status Report. 1900 ET Dallas Fed President Richard Fisher speaks on the economy and monetary policy at the Harvard Club of NYC. Japan n/a BOJ's 2-day meeting concludes. 0100 ET Japan final-July leading index CI, prelim 91.8. Final-July coincident index, prelim 92.8. 1950 ET Japan Aug trade balance expected -384.6 bln yen (sa) and -829.3 bln yen (nsa), July -325.7 bln yen (sa); -517.4 bln (nsa). Aug exports expected -7.5% y/y, July -8.1% y/y. Aug imports expected -5.5% y/y, July +2.1% y/y. United Kingdom 0430 ET Bank of England meeting minutes. Euro-Zone 0500 ET Eurozone July construction output, June -0.5% m/m and -2.8% y/y. CHI 2230 ET China Sep HSBC flash manufacturing PMI, Aug 47.6.
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