Barchart Morning Call 10/3

Barchart Morning Call

BC - Wed Oct 03, 7:00AM CDT

Overnight Developments

• Dec E-mini S&Ps this morning are little changed as the markets settle down to await tonight's Obama-Romney debate and Friday's Sep unemployment report. Overnight economic news has been largely offsetting with bullish economic news including this morning's surge in U.S. mortgage applications and the stronger-than-expected Eurozone Aug retail sales reports. Bearish economic news includes last night's 1.5 point drop in the China services PMI to 52.2 and a downward revision in Germany's final-Sep services PMI to 49.7. The Euro Stoxx 50 index this morning is slightly lower by -0.09%. The Chinese stock market remained closed today for this week's Golden Week holiday. The Japanese stock market today closed -0.45% on the weak Chinese services PMI report. Commodity prices this morning are mildly lower by -0.33% on average with Nov crude oil down -0.62%, Dec gold +0.28%, Dec copper -0.53%, grain prices down about -0.9%, livestock higher, and softs mixed. The dollar index is up +0.14% while EUR/USD is down -0.12%. Dec 10-year T-notes are up 3 ticks.
• China's Sep non-manufacturing PMI was reported last night at 53.7, which was down by 2.6 points from August's report of 56.3 and was the weakest level for the series that has a short history back to March 2011.
• The German final-Sep services PMI was revised lower to 49.7 from 50.6. However, the Eurozone final-Sep services PMI was revised slightly higher by 0.1 point to 46.1 from 46.0.
• The UK Sep services PMI fell by 1.5 point to 52.2 from 53.7 and was weaker than market expectations for a -0.7 point decline to 53.0.
• The Eurozone Aug retail sales report of +0.1% m/m and -1.3% y/y was slightly stronger than market expectations of -0.1% m/m and -1.9% y/y. In addition, July was revised higher to +0.1% m/m and -1.4% y/y from -0.2% m/m and -1.7% y/y.
• The Australian dollar AUD/USD fell by another -0.9% today due to yesterday's generally unexpected 25 bp rate cut to 3.25% by the Australian central bank and by expectations for another 25 bp rate cut within the next 1-2 months.
• The U.S. MBA mortgage applications report released this morning was very strong, although that wasn't surprising considering that the 30-year mortgage rate last week fell by 9 bp to a new record low of 3.40%. The MBA mortgage applications index rose by +16.6%, with the purchase sub-index up +3.9% and the refinancing sub-index soaring by +19.6%.
  Market Comments
  • Dec E-mini S&Ps this morning are slightly lower by -0.50 points (-0.03%). Bearish factors include the small -0.09% decline in the Euro Stoxx 50 this morning, the weak Chinese services PMI, and the downward revision in Germany's services PMI to 49.7 from 50.6. However, there has been positive news overnight as well with U.S. mortgage applications surging 16.6% and with a mildly stronger than expected Eurozone Aug retail sales report of +0.1% m/m and -1.3% y/y. The S&P 500 index on Tuesday closed narrowly mixed: S&P 500 +0.09%, Dow Jones -0.24%, Nasdaq 100 +0.18%. The stock market was pressured during most of the day by Spanish Prime Minister Rajoy's denial that a bailout request is imminent in a seeming rejection of the Reuters report to the contrary late Monday. However, the stock market was able to rebound higher on a rally in Apple and on optimism about the rise in U.S. Sep vehicle sales to 14.88 million units from 14.46 million in Aug (versus expectations of 14.50 million). The U.S. stock market also received a boost from the Australian central bank's 25 bp interest rate cut to 3.25%, the lowest level since 2009.
  • Dec 10-year T-notes this morning are slightly higher by +3 ticks. Dec 10-year T-note prices on Tuesday closed slightly higher: TYZ2 +2, FVZ2 +1.25. T-note prices continued to get a boost from Fed Chairman Bernanke's strong defense of the Fed's monetary policy at a speech on Monday.
  • The dollar index this morning is slightly higher by +0.11 points (+0.14%) on the generally calm markets overnight and reduced safe-haven demand. EUR/USD is down -0.0016 (-0.12%) as the market awaits tomorrow's ECB meeting, where there is a small chance for a rate cut. USD/JPY is up +0.07 (+0.09%). The dollar index on Tuesday closed slightly lower: Dollar index -0.08 (-0.10%), EUR/USD +0.0032 (+0.25%), USD/JPY +0.17 (+0.22%). The dollar was undercut by the continued generally calm financial environment and by expectations that Spain will request a bailout within a matter of days despite Spanish Prime Minister Rajoy's denials.
  • Nov WTI crude oil prices this morning are down -0.57 (-0.62%) and Nov gasoline is down -0.0424 (-1.48%) on a continuation of yesterday's bearish trend. Nov crude oil and gasoline prices on Tuesday closed lower: CLX2 -0.59 (-0.64%), RBV2 -0.0509 (-1.74%). Bearish factors included the 462,000 barrel increase in API crude oil inventories, long liquidation pressure in gasoline, and ideas that gasoline supplies will rise as refineries restart operations. The Trainer refinery in Pennsylvania is near planned rates and the Saint John refinery in New Brunswick should be back up and running by the end of the month after planned maintenance. Yesterday's API report showed a 462,000 increase in crude oil inventories, a 59,000 barrel decline in gasoline inventories, and a 321,000 barrel decline in distillates. The market consensus for today's DOE report is for a 1.5 million barrel increase in crude oil inventories, a 375,000 barrel decline in gasoline inventories, a 450,000 barrel decline in distillate inventories, and an unchanged refinery utilization rate of 87.4%.
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    Today's U.S. Earnings Reports Earnings reports (ranked by market cap): MON-Monsanto (Consensus:$-0.44), MAR-Marriott (0.40), FDO-Family Dollar (0.75).
    Global Financial Calendar
    

    Wednesday 10/3/12
    United States
    0700 ET	Weekly MBA mortgage applications, previous +2.8% with purchase sub-index +0.7% and refi sub-index +3.3%.
    0815 ET	Sep ADP employment change expected +140,000, Aug +201,000.
    1000 ET	Sep ISM non-manufacturing index expected -0.3 to 53.4, Aug +1.1 to 53.7.
    1030 ET	DOE Weekly Petroleum Status Report.
    Germany
    0355 ET	German final-Sep services PMI expected unrevised at 50.6.
    Euro-Zone
    0400 ET	Eurozone final-Sep services PMI expected unrevised at 46.0. Eurozone final-Sep composite PMI expected unrevised at 46.0.
    0500 ET	Eurozone Aug retail sales expected -0.1% m/m and -1.9% y/y, July -0.2% m/m and -1.8% y/y.
    United Kingdom
    0430 ET	UK Sep services PMI expected 53.0, Aug 53.7.

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