Provided by Barchart Morning Call
Overnight Developments
- Global stocks are trading higher with the European Euro Stoxx 50 index up +1.08% and March S&Ps up +6.50 points. The main bullish factor for stocks today is the statement from Japanese Finance Minister Noda who said his country plans to use its foreign-exchange reserves, the second largest in the world, to buy more than a fifth of bonds to be issued later this month by the European Financial Stability Facility. Japan now joins China in assisting the Euro-Zone in helping to alleviate the region's debt crisis. The euro also received a boost after Portuguese Prime Minister Socrates said that Portugal doesn't need a bailout from the European Union and its 2010 budget deficit will be lower than forecast. Gains in bank stocks led a rally in European shares after Societe Generala SA upgraded Europe's banking industry to "overweight," citing "attractive" valuations and an improved economy. Also helping to lift stock prices was the +1 point increase in the Dec Bank of France business sentiment to 108, a 3-year high.
- The Asian stock markets today closed mixed with Japan down -0.29%, Hong Kong +0.99%, China +0.54%, Taiwan +1.29%, Australia -0.03%, Singapore +0.38%, South Korea +0.41%, India -0.14%. China's foreign-exchange reserves rose in Q4 by $199 billion to a record $2.85 trillion, the biggest quarterly gain since records began in 1996. China's 2010 full-year yuan-denominated lending was 7.95 trillion yuan ($1.2 trillion), compared with the PBOC's target of 7.5 trillion yuan. The rise in currency reserves and the increases in bank lending will put pressure on the PBOC to tighten policies and reign in liquidity and inflation. The Australian dollar slipped to a 1-month low against the US dollar on speculation that a worsening of flooding in Queensland may potentially weigh on economic growth.
- March S&Ps this morning are trading up +6.50 points. The US stock market yesterday recovered from early losses and finished mixed: Dow -0.19%, S&P 500 -0.18%, Nasdaq Composite -0.25%. The Nasdaq rose to a 3-year high. Bearish factors for stocks included (1) concerns that indebted European nations may struggle to repay their debts and intensify the sovereign-debt crisis after the Markit Group Ltd.'s index of credit-default swaps protecting the debt of 15 western European governments rose 3.5 bp to a record 223, (2) weakness in for-profit education companies after Strayer Education plunged when it cut its 2011 EPS estimate because winter new enrollment declined -20% from a year ago, and (3) comments from Atlanta Fed President Lockhart who said he sees further "headwinds" to the recovery even as the US economy improves in 2011.
- Bullish factors included (1) the action by UBS to raise its 2011 per-share earnings estimates on the S&P 500 Index to $96 from $93 and raise its 2012 S&P 500 forecast to $104 a share from $101, citing a better outlook for the US economy, and (2) increased M&A activity after Dupont acquired Danisco A/S for $5.8 billion and Duke Energy bought Progress Energy for $13.7 billion, which will make Duke Energy the largest US utility.
- Nvidia (NVDA) jumped 5.5% in pre-market trading after Intel agreed to a long-term cross-license agreement with Nvidia in which Intel will pay Nvidia $1.5 billion over the next 5 years and the companies will receive a license to each other's patents.
- Hewlett-Packard (HPQ) rose 1.1% in European trading after UBS upgraded its recommendation on the stock to "buy" from "neutral."
- March 10-year T-notes this morning are up +3.5 ticks. T-note prices yesterday traded firm most of the day and settled higher: TYH11 +6.5, FVH11 +4, EDM11 +1.0. Bullish factors included (1) increased safe-haven demand for Treasuries on concern Portugal will follow Greece and Ireland in seeking a bailout from the European Union, (2) comments from Atlanta Fed President Lockhart who said he sees further "headwinds" to the recovery even as the US economy improves in 2011, and (3) the action by the Fed in purchasing $7.79 billion of Treasuries as part of its QE2 asset-purchase program. Bearish factors included (1) Fed data that showed primary-dealer holdings of US Treasuries tumbled to an 11-month low of $2.34 billion on Dec 29 from $81.3 billion on Nov 24, the biggest decline since Jun 2009, and (2) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.
- The dollar index this morning is weaker with the dollar/yen +0.27 yen and the euro/dollar +0.23 cents. The dollar index yesterday fell back from a 1-1/4 month high and settled lower: Dollar Index -0.131, USDJPY -0.339, EURUSD +0.00417. Bearish factors included (1) a recovery in the euro which rebounded from a 3-3/4 month low against the dollar and settled higher after ECB President Trichet said that recent European economic indicators "were better than forecast," and (2) the stronger than expected Nov French industrial and manufacturing production, which is euro positive. Bullish factors included (1) the early slump in the euro to a 3-3/4 month low against the dollar on concern the European sovereign-debt crisis may worsen after the Markit iTraxx SovX Western Europe Index of credit-default swaps on the debts of 15 European governments rose to a record high 223, and (2) the prediction from BlueGold Capital Management that Germany, France and other European top-rated nations risk having their credit ratings downgraded in the event that European policy makers expand bailout funds.
- February crude oil prices this morning are trading up +43 cents a barrel and February gasoline is -0.55 of a cent per gallon. Crude oil and gasoline prices yesterday finished moderately higher: CLG11 +1.22, RBG11 +4.12. Bullish factors included (1) a reversal in the dollar after the dollar index closed lower after it had climbed to a 1-1/4 month high, (2) the closure of the Trans Alaska Pipeline System, which carries 15% of US crude output, after an oil leak in the pipeline prompted its closure over the weekend, and (3) the prediction from Morgan Stanley that crude will remain "high" this year and breach $100 a barrel "as OPEC spare capacity falls from elevated levels to 4.1 million barrels a day by year end." Bearish factors included (1) equity market weakness, which reduces optimism in the economic outlook and energy demand, and (2) concern that Europe's sovereign debt crisis may spread and slow the global economy and fuel demand.
Jim Van Meerten is a professional investor with over 40 year experience in investing in stocks, mutual funds and ETFs. He shares his knowledge on Barchart in his daily blogs -- Barchart Portfolio Blogs.
Through Marketocracy Capital Management you can have a Separately Managed Account that mirrors his Barchart Van Meerten New High portfolio.
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