Barchart Morning Call
Overnight Developments
Global Financial Calendar
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- Global stocks are trading sharply lower with the European Euro Stoxx 50 index down -1.03% and March S&Ps down -17.40 points. Increased safe-haven demand has pushed the dollar and Treasuries higher, with the 10-year T-note yield falling to a 2-1/2 week low, while crude oil and precious metals surged, with crude at a 28-month high, as violence escalated in Libya, holder of the biggest oil reserves in Africa. Al-Jazeera reported that at least 250 people died overnight in Libya as civil unrest continues throughout North Africa and the Middle East. The Italian Stock Exchange failed to open today because of "technical issues" after Italy's benchmark FTSE MIB Index declined Monday amid concern Libya's unrest will affect Italian companies. Airline stocks tumbled amid speculation higher oil prices will boost fuel costs and the euro recovered from losses after ECB Council member Mersch said ECB officials may toughen their language on inflation next week, indicating a readiness to raise interest rates in coming months.
- The Asian stock markets today closed lower with Japan down -1.78%, Hong Kong -2.11%, China -2.90%, Taiwan -1.87%, Australia -0.88%, Singapore --1/68%, South Korea -1.67%, India -0.77%. Japan's Nikkei 225 Stock Index tumbled after Moody's Investors Service lowered Japan's Aa2 debt rating to negative from stable saying economic and fiscal policies "may not prove strong enough to achieve the government's deficit reduction target and contain the inexorable rise in debt." Moody's also lowered the credit-rating outlook for Japan's three largest banks to negative from stable, saying "the government debt rating is a key input into the supported senior unsecured ratings for the Japanese banks." According to people with knowledge of the matter, China told its banks, which have lent at least $1.2 trillion to local governments, to recalculate capital levels by March 31 to account for higher risk ratings on such loans. The move may increase pressure on banks that fall below required capital ratios to raise money or reduce lending.
- March S&Ps this morning are trading sharply lower by -17.40 points as violence escalates in North Africa. The US stock market last Friday overcame early weakness from China's action to boost its banks' reserve requirements and closed higher on better-than-estimated company earnings results: Dow +0.59%, S&P 500 +0.19%, Nasdaq Composite +0.08%. The S&P 500 and Dow posted new 2-1/2 year highs. Bullish factors included (1) strong company earnings with 72% of the 395 companies in the S&P 500 that have reported earnings results since Jan 10 beat estimates, (2) a rally in education companies after American Public Education reported earnings results that beat estimates, and (3) strength in energy producers after crude prices soared on rising Middle East tensions.
- Bearish factors for stocks included (1) the action by China to raise its banks reserve ratio requirements for the second time this year, which stokes concern that China's economy may slow and drag the global economy down as well, (2) interest rate concerns after ECB Executive Board member Smaghi said that monetary policy "has to be monitored, and if needed, corrected," and (3) increased geo-political concerns after Egypt granted Iran permission to send 2 warships through the Suez Canal, which raises the risk of an Iranian confrontation with Israel.
- March 10-year T-notes this morning are trading up +12.5 ticks on increased safe-haven demand as global equity markets tumble. T-note prices last Friday settled slightly higher as an increase in safe-haven demand offset hawkish comments from an ECB official: TYH11 +1.5, FVH11 +1.7, EDM11 unchanged. Bullish factors included (1) increased safe-haven demand for Treasuries on continued civil unrest in the Middle East, and (2) the Fed's purchase of $6.688 billion of Treasuries as part of its QE 2 asset-purchase program. Bearish factors included (1) comments from ECB Executive Board member Smaghi who said that due to rising price pressures, the "degree of accommodation of monetary policy has to be monitored and, if needed, corrected," which undercut European and US bond markets on concern the ECB may soon raise interest rates, and (2) reduced safe-haven demand for Treasuries after the S&P 500 climbed to a 2-1/2 year high.
- The dollar index this morning is trading higher with the dollar/yen -0.04 yen and the euro/dollar +0.01 cent. The dollar index last Friday slid to a 1-week low and settled lower after an ECB Council member said interest rates may need to be raised to combat inflation: Dollar Index -0.331, USDJPY -0.201, EURUSD +0.00764. Bearish factors for the dollar included (1) the rally in the euro to a 1-week high against the dollar after ECB Executive Board member Smaghi said the ECB may need to raise interest rates as global inflation pressures mount, and (2) strength in the British pound which climbed to a 2-week high against the dollar after Jan UK retail sales rose by almost four times expectations. Bullish factors included (1) the unexpected decline in Feb France business confidence, which is euro negative, and (2) comments from former Japanese vice finance minister Gyohten who said the dollar won't lose its status as the world's reserve currency as it will take China 10 to 15 years to complete the financial reforms needed for the yuan to be included in the IMF's foreign-exchange basket.
- March crude oil prices this morning are trading sharly higher by $6.85 a barrel and March gasoline +8.77 cents per gallon. Crude and gasoline prices surged to 2-1/3 year highs in overnight trade as violence escalates in Libya, owner of Africa's biigest oil reserves. Crude oil and gasoline prices last Friday settled mixed after China's action to raise banks' reserve requirements was offset by continued unrest in the Middle East: CLH11 -$0.16, RBH11 +2.36. Bullish factors included (1) the drop in the dollar index to a 1-week low, which boosts investment demand for commodities, (2) heightened tensions in the Middle East as escalating protests in Bahrain and Libya fueled concern that supplies from oil-producing countries in the Middle East will be disrupted, and (3) the rally in the S&P 500 to a 2-1/2 year high, which boosts confidence in the economic outlook and energy demand. Bearish factors included (1) the action by China to raise banks' reserve ratios for the second time this year, which may slow is economy and fuel demand, and (2) the action by Deutsche Bank AG to cut its price forecast for WTI crude this year to $91 a barrel from a previous forecast of $96 and to cut ni goldits 2012 WTI crude price forecast to $95 a barrel from an earlier forecast of $98 a barrel.
Global Financial Calendar
| Tuesday 2/22/11 | |
|---|---|
| United States | |
| 0900 ET | Dec S&P/CaseShiller composite-20 home price index expected ?0.5% m/m and ?2.3% y/y, Nov ?0.5% m/m and ?1.6% y/y. |
| 1000 ET | Feb U.S. consumer confidence expected -2.1 to 63.5, Jan +2.2 to 65.6. |
| 1000 ET | Feb Richmond Fed manufacturing index expected ?1 to 17, Jan ?7 to 18. |
| 1100 ET | USDA weekly grain export inspections. |
| 1130 ET | Weekly 3-mo and 6-mo T-bill auctions. |
| 1300 ET | Minneapolis Fed President Narayana Kocherlakota speaks on the economy to the South Dakota Chamber of Commerce. |
| 1300 ET | Treasury auctions $35 billion 2-year T-notes. |
| Germany | |
| 0200 ET | Mar German GfK consumer confidence survey, Feb +0.2 to 5.7. |
| United Kingdom | |
| 0430 ET | Jan UK public sector net borrowing expected ?0.3 billion pounds, Dec +15.3 billion pounds. |
| Canada | |
| 0830 ET | Dec Canada retail sales expected ?0.1% m/m and +0.6% m/m less autos, Nov +1.3% m/m and +1.0% less autos. |
| Japan | |
| 1850 ET | Jan Japan corporate service price index expected ?1.3% y/y, Dec ?1.3% y/y. |
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