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Overnight Developments
Global Financial Calendar
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- Global stocks are trading mostly lower with the European Euro Stoxx 50 index down -0.32% and June S&Ps down -6.0 points. Crude oil sank to a 1-1/2 week low on speculation the worst earthquake in Japan's history will hurt growth and reduce fuel demand in the world's third-largest economy. The euro strengthened against the dollar and default swaps on European sovereign debt declined after European leaders over the weekend agreed to expand the scope of their rescue fund, allowing officials to buy debt in primary markets, while also cutting the cost of bailout loans to Greece by extending the repayment period of Greek loans to 7-1/2 years from 3 years. A final agreement is slated for a summit on Mar 24-25. European bank stocks rallied sharply on news of the agreement, with JPMorgan Chase raising its recommendation for European banks to "overweight" from "neutral." Gains in European stocks were limited as insurers fell for a second day after AIR Worldwide said the insurance industry may face claims of as much as 2.8 trillion yen ($34 billion) from the Japanese earthquake, although estimates don't include damage caused by the tsunami that followed the quake. European utility companies also weakened on concern explosions at two reactors in Japan may persuade Germany to backtrack on extending the life of atomic plants after German Chancellor Merkel had extended the lives of Germany's 17 nuclear power plants by an average of 12 years in 2010
- The Asian stock markets today closed mostly lower with Japan down -6.18%, Hong Kong +0.41%, China +0.48%, Taiwan -0.56%, Australia -0.40%, Singapore -0.41%, South Korea +1.50%, India +1.46%. Japan's Nikkei 225 Stock Index plunged to a 4-1/4 month low as the extent of Japan's earthquake damage is unknown and its rebuilding costs are likely to be astronomical. The yen weakened and fell back from a 4-month high against the dollar after the BOJ pumped a record 15 trillion yen ($183 billion) into money markets today and doubled the size of its asset-purchase program in an attempt to assure financial stability amid a plunge in stocks and surge in credit risk. BOJ Governor Shirakawa said cash injections would continue as needed and it is "crucial" the central bank stabilizes money markets; a signal it will take additional steps in coming days. Manufacturers from Sony to Toyota closed plants today, with Sony halting operation at 10 factories and 2 research centers, while Toyota said it would close all 12 of it Japanese factories through Mar 16.
- June S&Ps this morning are trading down -6.90 points . The US stock market last Friday opened lower on carry-over weakness from a slump in Asian markets after Japan's worst earthquake on record but recovered their losses and moved higher on strong Feb US retail sales and as crude oil prices slumped for a third day: Dow Jones +0.50%, S&P 500 +0.71%, Nasdaq Composite +0.54%. The Dow, S&P 500 and the Nasdaq all posted 1-1/4 month lows but erased their losses and closed higher. Bullish factors for stocks included (1) strong Feb US retail sales which posted their biggest increase in 4 months (Feb +1.0% and +0.7% less autos) along with the upward revision to Jan retail sales (+0.7% and +0.6% less autos, stronger than the previously reported +0.3% and +0.3% less autos), (2) the larger-than-expected increase in Jan business inventories (+0.9% versus expectations of +0.8%) along with the upward revision to Dec (+1.1% versus the previously reported +0.8%), as companies increased production to keep up with demand, and (3) the slump in crude oil prices for a third day, which eases concern that rising energy prices will derail the economy.
- Bearish factors included (1) the early decline in stock prices on carry-over weakness from a plunge in global stock markets on concern that Japan's worst earthquake on record may derail its economy, the world's third largest, (2) a slump in insurance companies on concern the Japanese quake will undercut their earnings as they pay out damage claims, and (3) the larger-than-expected decline in Mar US University of Michigan consumer confidence which fell to a 5-month low (-9.3 to 68.2 versus expectations of -1.0 to 76.5).
- General Electric (GE) fell 2.3% in pre-market trading after failues at Japanese nuclear plants prompted US lawmakers to review atomic energy plans.
- Exxon Mobil (XOM) slid 1.4% in pre-market trading as the price of crude oil tumbled to a 1-1/2 week low in overnight trade.
- June 10-year T-notes this morning are trading unchanged. T-note prices last Friday surged to a 3-month high immediately following news of the Japanese earthquake on safe-haven buying but relinquished most of their gains on strong US retail sales data and reduced safe-haven demand after the stock market erased its losses and closed higher: TYM11 +2, FVM11 +2.7, EDU11 unchanged. Bullish factors included (1) early safe-haven demand for Treasuries after the strongest earthquake in a century hit Japan, although those gains evaporated on speculation that many insurance companies may sell Treasuries to help pay for claims, and (2) the larger-than-expected decline in Mar US University of Michigan consumer confidence which fell to a 5-month low (-9.3 to 68.2 versus expectations of -1.0 to 76.5). Bearish factors included (1) strong Feb US retail sales which posted their biggest increase in 4 months (Feb +1.0% and +0.7% less autos) along with the upward revision to Jan retail sales (+0.7% and +0.6% less autos, stronger than the previously reported +0.3% and +0.3% less autos), and (2) reduced safe-haven demand for Treasuries after the stock market recovered from early sharp losses and moved higher.
- The dollar index this morning is weaker with the dollar/yen +0.17 yen and the euro/dollar +0.60 cents. The dollar index last Friday retreated from a 1-1/2 week high and closed lower as the euro strengthened from hawkish ECB comments and the yen strengthened on safe-haven demand following Japan's earthquake and on speculation companies will repatriate yen back to Japan to pay for quake damages: Dollar Index -0.500, USDJPY +1.088, EURUSD +0.01054. Bearish factors included (1) hawkish comments from ECB Council member Bini Smaghi who said new inflation forecasts "are based on market prices" and the ECB rate policy must adapt to increasing inflation pressures, which suggests he favors an immediate rate hike by the ECB, and (2) strength in the yen on increased safe-haven demand following the Japanese earthquake along with speculation that insurance companies will buy the yen to pay for damages from the 8.9-magnitude quake. Bullish factors included (1) strength in Feb US retail sales which gained the most in four months, and (2) infighting between EU leaders on how to fix the European sovereign-debt crisis, which is negative for the euro, after Irish Prime Minister Kenny rebuffed German Chancellor Merkel's conditions on easing bailout terms.
- April crude oil prices this morning are trading down -$1.81 a barrel and April gasoline is -5.16 cents per gallon, both at 1-1/2 week lows on concern energy demand may be limited in Japan, the world's third-largest economy. Crude oil and gasoline prices last Friday settled lower but well above their worst levels after the strongest earthquake on record to hit Japan, the world's third-largest oil-consuming country, forced it to shut refineries: CLJ11 -$1.54, RBJ11 -3.19. Apr crude fell to a 1-week low. Bearish factors include (1) the action by Japan to close many of its refineries because of earthquake damage, which will temporarily reduce its crude demand, (2) the larger-than-expected decline in Mar US University of Michigan consumer confidence to a 5-month low, which may lead to reduced fuel demand as the economy struggles to recover, and (3) a lack of violence in Saudi Arabia after Saudi police set up checkpoints to discourage protesters from their "Day of Rage" protests. Bullish factors included (1) the weaker dollar, and (2) the statement from the IEA that crude exports from Libya fell "well below" 500,000 barrels a day as fighting intensified.
Global Financial Calendar
| Monday 3/14/11 | |
|---|---|
| United States | |
| 1130 ET | Weekly 3-mo and 6-mo T-bill auctions. |
| Japan | |
| 0030 ET | Revised Jan Japan industrial production, previous +2.4% m/m and +4.7% y/y. |
| 0030 ET | Revised Jan Japan capacity utilization, previous +3.0% m/m. |
| 0100 ET | Feb Japan consumer confidence households expected +0.4 to 41.5, Jan +1.0 to 41.1. |
| Euro-Zone | |
| 0600 ET | Jan Euro-Zone industrial production expected +0.3% m/m and +6.4% y/y, Dec +0.2% m/m and +8.8% y/y. |
| 1200 ET | EU finance ministers meet in Brussels. |
| Canada | |
| 0830 ET | Q4 Canada capacity utilization rate expected +0.9 to 79.0%, Q3 +1.2 to 78.1%. |
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