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Overnight Developments
Global Financial Calendar
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- Global stocks are trading mixed with the European Euro Stoxx 50 index up +0.71% and June S&Ps up +9.30 points. The dollar is getting battered with the euro climbing to a 4-1/4 month high and the Japanese yen soaring to a post WWII high of 76.36. The G-7 nations will hold an emergency meeting tomorrow to discuss the financial markets and the Japanese economy, which may indicate possible coordinated intervention in currency markets to curb the yen's gains. Treasuries are little changed while crude oil is up over $1 a barrel as fighting intensifies in Libya. More than 300 workers are attempting to prevent a meltdown and spread of radiation at the crippled Fukushima power plant today, an increase from a group of 50 engineers yesterday. Insurance stocks are leading a rally of European and US shares after UBS AG said the sector has become "unjustifiably oversold" since the Japan earthquake. European stocks were also boosted after Spain sold 4.1 billion euros of 10-year and 30-year bonds today with the bid-to-cover ratio for the 10-year debt at 1.81, compared with 1.54 for last month's auction, a sign of strong demand.
- The Asian stock markets today closed mostly lower with Japan down -1.44%, Hong Kong -1.83%, China -1.57%, Taiwan -0.50%, Australia -0.06%, Singapore -0.95%, South Korea +0.14%, India -1.14%. Asian stocks fell as workers were sent to connect power to damaged cooling systems of the crippled Fukushima Dai-Ichi power station and Japanese exporters sold-off as the yen surged to a post WWII high. The BOJ added 6 trillion yen to the financial system in one-day operations today, bringing total emergency injections this week to 34 trillion yen. The United Nations' nuclear agency plans an emergency meeting to discuss the nuclear crisis as fear and uncertainty have gripped the financial markets. India's central bank (RBI) raised its repurchase rate by 25 bp to 6.75% and hiked the reverse repurchase rate by 25 bp to 5.75% in an attempt to bring soaring inflation under control. The RBI has now increased interest rates for the eighth time in a year after raising its inflation forecast twice in 3 months. India's wholesale-price inflation quickened to 8.31% in Feb and the RBI today raised its March-end inflation forecast to 8% from 7%.
- June S&Ps this morning are trading up +9.30 points. The US stock market yesterday finished sharply lower on concern Japan's nuclear crisis will worsen and after US housing starts and building permits plunged in Feb: Dow Jones -2.04%, S&P 500 -1.95%, Nasdaq Composite -1.89%. The Dow fell to a 2-1/4 month low, the S&P 500 posted a 2-1/2 month low and the Nasdaq slumped to a 3-1/4 month low. Bearish factors for stocks included (1) concern the condition of Japan's crippled nuclear reactor is worsening after the International Atomic Energy Agency said four nuclear units in Japan have core damage and as the EU Energy Commissioner warned of a "major disaster," (2) a sell-off in homebuilders after the weaker-than-expected Feb US housing starts which fell to their lowest level in 1-3/4 years (-22.5% to 479,000 versus expectations of -4.9% to 567,000), (3) the unexpected plunge in Feb US building permits which fell to their lowest level since records began in 1960 (-8.2% to 517,000 versus expectations of +1.2% to 570,000), (4) the larger-than-expected increase in Feb PPI (+1.6% m/m and +5.6% y/y versus expectations of +0.7% m/m and +4.7% y/y), and (5) concern the escalation of violence in Bahrain will spread to Saudi Arabia, the world's biggest crude-exporting country, after Bahrain declared a 3-month state of emergency as anti-government protests intensified.
- Bullish factors included (1) early carry-over strength from a rally in Japanese stocks which recovered from a 2-day plunge, and (2) the decline ion the 10-year T-note yield to a 3-1/4 month low of 3.145%.
- Lockheed Martin (LMT) may be active to the upside today after BofA Merril Lynch raised its rating on the company to "neutral" from "underperform."
- Guess? (GES) slid 5.5% in pre-market trading after the compnay late yesterday forecast Q1 earnings of no more than 44 cents a share, well below analysts' estimates of 62 cents.
- June 10-year T-notes this morning are trading down -3.5 ticks. T-note prices yesterday settled higher on increased safe-haven demand from the Japanese quake crisis and escalation of Middle East violence along with weakness in Feb US housing starts: TYM11 +29, FVM11 +17.5, EDU11 -1.0. The yield on the 10-year T-note tumbled to a 3-1/4 month low of 3.145%. Bullish factors included (1) a surge in safe-haven demand for Treasuries after conditions at Japan's crippled nuclear reactor deteriorated and the EU Energy Commissioner warned of a "major disaster," (2) a flight-to-safety into Treasuries as violence escalated in Bahrain, which declared a state of emergency on Tuesday, (3) the weaker-than-expected Feb US housing starts which fell to their lowest level in 1-3/4 years (-22.5% to 479,000 versus expectations of -4.9% to 567,000), and (4) the unexpected plunge in Feb US building permits which fell to their lowest level since records began in 1960 (-8.2% to 517,000 versus expectations of +1.2% to 570,000). Bearish factors included (1) the larger-than-expected increase in Feb PPI (+1.6% m/m and +5.6% y/y versus expectations of +0.7% m/m and +4.7% y/y), and (2) early weakness in Treasuries on reduced safe-haven demand after the Japanese stock market rallied for the first time in 3 days.
- The dollar index this morning is weaker and trading at a 4-1/4 month low with the dollar/yen -1.18 yen and the euro/dollar +1.20 cents. The yen soared in overnight trade and posted a new post WWII high of 76.36 per dollar. The dollar index yesterday settled slightly lower as euro weakness from Moody's downgrade of Portugal's credit rating was offset by a rally in the yen to a new post-WWII high: Dollar Index -0.049, USDJPY -1.128, EURUSD -0.00999. Bearish factors included (1) strength in the yen which rallied to a new post WWII high against the dollar of 76.36 on speculation that insurers will repatriate dollar and euro assets back to yen to pay for earthquake damages along with strong demand for yen by banks after the yen libor rate rose 38 bp to 0.491%, a 2-year high, and (2) the 2.4% increase in Feb Euro-Zone CPI, a 2-1/4 year high, along with the larger-than-expected rise in Q4 Euro-Zone labour costs, which is euro positive as the data will keep the pressure on the ECB to raise interest rates. Bullish factors included (1) euro weakness after Moody's Investors Service cut Portugal's long-term credit rating 2 levels to A3 from A1 and kept a negative outlook, which implies further downgrades in the future, and (2) the action by the BOJ to add 5 trillion yen into the financial system on top of the 28 trillion yen already injected into the system since Mar 14, which is yen negative.
- April crude oil prices this morning are trading up +$1.78 a barrel and April gasoline is +4.03 cents per gallon. Crude oil and gasoline prices yesterday recovered from early weakness on concern that escalating violence in Bahrain will spill over into Saudi Arabia: CLJ11 +$0.80, RBJ11 +4.08. Bullish factors included (1) concern the escalation of violence in Bahrain will spread to Saudi Arabia, the world's biggest crude-exporting country, after Bahrain declared a 3-month state of emergency as a month of anti-government protests intensified, and (2) the larger-than-expected declines in weekly DOE gasoline and distillate inventories (gasoline -4.17 million bbl versus expectations of -2.0 million bbl and distillates -2.60 million bbl versus expectations of -1.5 million bbl). Bearish factors include (1) strength in the dollar, which discourages investment demand in commodities, and (2) comments from the EU Energy Commissioner who said that Japan's crippled nuclear power plant risks provoking a "major disaster," which sent the prices of most commodities tumbling.
Global Financial Calendar
| Thursday 3/17/11 | |
|---|---|
| United States | |
| 0830 ET | Weekly initial unemployment claims expected -10,000 to 387,000, previous +26,000 to 397,000. Weekly continuing claims expected ?21,000 to 3.750 million, previous 20,000 to 3.771 million. |
| 0830 ET | Feb CPI expected +0.4% m/m and +2.0% y/y, Jan +0.4% m/m and +1.6% y/y. Feb CPI ex food & energy expected +0.1% m/m and +1.0% y/y, Jan +0.2% m/m and +1.0% y/y. |
| 0915 ET | Feb industrial production expected +0.6%, Jan ?0.1%. Feb capacity utilization expected +0.4 to 76.5%, Jan ?0.1 to 76.1%. |
| 1000 ET | Feb leading indicators expected +1.0%, Jan +0.1%. |
| 1000 ET | Mar Philadelphia Fed manufacturing index expected ?5.9 to 30.0, Feb +16.6 to 35.9. |
| 1100 ET | Treasury announces amount of 10-year TIPS to be auctioned Mar 24. |
| 1500 ET | Treasury Secretary Timothy Geithner attends meeting of the Financial Stability Oversight Council (FSOC) at the Treasury Department. |
| 1630 ET | Weekly money supply report and Fed balance sheet. |
| Euro-Zone | |
| 0600 ET | Jan Euro-Zone construction output, Dec ?1.8% m/m and ?12.0% y/y. |
| Canada | |
| 0830 ET | Jan Canada wholesale sales, Dec +0.8% m/m. |
| United Kingdom | |
| 2001 ET | Feb UK nationwide consumer confidence expected unchanged at 47, Jan ?7 to 47. |
| Japan | |
| 1950 ET | BOJ releases Feb 16-17 board meeting minutes. |
BOJ has already expanded their QE program from 5 to 10 Trillion Yen (120billion), to have the scale of QE 2 in the US, they need to implement the full size 30 Trillion Yen. As the government already indebted up to 200% of GDP, they are treading a fine line going forward. Japanese corporate, government and individuals own up to 850 billion worth US Treasuries. If they need to dip into their savings for reconstruction. Keep an eye for the yield curve on US debts.
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