Barchart Morning Call
Mon, 7 Mar 2011 07:00:00 -0600
Overnight Developments- Global stocks are trading mixed with the European Euro Stoxx 50 index up +0.61% and March S&Ps up +4.80 points. Crude oil surged to a 2-1/2 year high as fighting intensified in Libya, while the dollar index slumped to a 4-month low. The weaker dollar and the unrest in Libya helped propel gold pries to an all-time high of $1,443.30 an ounce. Increased M&A activity is boosting European stock prices after LVMH Moet Hennessy Louis Vuitton SA agreed to buy Bulgari, the world's third-largest jeweler for 3.7 billion euros ($5.2 billion), and Tognum surged 27% after Daimler AG and Rolls-Royce Plc said they might make a joint takeover bid for the company. Gains were limited, however after Moody's Investor's Service cut Greece's credit rating three steps to B1, citing the rising risk of default, saying that lagging tax collection and "implementation risks" will make it more difficult for the government to reach the budget-cutting conditions of the 110 billion-euro ($154 billion) bailout. The euro shook off the negative aspects of Greece's credit rating cut and climbed to a 3-3/4 month high against the dollar when the March Euro-Zone Sentix investor confidence rose +0.4 to a 3-1/2 year high of 17.1.
- The Asian stock markets today closed mixed with Japan down -1.76%, Hong Kong -0.41%, China +1.95%, Taiwan -0.80%, Australia -1.37%, Singapore +0.17%, South Korea -1.50%, India -1.43%. Surging crude oil prices undercut most Asia-Pacific stock markets on concern that soaring energy costs will derail the global economic recovery. Japanese exporters weakened after the yen rallied against the dollar and Japanese stocks were also pressured after Japanese foreign minister Maehara quit over an illegal donation, which hurts Prime Minister Kan's chances to fund Japan's budget and avoid calls for an early election. China's Shanghai Stock Index rallied to a 3-1/2 month high after Commerce Minister Chen Deming said his nation is considering using tax policies to expand imports, while the yuan climbed to an all-time high of 6.5628 against the dollar after PBOC Governor Yi Gang said the yuan’s exchange rate is the closest to "equilibrium" that it has ever been.
- March S&Ps this morning are trading up +4.80 points. The US stock market last Friday closed lower as crude oil surged along with concern US wage growth may fail to keep up with soaring fuel costs: Dow -0.72, S&P 500 -0.74%, Nasdaq Composite -0.50%. Bearish factors included (1) soaring energy costs as crude oil climbed to a 2-1/2 year high as violence escalates in Libya, (2) the weaker than expected Feb US average hourly earnings (unchanged m/m and +1.7% y/y versus expectations of +0.2% m/m and +1.9% y/y), which raises concern consumers will cut back on spending in order to afford rising fuel costs, and (3) weakness in bank and financial stocks after Bank of America downgraded both Citigroup and Goldman Sachs to "neutral" from "buy."
- Bullish factors for stocks included (1) the unexpected decline in the Feb US unemployment rate to its lowest level in 1-3/4 years (-0.1 to 8.9% versus expectations of +0.1 to 9.1%), (2) the stronger-than-expected Feb manufacturing payrolls (+33,000 versus expectations of +25,000), and (3) the larger-than-expected increase in Jan factory orders which posted their biggest monthly gain in 4-1/4 years (+3.1% versus expectations of +2.0%).
- Starbucks (SBUX) gained 1.2% in European trading after CEO Schultz said in a WSJ interview that foreign exchange effects are a "de minimus issue" and that he doesn't have "any intention" of increasing prices "at this stage" due to rising commodities.
- June 10-year T-notes this morning are trading down -7.5 ticks. T-note prices last Friday rebounded from a 2-week low and closed higher on increased safe-haven demand as concerns rose that the turmoil in the Middle East may escalate: TYM11 +25.5, FVM11 +21.5, EDU11 +4.5. Bullish factors included (1) an increase in safe-haven demand for Treasuries on concern the violence in Libya may spread to other countries in the region and further destabilize the Middle East, (2) the surge in crude oil to a 2-1/2 year high, which acts as a tax on consumers and businesses and may derail the US economy, (3) the lack of wage inflation in the Feb payrolls report with the weaker-than-expected average hourly earnings (unchanged m/m and +1.7% y/y versus expectations of +0.2% m/m and +1.9% y/y), and (4) the Fed's action to purchase $1.5 billion of Treasuries as part of its QE2 asset-purchase program. Bearish factors included (1) the unexpected decline in the Feb US unemployment rate to its lowest level in 1-3/4 years (-0.1 to 8.9% versus expectations of +0.1 to 9.1%), (2) the stronger-than-expected Feb manufacturing payrolls (+33,000 versus expectations of +25,000), and (3) the larger-than-expected increase in Jan factory orders which posted their biggest monthly gain in 4-1/4 years (+3.1% versus expectations of +2.0%).
- The dollar index this morning is trading weaker and at a 4-month low with the dollar/yen -0.23 yen and the euro/dollar +0.37 cents. The dollar index last Friday fell to a 4-month low but closed only slightly lower after Fitch Ratings revised down its outlook on Spain's debt rating: Dollar Index -0.126, USDJPY -0.126, EURUSD +0.00166. Bearish factors included (1) the surge in crude oil to a 2-1/2 year high, which threatens US economic growth and may prompt the Fed into maintaining its overly easy monetary policy, and (2) the action by Rabobank Group to raise its 3-month target for the euro against the dollar to $1.42 from a previous forecast of $1.40, citing increased hawkishness from the ECB. Bullish factors included (1) strong US economic data after the Feb US unemployment rate unexpectedly declined to a 1-3/4 year low and Jan factory orders increased by the most in 4-1/4 years, which indicates economic strength, and (2) the action by Fitch Ratings to revise its outlook on Spain's debt rating to negative from stable, which is euro bearish, as it cited the potential cost of rescuing its savings banks and risks to the economic recovery.
- April crude oil prices this morning are trading up +$2.01 a barrel and April gasoline is +3.76 cents per gallon, both at fresh 2-1/2 year highs. Crude oil and gasoline prices last Friday rallied to 2-1/2 year highs on concern unrest in Libya will spread to other North African and Middle Eastern energy producers: CLJ11 +$2.51, RBJ11 +2.02. Bullish factors included (1) concerns the unrest in Libya may spread to other oil producing nations in the region and curb global oil supplies further, (2) the slump in the dollar index to a 4-month low, which boosts investment demand for commodities, and (3) signs that US economic growth is accelerating which may boost energy demand after the Feb US unemployment rate unexpectedly declined to its lowest level in 1-3/4 years and Jan US factory orders posted their biggest increase in 4-1/4 years. Bearish factors include (1) the decline in the stock market which erodes confidence in the economic outlook and energy demand, and (2) the action by the CME to raise margins on NYMEX crude and petroleum contracts, which may reduce speculation and prompt long liquidation as traders raise funds to cover margins.
Global Financial Calendar
| Monday 3/7/11 | |
|---|---|
| United States | |
| 0800 ET | Atlanta Fed President Dennis Lockhart speaks on the U.S. economic outlook to the NABE Annual Economic Policy Conference with a speech titled “A View From the Fed.” |
| 1100 ET | USDA weekly grain export inspections. |
| 1130 ET | Weekly 3-mo and 6-mo T-bill auctions. |
| 1500 ET | Jan consumer credit expected +$3.300 billion, Dec +$6.099 billion. |
| Japan | |
| 0000 ET | Jan Japan coincident index CI expected 105.9, Dec 103.5. Jan leading index CI expected 102.3, Dec 101.4. |
| 2330 ET | Feb Japan bankruptcies, Jan –2.1% y/y. |
| Euro-Zone | |
| 0430 ET | May Euro-Zone Sentix investor confidence expected +0.5 to 17.2 , Feb +6.1 to 16.7. |
| 0700 ET | ECB President Jean-Claude Trichet speaks in Basel, Switzerland following a meeting on the global economy. |
| Canada | |
| 0830 ET | Jan Canada building permits expected unchanged m/m, Dec +2.4% m/m. |
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