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Overnight Developments
Global Financial Calendar
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- Global stocks are trading higher with the European Euro Stoxx 50 index up +0.14% and March S&Ps up +3.20 points. The dollar is stronger and crude oil is weaker after Kuwait's oil minister said OPEC members are holding "consultations" and have not yet decided on raising output. European stocks gained on stronger-than-expected Jan German factory orders, which climbed +2.9% m/m and +16.0% y/y. Stock prices rallied further after Bundesbank President and ECB Council member Weber said Germany's "strong" economic recovery would continue this year as companies increase investment to meet export demand and "private consumption increases amidst continued positive labor market developments." Limiting stock market gains and undercutting the euro are concerns over the ongoing European sovereign-debt crisis after the extra yield between 10-year Greek bonds and similar maturity German bunds climbed 38 bp to a 2-month high of 944 bp. Greece raised 1.625 billion euros ($2.28 billion) in an auction of 26-week T-bills that had a yield of 4.75%, up from a 4.64% rate for a similar auction last month, with a bid-to-cover ratio of 3.59, weaker than the 4.59 seen at last month's auction.
- The Asian stock markets today closed higher with Japan up +0.19%, Hong Kong +1.71%, China +0.09%, Taiwan +0.38%, Australia +0.21%, Singapore +1.22%, South Korea +0.72%, India +1.19%. Chinese bank stocks gained after Reuters reported that China canceled punitive increases of required reserves previously imposed on several banks. Asian shipping lines closed lower and were led by a -2.5% drop in Nippon K.K., Asia's largest listed line, after the company said it may slow vessels speed to cut fuel costs. Asian semiconductor stocks also closed lower on the heels of Wells Fargo's cut in its ratings on the semiconductor industry to "market weight" from "overweight."
- March S&Ps this morning are trading up +3.20 points. The US stock market yesterday relinquished early gains and closed lower after crude oil climbed to a 2-1/2 year high along with a sell off in technology stocks after a ratings downgrade on chipmakers: Dow -0.66, S&P 500 -0.83%, Nasdaq Composite -1.40%. Bearish factors included (1) concerns the surge in crude oil to a 2-1/2 year high will undermine the economic recovery, which sent retailers, hotels and other companies dependent on consumer spending lower, (2) a slump in chipmakers which led technology stocks lower after Wells Fargo cut the ratings on chipmakers as a group to "market weight" from "overweight," and (3) renewed European sovereign-debt concerns which undercut European stocks when Moody's Investor's Service cut Greece's credit rating three steps to B1, citing the rising risk of default, and Ireland's 10-year bond yield rose to its the highest since 1993 after the incoming Irish government said it may need to restructure some senior bank bonds as the country's debt level risks becoming "unsustainable."
- Bullish factors for stocks included (1) comments from Chicago Fed President Evans who said the US labor market is "improving" and the "economy is growing nicely right now," (2) comments from ECB President Trichet who said the global economic recovery is "relatively robust," (3) increased M&A activity after Western Digital agreed to buy a unit from Hitachi and 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 (4) the larger-than-expected increase in Jan US consumer credit which rose for the fourth consecutive month (+$5.014 billion versus expectations of +$3.300 billion).
- Boeing (BA) gained 1% in European trading after the company won 43 orders for widebody planes from Chinese carriers, including its first 747-8 order in more than a year.
- Urban Outfitters (URBN) plunged 12% in European trading after the company reported Q4 earnings of 45 cents per share, well below analysts' estimates of 52 cents.
- June 10-year T-notes this morning are trading down -4 ticks. T-note prices yesterday rebounded from early losses and closed little changed on Fed purchases of Treasuries along with increased safe-haven demand from the decline in the equity market: TYM11 -0.5, FVM11 -1.7, EDU11 -0.5. Bullish factors included (1) increased safe-haven demand for Treasuries after the stock market fell, (2) comments from Atlanta Fed President Lockhart who said "In my opinion, it is premature to declare a jobs recovery firmly established" and that the Fed shouldn't rule out additional asset purchases beyond the $600 billion planned by Jun because the economy could slow again, and (3) the Fed's action to purchase $6.61 billion of Treasuries as part of its QE2 asset-purchase program. Bearish factors included (1) increased inflation expectations as crude oil climbed to a 2-1/2 year high along with the widening in the yield spread between 10-year T-notes and 10-year TIPS to a 2-1/2 year high of 253 bp, (2) hawkish comments from Chicago Fed President Evans who said the US labor market is "improving" and the "economy is growing nicely right now," and (3) supply pressures ahead of the Treasury's $32 billion auction of 3-year T-notes on Tue.
- The dollar index this morning is trading higher with the dollar/yen +0.35 yen and the euro/dollar -0.62 cents. The dollar index yesterday slid to a 4-month low but recovered its losses and finished slightly higher after the euro weakened on renewed European sovereign-debt risks: Dollar Index +0.096, USDJPY -0.079, EURUSD -0.00178. Bullish factors included (1) weakness in the euro on rising sovereign-debt concerns after Moody's Investor's Service cut Greece's credit rating three steps to B1, citing the rising risk of default along with the surge in Ireland's 10-year bond yield to 9.477%, the highest since 1993, after the incoming Irish government said it may need to introduce new laws to allow the restructuring of some senior bank bonds, as the country's debt level risks becoming "unsustainable," and (2) increases safe-haven demand for the dollar as the stock market tumbled. 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, (2) the increase in the March Euro-Zone Sentix investor confidence to a 3-1/2 year high, which is euro supportive, and (3) the statement from Morgan Stanley that it is no longer "bearish" on the euro given the outlook for the ECB to raise interest rates this year and next as they revised up their 2011 year-end forecast for the euro to $1.45 from an earlier forecast of $1.24.
- April crude oil prices this morning are trading down -20 cents a barrel and April gasoline is -0.23 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 2-1/2 year highs and closed mixed on concern that oil supply disruptions may spread through the Middle East: CLJ11 +$1.02, RBJ11 -4.25. Bullish factors included (1) escalating violence in Libya and concern that unrest in North Africa and the Middle East may spread to other oil producing nations in the region after websites in Saudi Arabia called for a nationwide "Day of Rage" on Mar 11 and Mar 20, which may further intensify unrest in the region and lead to decreased crude oil output, (2) the early decline in the dollar index to a 4-month low, which boosts investment demand for commodities, and (3) the action by Commerzbank AG to raise its crude oil price forecast for Q2 to $107 per barrel form a previous estimate of $91 a barrel citing a "fear premium" because of the potential for further production disruptions in the Middle East. Bearish factors include (1) the fall in stock prices which erodes confidence in the economic outlook and energy demand, (2) weakness in gasoline prices on increased speculation that consumer demand for gasoline will drop after prices reached a 2-1/2 year high, and (3) comments from the Obama administration that it will consider using the Strategic Petroleum Reserve if rising oil prices threaten the US economy.
Global Financial Calendar
| Tuesday 3/8/11 | |
|---|---|
| United States | |
| 0745 ET | ICSC (Int?l Council of Shopping Centers) weekly retailer sales. |
| 0855 ET | Redbook weekly retailer sales. |
| 1000 ET | Mar IBD/TIPP economic optimism expected +0.7 to 51.6, Feb ?1.0 to 50.9. |
| 1130 ET | Weekly 4-week and monthly 1-year T-bill auctions. |
| 1300 ET | Treasury auctions $32 billion 3-year T-notes. |
| Japan | |
| 0000 ET | Feb Japan Eco watchers survey current, Jan 44.3. |
| 1850 ET | Jan Japan machine orders expected +3.0% m/m and +5.1% y/y. |
| France | |
| 0230 ET | Feb Bank of France business sentiment expected unchanged at 110, Jan +3 to 110. |
| 0245 ET | Jan French trade balance expected ?5.1 billion euros, Dec ?5.1 billion euros. |
| Germany | |
| 0600 ET | Jan German factory orders expected +2.5% m/m and +15.6% y/y, Dec ?3.4% m/m and +19.7% y/y. |
| Euro-Zone | |
| 0800 ET | ECB Council member and Bundesbank President Axel Weber speaks after the Bundesbank presents its annual report. |
| Canada | |
| 0815 ET | Feb Canada housing starts expected 173,000, Jan 170,400. |
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