Barchart Morning Call

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Overnight Developments

• Global stocks are trading mostly lower with the European Euro Stoxx 50 index down -0.38%, although March S&Ps are up +2.90 points. A push in crude oil prices above $100 a barrel in overnight trade has weakened most global stock markets on concern the unrest in the Middle East will disrupt supplies. The dollar and Treasuries are weaker and the euro strengthened after European producer prices accelerated more than expected in Jan. The Jan Euro-Zone PPI rose +1.5% m/m and +6.1% y/y, higher than expectations of +1.1% m/m and +5.7% y/y, with the +6.1% y/y gain the fastest pace of increase in 2-1/3 years. Renewed sovereign-debt concerns are also weighing on European stocks with the extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds rose to 893 bp, a 2-month high. Standard & Poor's kept Greece's BB+ long-term ratings and Portugal's A- long-term and A3 short-term classifications on credit watch negative, saying both countries debt ratings remain at risk of being cut on concern about how a European Union rescue fund may affect holders of the two nations' sovereign bonds.
• The Asian stock markets today closed lower with Japan down -2.43%, Hong Kong -1.49%, China -0.36%, Taiwan -1.23%, Australia -0.48%, Singapore -1.31%, South Korea -0.55%. A rise in crude oil prices above $100 a barrel also spooked Asia-Pacific markets, fueling concern that higher energy costs will hinder the global economic recovery. Qantas Airways, Australia's biggest carrier and Singapore Airlines Ltd., the world's second-biggest carrier by market value, both fell more than 2% and led airlines lower on concern rising jet fuel prices will eat into company profits. Mitsubishi Motors and Toyota fell at least 3% and led carmakers lower on concern rising fuel prices will undercut demand for autos, while China Railway Construction tumbled 7.8% after the company said it halted work on 3 projects in Libya that have a combined value of $4.24 billion. Australia's Q4 GDP rose +0.7% q/q and +2.7% y/y, its eighth straight quarterly expansion, and validates RBA Governor Steven's view that floods and cyclones in the state of Queensland this quarter will be only a temporary drag on growth. Australia's economy is undergoing a boom in resource investment as mining and energy firms boost output to meet demand from China and India.

Overnight U.S. Stock News

• March S&Ps this morning are trading up +2.90 points. The US stock market yesterday retreated as crude oil prices surged on concern that civil unrest in the Middle East was spreading: Dow -1.38, S&P 500 -1.57%, Nasdaq Composite -1.61%. Bearish factors included (1) a rally in crude oil on concern that escalating unrest in the Middle East and northern Africa was spreading to Iran, OPEC's second-largest producer, which stoked worries that higher energy costs will hurt consumer spending and corporate profits, and (2) comments from Fed Chairman Bernanke who said the labor market "has improved only slowly" and it may take "several years" for the unemployment rate to reach a "more normal level," and that "the housing market remains exceptionally weak."
• Bullish factors for stocks included (1) the larger-than expected increase in the Feb ISM manufacturing index which matched its 27-year high from May-2004 (+0.6 to 61.4 versus expectations of +0.2 to 61.0), and (2) comments from Fed Chairman Bernanke who said that "downside risks to the recovery have receded," and that the increase in oil and other commodity prices probably won't cause a permanent increase in broader inflation, which suggests the Fed will stay on course to complete its planned $600 billion QE 2 asset-purchase program.
• Texas Instruments (TXN) rose 1% in pre-market trading after JPMorgan Chase raised its recommendation on the company to "overweight" from "neutral."
• MetLife (MET) slumped 4.2% in after-hours trading late yesterday after the company said 146.8 million shares will be sold in public offerings as the firm raises funds to redeem securities given to AIG.

Today's Market Focus

• June 10-year T-notes this morning are trading down -4.5 ticks. T-note prices yesterday traded weaker into early afternoon but shed their losses and settled higher on concern the unrest in the Middle East is spreading: TYM11 +2.5, FVM11 +3, EDU11 +1.5. Bullish factors included (1) concern the turmoil in the Middle East is widening after civil unrest was reported in Iran, which undercut stock prices and fueled an increase in safe-haven demand for Treasuries, (2) the Fed's action to purchase $1.890 billion of Treasuries as part of its QE2 asset-purchase program, and (3) revised data from the Treasury that shows China increased its holdings of US debt to a record $1.175 trillion in Oct and that China's year-end holdings of Treasuries in 2010 were $1.16 trillion, up from a previously reported $891.6 billion, which shows continued strong demand from China, America's largest creditor. Bearish factors included (1) comments from Fed Chairman Bernanke who said that "downside risks to the recovery have receded, and the risk of deflation has become negligible," which suggests the Fed will not add to its monetary stimulus once QE2 ends in June, and (2) the larger-than expected increase in the Feb ISM manufacturing index which matched its 27-year high from May-2004 (+0.6 to 61.4 versus expectations of +0.2 to 61.0).
• The dollar index this morning is trading lower with the dollar/yen +0.10 yen and the euro/dollar +0.48 cents. The dollar index yesterday rebounded from a 3-1/2 month low and finished higher on strong US manufacturing data along with increased safe-haven demand on concern the civil unrest in the Middle East is spreading: Dollar Index +0.160, USDJPY +0.074, EURUSD -0.00288. Bullish factors included (1) the stronger-than-expected Feb US ISM manufacturing index which matched its 27-year high from May-2004 and signals US economic strength, (2) increased safe-haven demand for the dollar on concern the turmoil in the Middle East is spreading to Iran, and (3) comments from Fed Chairman Bernanke who said that rising oil and commodity prices won't derail the economic recovery. Bearish factors included (1) strength in the euro after the European Commission revised up their 2011 GDP and inflation forecasts for the Euro-Zone, which will keep pressure on the ECB to tighten monetary policy, and (2) strength in the British pound which surged to a 13-month high against the dollar after Feb UK PMI manufacturing remained unchanged at its best level since 1992, which may prompt the BOE to increase interest rates.
• April crude oil prices this morning are trading up +43 cents a barrel and April gasoline is +1.68 cents per gallon. Crude oil and gasoline prices yesterday moved sharply higher on concern the civil unrest in North Africa and the Middle East was spreading to Iran: CLJ11 +$2.66, RBJ11 +8.71. Bullish factors included (1) the fall in the dollar index to a 3-1/2 month low, which boosts investment demand for commodities, (2) concern that the political upheaval in North Africa and the Middle East may spread to Iran, OPEC's second-largest oil producer, after Iranian authorities arrested opposition leaders in an attempt to stop planned protests, and (3) strong global manufacturing growth that may increase fuel demand after Feb US manufacturing activity expanded at its best level in 27 years, while Europe's manufacturing activity in Feb rose to a 10-1/3 year high and Feb Chinese manufacturing activity expanded for the 24th consecutive month. Bearish factors include (1) data from Bloomberg that shows Nigeria plans to increase its daily crude exports to 2.01 million barrels a day in April, up +9.3% from 1.84 million barrels in March, and (2) the outlook for weekly crude supplies to increase for a seventh straight week when the DOE releases its weekly crude inventory data on Wed. Expectations for the weekly inventory report from the DOE are for crude oil stockpiles to rise +875,000 bbl, gasoline supplies to remain unchanged, distillate inventories to fall -1.3 million bbl and the refinery utilization rate to increase +0.4 to 79.8%.

Today's U.S. Earnings Reports Earnings reports (confirmed releases, sorted by mkt cap) COST-Costco Wholesale (BEST earnings consensus $0.79), SPLS-Staples (0.40), JOYG-Joy Global (1.07), PETM-PetSmart (0.75), FL-Foot Locker (0.38), GEF-Greif Inc. (0.90), CPRT-Copart (0.45), SNDA-Shanda Interactive Entertainment (0.42), BJ-BJ's Wholesale Club (0.91), ASNA- Ascena Retail Group (0.52), WTI-W&T Offshore (0.37), AH-Accretive Health (0.09), GAME-Shanda Games Ltd. (0.18), DAR-Darling International (0.21), CRI-Carter's (0.57).
Global Financial Calendar

Wednesday 3/2/11
United States
0700 ET	Weekly MBA mortgage applications, last market index +13.0% with purchase mortgage sub-index +5.1% and refinancing sub-index +18.0%.
0730 ET	Feb Challenger job cuts, Jan ?46.1% y/y.
0800 ET	Kansas City Fed President Thomas Hoenig speaks at the Council on Foreign Relations.
0815 ET	Feb ADP employment change expected +175,000, Jan +187,000.
1000 ET	Fed Chairman Ben Bernanke delivers the Fed?s semiannual report on monetary policy before the House Financial Services Committee.
1400 ET	Fed releases Beige Book economic survey.
1415 ET	Atlanta Fed President Dennis Lockhart speaks on the U.S. economic outlook and monetary policy to the Southeast Venture Conference in Atlanta.
2000 ET	Fed Chairman Ben Bernanke speaks on ?Challenges for State and Local Governments? at the Citizens Budget Commission Annual Dinner in New York (prepared text, no Q&A).
United Kingdom
0430 ET	Feb UK PMI construction expected ?0.9 to 52.8, Jan +4.6 to 53.7.
1901 ET	Feb UK Hometrack housing survey, Jan ?0.5% m/m and ?2.2% y/y.
Euro-Zone
0500 ET	Jan Euro-Zone PPI expected +1.1% m/m and +5.7% y/y, Dec +0.8% m/m and +5.3% y/y.
0945 ET	ECB Council member Yves Mersch speaks on ?Is Inflation Back?? at a conference in Frankfurt.
Canada
0830 ET	Jan Canada industrial product prices expected +0.6% m/m, Dec +0.7% m/m.
0830 ET	Jan Canada raw materials price index expected +3.0% m/m, Dec +4.2% m/m.
Japan
1850 ET	Q4 Japan capital spending expected +5.9% and +5.2% excluding software, Q3 +5.0% and +4.8% excluding software.
CHI
2000 ET	Feb China non-manufacturing PMI, Jan ?0.1 to 56.4.

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