Barchart Morning Call
Overnight Developments
Global Financial Calendar
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- Global stocks are mixed with the European Euro Stoxx 50 up +0.09% and June S&Ps down -4.00 points. Treasuries are higher after Chicago Fed President Evans said late yesterday that "slow progress" in the economy justifies stimulus measures, while gold and the dollar strengthened on speculation Greece will have to reorganize its debt. The yield on the 10-year Greek bond jumped 52 bp to a record 16.51%, which widened the difference with German bunds to a record 1,344 bp. Increased M&A activity is boosting European equities as Micro Focus International Plc rose 5.7% after the FT reported Advent International approached the company about a takeover, while Barnes & Noble surged 25% after it received a takeover offer from Liberty Media Corp. The euro weakened against the dollar after the Bundesbank said in its monthly bulletin that "growth is likely to ease somewhat in the foreseeable future." The decline in the euro was limited however, after Apr German producer prices rose a more-than-expected +1.0% m/m and +6.4% y/y, which will keep the pressure on the ECB for further interest rate hikes.
- The Asian stock markets today closed mixed with Japan down -0.14%, Hong Kong +0.16%, China +0.03%, Taiwan -0.63%, Australia -0.51%, Singapore -0.13%, South Korea +0.77%, India +1.02%. At the conclusion of its 2-day meeting, the BOJ kept its benchmark interest rate unchanged at 0.00% to 0.10%, as-expected, and refrained from increasing its credit programs or asset purchases. Chinese stocks closed little changed after PBOC Governor Xiaochuan said that inflation remains "high" and China needs to strike a balance between economic growth and consumer prices, which fueled speculation the central bank will implement additional tightening measures. Concern the US economic recovery is losing momentum also pressured Asian stocks after Apr US existing home sales and the May Philadelphia Fed manufacturing index unexpectedly declined.
- June S&Ps this morning are trading down -4.00 points. The US stock market yesterday shook off losses from weaker-than-expected economic data on existing US home sales, leading indicators and manufacturing and closed higher as a bigger-than-forecast drop in weekly jobless claims bolstered optimism about the economy: Dow Jones +0.36%, S&P 500 +0.22%, Nasdaq Composite +0.30%. Bullish factors for stocks included (1) the larger-than-expected drop in weekly initial unemployment claims (-29,000 to 409,000 versus expectations of -14,000 to 420,000), (2) the action by Citigroup to revise up its global per-share earnings forecast for this year to +18% from a Sep forecast of +12%, citing stronger revenue growth and sustained margins, and (3) comments from St. Louis Fed President Bullard who said that declining inflation expectations have lessened the need to begin withdrawing record Fed stimulus.
- Bearish factors included (1) the unexpected decline in the May Philadelphia Fed manufacturing index which expanded at its slowest pace in 7 months (-14.6 to 3.9 versus expectations of +1.5 to 20.0), (2) the unexpected decline in Apr existing home sales (-0.8% to 5.05 million versus expectations of +2.0% to 5.20 million, (3) the unexpected decline in Apr leading indicators which fell for the first time in 10 months (-0.3% versus expectations of +0.1%), and (4) weakness in technology stocks after Goldman Sachs downgraded Intel, KLA-Tencor and Applied Materials, citing excess supply and increased competition from tablet computers.
- Barnes & Noble (BKS) surged 25% in pre-market trading after Liberty Media offered to purchase the company for $17 a share.
- The Gap (GPS) slumped 15% in European trading after the largest US apparel chain cut its full-year profit forecast by 22% as costs to make clothes rose faster than expected.
- June 10-year T-notes this morning are up +6 ticks. T-note prices yesterday fell to a 1-week low after initial jobless claims fell more than expected, but prices recovered their losses and closed higher after May manufacturing activity on the US East Coast and Apr existing home sales unexpectedly declined: TYM11 +2.5, FVM11 +3.7, EDU11 +1.5. Bearish factors included (1) the larger-than-expected drop in weekly initial unemployment claims (-29,000 to 409,000 versus expectations of -14,000 to 420,000), and (2) slack demand for the Treasury's $11 billion auction of 10-year TIPS that has a bid-to-cover ratio of 2.66, weaker than the 12-auction average of 2.72. Bullish factors included (1) the unexpected decline in the May Philadelphia Fed manufacturing index which expanded at its slowest pace in 7 months (-14.6 to 3.9 versus expectations of +1.5 to 20.0), (2) the unexpected decline in Apr existing home sales (-0.8% to 5.05 million versus expectations of +2.0% to 5.20 million, (3) the unexpected decline in Apr leading indicators which fell for the first time in 10 months (-0.3% versus expectations of +0.1%), and (4) comments from New York Fed President Dudley who said ?We still have a considerable way to go to meet the Fed?s dual mandate of full employment and price stability,? which suggests he is in no hurry to end the Fed?s record stimulus measures.
- The dollar index this morning is higher with the dollar/yen +0.05 yen and the euro/dollar -0.73 cents. The dollar index yesterday settled lower as a drop in the yen to a 3-week low against the dollar was offset by weaker-than-expected US economic data: Dollar Index -0.352, USDJPY -0.067, EURUSD +0.00616. Bearish factors included (1) the unexpected declines in Apr leading indicators, existing US home sales and May Philadelphia Fed manufacturing, which indicates economic weakness that is dollar negative, (2) comments from New York Fed President Dudley who said ?We still have a considerable way to go to meet the Fed?s dual mandate of full employment and price stability,? which suggests he is in no hurry to end the Fed?s record stimulus measures, and (3) the action by Goldman Sachs to cut its 3-month dollar forecast to $1.45 per euro from $1.40, saying "With unemployment still high, fiscal consolidation looming and continued weakness in the real estate sector, the growth outlook remains less compelling in the US than in may other regions or countries." Bullish factors included (1) the slide in the yen to a 3-week low against the dollar on speculation the BOJ will keep stimulus efforts in place after Q1 Japan GDP was revised downward, and (2) the larger-than-expected drop in weekly US initial unemployment claims.
- June crude oil prices this morning are trading up +13 cents a barrel and June gasoline is -0.80 of a cent per gallon. Crude oil and gasoline prices yesterday settled lower as a weak dollar and a larger-than-expected drop in weekly jobless claims fueled an early rally but, a mid-morning report on weaker-than-expected manufacturing activity sent prices tumbling into the close: CLM11 -$1.66, RBM11 -2.95. Bearish factors included (1) the unexpected decline in the May Philadelphia Fed manufacturing index which slid to its lowest level in 7 months and signals weakened energy demand, (2) the larger-than-expected downward revision to Q1 Japan GDP, which indicates decreased fuel demand in the world's third-largest oil consumer, and (3) the prediction from the AAA that the number of Americans driving more than 50 miles over the upcoming Memorial Day holiday weekend will fall by 100,000 to 30.9 million, the first decline in 3 years as high gasoline prices deter Americans from taking road trips. Bullish factors included (1) the weaker dollar which lift investment demand for commodities, (2) the larger-than-expected decline in weekly US jobless claims, which suggest improvement in the labor market that may benefit fuel demand, and (3) the report from NOAA that said the US may experience an "above normal" Atlantic hurricane season this year with 12 to 18 named storms, which increases the chances of damage to Gulf Coast refiners that may limit US fuel output.
Global Financial Calendar
| Friday 5/20/11 | |
|---|---|
| United States | |
| 0800 ET | New York Fed President William Dudley speaks about economic conditions at an event in Fishkill, New York. |
| Japan | |
| 0030 ET | Mar Japan all industry activity index expected -6.1% m/m, Feb +0.7% m/m. |
| n/a | BOJ announces interest rate decision. |
| Germany | |
| 0200 ET | Apr German producer prices expected +0.6% m/m and +6.0% y/y, Mar +0.4% m/m and +6.2% y/y. |
| Canada | |
| 0700 ET | Apr Canada CPI expected +0.5% m/m and +3.4% y/y, Mar +1.1% m/m and +3.3% y/y. |
| 0700 ET | Apr Bank f Canada core CPI expected +0.2% m/m and +1.6% y/y, Mar +0.7% m/m and +1.7% y/y. |
| 0830 ET | Mar Canada retail sales expected +0.9% m/m and +0.7% less autos, Feb +0.4% and +0.7% less autos. |
| Euro-Zone | |
| 0330 ET | ECB Council member Yves Mersch, European Financial Stability head Klaus Regling and head of the European finance ministers, Jean-Claude Juncker, speak at a conference in Luxembourg. |
| 1000 ET | May Euro-Zone consumer confidence expected -0.4 to -12.0, Apr -1.0 to -11.6. |
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