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Overnight Developments
Global Financial Calendar
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- Global stocks are mostly lower with the European Euro Stoxx 50 down -0.78% and June S&Ps are up +3.40 points. Treasuries are little changed and the euro climbed to a 3-1/2 week high against the dollar after German Chancellor Merkel said the European Union remains committed to the euro and the outlook for German growth is "very positive." European stocks weakened on concern the economic recovery is faltering and as Portuguese and Greek debt insurance surged to records after Moody's Investors Service late yesterday said Greece has a 50% chance of default. US stock futures gained after yesterday's plunge left the S&P 500 at 13.2 times estimated earnings of its companies, its lowest valuation since March 18.
- The Asian stock markets today closed lower with Japan down -1.69%, Hong Kong -1,58%, China -1.61%, Taiwan -0.78%, Australia -2.27%, Singapore -0.39%, South Korea -1.41%, India -0.62%. Asian stocks were undercut after May US manufacturing data expanded at its weakest pace in 20 months and employers hired fewer workers than forecast, which fueled concern the global economic recovery will slow. Japanese automakers led declines in Japanese stocks as Toyota's May US monthly sales fell -33% y/y, Honda's US sales fell -23% y/y and Nissan's May US sales slipped -9.1% y/y, as the quake crisis limited production and supplies of some models ran low. China's Shanghai Stock Index tumbled to a 4-1/4 month low on concern slowing economic growth and government tightening policies will hurt corporate earnings. The Shanghai Daily News reported that the PBOC may raise interest rates ahead of a public holiday on Jun 6 because consumer prices are expected to rise to a new high in May. Chinese automakers closed lower after China's Passenger Car Association reported that China's May passenger car sales, excluding minivans, fell -11% m/m and -1.0% y/y to 850,000 units.
- June S&Ps this morning are trading up +3.40 points. The US stock market yesterday fell sharply as slower than expected job growth along with weakness in manufacturing activity fueled concern that the economy is faltering: Dow Jones -2.22%, S&P 500 -2.28%, Nasdaq Composite -2.33%. The Dow fell to a 1-1/4 month low. Bearish factors for stocks included (1) the smaller-than-expected increase in the May ADP employment change which posted its smallest job gain in 8 months (+38,000 versus expectations of +175,000), (2) the sharper-than-expected decline in the May ISM manufacturing index which expanded at its slowest pace in 20-months (-6.9 to 53.5 versus expectations of -2.9 to 57.5), (3) the action by Moody's Investors Service to cut Greece's local and foreign currency bond ratings to Caa1 from B1 with a negative outlook, and said there's a growing risk that Greece will default on its debt, and (4) concern that economic growth is slowing globally as well after the May Euro-Zone manufacturing PMI was unexpectedly revised down to a 7-month low (-0.2 to 54.6), the May UK PMI manufacturing slipped to a 1-1/2 year low (-2.3 to 52.1), and China's May PMI manufacturing expanded at its slowest pace in 9 months (-0.9 to 52.0).
- Bullish factors included (1) reduced inflation concerns after the larger-than-expected decline in the May ISM prices-paid sub-index (-9.0 to 76.5 versus expectations of -3.7 to 81.8), (2) comments from Cleveland Fed President Pianalto who said she "expects the economy to continue on a gradual recovery pace over the next few years, with annual growth just above 3% a year," and (3) reduced interest rate concerns after the yield on the 10-year T-note fell to a 5-3/4 month low of 2.95%.
- Joy Global (JOYG) jumped 3.4% in pre-market trading after the company raised its earnings estimates for this year to $5.30 to $5.60 a share, up from an earlier estimate of $5.10 to $5.40 as orders increased.
- September 10-year T-notes this morning are unchanged. T-note prices yesterday rallied sharply the entire day as weaker-than-expected economic data suggest the economy is slowing: TYU11 +22.5, FVU11 +12, EDZ11 unchanged. Sep T-notes posted a 6-month nearest-futures high and the 10-year T-note yield fell to a 5-3/4 month low of 2.95%. Bullish factors included (1) the smaller-than-expected increase in the May ADP employment change which posted its smallest job gain in 8 months (+38,000 versus expectations of +175,000), (2) the action by Goldman Sachs to cut its forecast for Friday's May nonfarm payrolls to +100,000 from +150,000, (3) the sharper-than-expected decline in the May ISM manufacturing index which expanded at its slowest pace in 20-months (-6.9 to 53.5 versus expectations of -2.9 to 57.5), (4) reduced inflation concerns after the larger-than-expected decline in the May ISM prices-paid sub-index (-9.0 to 76.5 versus expectations of -3.7 to 81.8), and (5) technical buying after the yield on the 10-year T-note fell below 3.00%. A bearish factor was comments from Cleveland Fed President Pianalto who said she "expects the economy to continue on a gradual recovery pace over the next few years, with annual growth just above 3% a year."
- The dollar index this morning is weaker and slipped to a 3-1/2 week low in overnight trade with the dollar/yen -0.13 yen and the euro/dollar +1.40 cents. The dollar index yesterday fell to a 3-1/2 week low on weaker-than-expected US economic data but erased its losses and closed higher on increased safe-haven demand after Moody's cut Greece's bond ratings and the stock market tumbled: Dollar Index +0.039, USDJPY -0.578, EURUSD -0.00681. Bullish factors included (1) the unexpected downward revision to May Euro-Zone PMI manufacturing, which is euro negative, (2) weakness in the British pound which declined against the dollar after May UK PMI manufacturing fell to its lowest level in 1-1/2 years, (3) increased safe-haven demand for the dollar as the equity market sold off and after Moody's Investors Service cut Greece's local and foreign currency bond ratings to Caa1 from B1 with a negative outlook. Bearish factors included (1) the weaker than expected May ADP employment change which showed its smallest job gain in 8 months, (2) the weaker-than-expected May ISM manufacturing index which expanded at its slowest pace in 20-months, and (3) the fall in the 10-year T-note yield to a 5-3/4 month low, which further weakens the dollar's interest rate differentials.
- July crude oil prices this morning are trading up +8 cents a barrel and July gasoline is +0.96 of a cent per gallon. Crude oil and gasoline prices yesterday closed sharply lower as OPEC increased production in May and after weaker-than-expected global economic data hint at reduced energy demand: CLN11 -$2.41, RBN11 -6.45. Bearish factors included (1) weaker-than-expected US economic data that showed the smallest gain in May ADP employment in 8 months and May ISM manufacturing activity expanded at its lowest level in 20-months, (2) the unexpected downward revision to May Euro-Zone PMI manufacturing to a 7-month low, (3) the fall in May China PMI manufacturing activity to a 9-month low, and (4) Bloomberg data that shows OPEC crude production in May rose +0.6% to 28.895 million barrels a day, the highest since Feb. Bullish factors included (1) the fall in the dollar index to a 3-1/2 week low, which boosts investment demand in commodities, and (2) the statement from Iran's OPEC Governor who said that maintaining current OPEC production quotas is the only way to balance the oil market. Expectations for the weekly DOE inventory report (delayed 1 day because of the Memorial Day holiday) are for crude oil supplies to drop -1.6 million bbl, gasoline stockpiles to increase +800,000 bbl, distillate inventories to remain unchanged and the refinery capacity rate to rise +0.5 to 86.8%.
Global Financial Calendar
| Thursday 6/2/11 | |
|---|---|
| United States | |
| 0830 ET | Weekly initial unemployment claims expected -7,000 to 417,000, previous +10,000 to 424,000. Weekly continuing claims expected -15,000 to 3.675 million, previous 46,000 to 3.690 million. |
| 0830 ET | Revised Q1 nonfarm productivity expected +1.7%, previous +1.6%. Revised Q1 unit labor costs expected +0.8%, previous +1.0%. |
| 1000 ET | Apr factory orders expected -1.0%, Mar +3.4%. |
| 1030 ET | May ICSC chain store sales, Apr +8.5% y/y. |
| 1100 ET | Treasury announces amounts of 3-year T-notes (previous $32 billion), 10-year T-notes (previous $24 billion) and 30-year T-bonds (previous $16 billion) to be auctioned Jun 7-9. |
| 1630 ET | Weekly money supply report and Fed balance sheet. |
| United Kingdom | |
| 0430 ET | May UK PMI construction expected +0.2 to 53.5, Apr -3.1 to 53.3. |
| CHI | |
| 2100 ET | May China non-manufacturing PMI, Apr +2.3 to 62.5. |
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