Barchart Morning Call
Overnight Developments
Global Financial Calendar
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- Global stocks are trading mildly lower with the European Euro Stoxx down 0.18% and Sep S&Ps down 9.20 points (-0.69%). The main bearish factor is uncertainty about the U.S. debt ceiling battle. Republicans and Democrats spent the weekend bickering about a debt ceiling hike and the odds are rising for a U.S. debt rating cut in coming weeks even if there is a debt ceiling hike. House Speaker Boehner is pushing a short-term $1 trillion debt ceiling hike that will only take the government through about the end of this year, whereas Senate Majority Leader Harry Reid is pushing a $2.4 trillion debt ceiling hike tied to $2.7 trillion of spending cuts that would last through the November 2012 presidential and Congressional elections. President Obama has said he would veto any debt ceiling hike that does not last through 2012. Meanwhile on the European debt crisis front, Moody's today cut Greece's credit rating by three notches to Ca, its second lowest rating, from Caa1. A Moody's senior analyst said, "The combination of the announced EU program and the debt exchange proposal by major financial institutions imply that private creditors experience substantial losses on their holding of Greek government bonds and this is something we need to reflect in the rating." Moody's action was not a surprise considering that S&P on June 13 had already cut Greece's rating to its lowest level of CCC. Fitch also has Greece at its lowest rating. Fitch and S&P have already indicated that they will cut Greece's rating to default when the bond swap program arrives, but will then reinstall a normal rating shortly after the bond swap program is over. Italy's July consumer confidence index today fell by 2.1 points to 103.7 from 105.8 in June and was weaker than market expectations for a decline to 104.5.
- The Asian stock markets today closed lower with a particularly sharp loss of 3.25% in China: Japan -0.81%, Hong Kong -0.68%, Taiwan -0.93%, Australia -1.58%, Singapore -0.36%, South Korea -1.04%, Bombay +0.80%.
- September S&Ps this morning are trading 9.20 points lower on the lack of a debt ceiling hike agreement as yet. The US stock market last Friday settled mixed as the Nasdaq posted a 10-1/3 year high after technology stocks rallied while uncertainty over a budget deal by US lawmakers kept the broader market under pressure: Dow Jones -0.34%, S&P 500 +0.09%, Nasdaq Composite +0.86%. Bullish factors included (1) carry-over support from a rally in European stocks on reduced European sovereign debt concerns as credit-default swaps (CDS) to insure the government debts of most Euro-Zone nations plunged, with Greek CDS tumbling to a 5-week low, (2) strength in technology companies which sent the Nasdaq to a 10-1/3 year high after Advanced Micro Devices reported better-than-forecast earnings, and (3) overall healthy Q2 earnings results thus far as 83% of the 121 S&P 500 companies that have reported earnings since Jul 11 beating estimates.
- Bearish factors included (1) weakness in industrial companies after Caterpillar reported earnings that trailed estimates, (2) uncertainty over a budget deal and the raising of the US debt limit before the Aug 2 deadline, and (3) the statement from Standard & Poor's that even if Congress raises the debt limit in time to avert a default, it might cut the US sovereign rating to AA+ with a negative outlook if a deal isn't accompanied by a "credible solution" on the future debt burden.
- September 10-year T-notes this morning are trading slightly lower by 2.5 ticks. T-note prices today were undercut by the U.S. debt ceiling gridlock and the comment by Pimpco CEO and co-chief investment officer Mohamed A. El-Erian said that the U.S. will be "extremely vulnerable" to losing its AAA rating even if there is a debt ceiling increase. T-note prices last Friday moved higher on optimism US lawmakers are getting closer on a deal to raise the US debt limit along with increased safe-haven demand after Fitch Ratings said that Greece faces a restricted default: TYU11 +10.5, FVU11 +5.7, EDZ11 +1.0. Bullish factors included (1) optimism that Congress is getting closer to an agreement to cut the US budget deficit and raise the borrowing limit, (2) the statement from Fitch Ratings that Greece faces a "restricted default" after Euro-Zone leaders agreed on a new bailout for Greece that would involve contributions from bondholders, and (3) the action by the Fed to purchase $869 million of Treasuries as it invests the principal payments from its debt holdings into Treasuries to help spur the economy. Bearish factors included (1) reduced safe-haven demand for Treasuries after credit-default swaps to insure the government debts of most Euro-Zone nations plunged after European officials agreed to a $229 billion bailout to contain the debt crisis and (2) the statement from Standard & Poor's that even if Congress raises the debt limit in time to avert a default, it might cut the US sovereign rating to AA+ with a negative outlook if a deal isn't accompanied by a "credible solution" on the future debt burden.
- The dollar index this morning is trading slightly lower by 0.094 cents with the dollar/yen down 0.26 yen and the euro/dollar up 0.12 cents. The Swiss franc is up 2% today due to flight-to-safety demand. The dollar index last Friday settled higher after the euro weakened when Fitch Ratings said Greece faces "restricted default" and after Jul German IFO business climate fell to a 9-month low: Dollar Index +0.186, USDJPY +0.235, EURUSD -0.00669. Bullish factors included (1) the statement from Fitch Ratings that Greece faces a "restricted default" after Euro-Zone leaders agreed on a new bailout for Greece that would involve contributions from bondholders, (2) the larger-than-expected decline in the Jul German IFO business climate which fell to a 9-month low, and (3) the larger-than-expected decline in Jul French business confidence which fell to a 7-month low and is euro negative. Bearish factors included (1) reduced safe-haven demand for the dollar after credit-default swaps to insure the government debts of most Euro-Zone nations plunged after European leaders agreed to a $229 billion bailout to contain the debt crisis and (2) the larger-than-expected increase in May Euro-Zone industrial new orders, which signals economic strength in Europe and is euro positive.
- Sep crude oil prices this morning are down $0.96 a barrel and Sep gasoline is down 2.88 cents per gallon. Sep crude oil and gasoline prices last Friday closed higher on optimism that US lawmakers will increase the debt ceiling along with the action by European officials to put forth a plan to resolve the region's debt crisis : CLU11 +$0.74, RBU11 +3.39. Bullish factors included (1) reduced concern the European sovereign-debt crisis will drag down the global economy and energy demand after European leaders agreed to a $229 billion bailout to contain the region's debt crisis, (2) optimism that US lawmakers will agree to a deal to raise the nation's debt limit before the Aug 2 deadline, and (3) data from the API that showed total Jun deliveries of petroleum products, a measure of demand, rose +2.9% y/y to 22.2 million barrels a day. Bearish factors included (1) the stronger dollar, which may limit investment demand for commodities and (2) the larger-than-expected decline in the Jul German IFO business climate which fell to a 9-month low, which signals pessimism that may lead to reduced investment spending and energy demand.
Global Financial Calendar
| Monday 7/25/11 | |
|---|---|
| United States | |
| 0830 ET | Jun Chicago Fed national activity index, May +0.19 to -0.37. |
| 1130 ET | Weekly 3-mo and 6-mo and monthly 1-year T-bill auctions. |
| France | |
| 0245 ET | Jul French business confidence quarterly survey of overall demand the past 3 months, Apr -8 to 21. |
| United Kingdom | |
| 0430 ET | Jun UK BBA loans approved for house purchases expected 31,000, May 30,509. |
| Japan | |
| 1950 ET | Jun Japan corporate service price index expected -0.9% y/y, May -0.9% y/y. |
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