Barchart Morning Call 7/29

Barchart Morning Call

Barchart.com - 52 mins ago

Overnight Developments

• Sep S&Ps this morning are trading 6.70 points lower (-0.52%) on the debt ceiling. The Euro Stoxx 50 is down 1.13% on the U.S. debt ceiling debacle plus Moody's statement it may downgrade Spain's bond rating. Asian stocks today closed lower across the board: Japan -0.69%, Hong Kong -0.58%, China -0.30%, Taiwan -1.40%, Australia -0.88%, Singapore -0.02%, South Korea -1.05%, Bombay -0.07%.
• The House last night adjourned without a vote on the Boehner debt ceiling plan because he was reportedly about 4 votes short of support from members of his own Republican party. It is not clear whether Speaker Boehner will spend most of today trying to still get those votes with a revised bill, which would show Republican unity but would be futile in the end anyway because the Senate plans to immediately vote it down. Alternatively, Speaker Boehner could give up on the Tea Party hawks and immediately move to try to reach a compromise plan with the Senate that a majority group of moderate House Democrats and Republicans can support. Meanwhile, Senate Democrats are working a revised Reid plan that adopts a debt ceiling hike that will last through 2012 and that meets the House Republicans' demand for spending cuts with an enforcement mechanism that ensures the cuts will be made. Senate Majority Leader Reid and Senate Minority Leader McConnell are working on that plan that can make it through both houses of Congress with sufficient bipartisan support.
• The Treasury after today's close is expected to release a plan for how it will prioritize its financial obligations if there is no debt ceiling hike by Tuesday. The plan will reportedly say that bondholders will be paid first, which would ensure that the Treasury would not default on interest or principal payments due on Treasury security debt. That would explicitly take a Treasury default off the table. However, the Treasury technically may not have legal authority to priortize payments since Congress has the final say on what bills get paid and which do not. The Treasury has implored Congress to raise the debt ceiling so that it does not have to start prioritizing payments.
• US credit default swaps, the price to insure against a Treasury default, rose another 3 bp today to a new 2-1/4 year high of 67 bp.
• Spanish bond prices fell today after Moody's said it may downgrade Spain's credit rating. The 10-year Spanish yield spread over German bunds rose by 7 bp to 347 bp, just 30 bp below the record reached on July 12. Banco Santander, Spain's largest bank, fell 2.5% and helped drag down European bank stocks in general. The Italian-bund yield spread today rose by 12 bp to 332 bp.
• In a positive development, the July Eurozone CPI unexpectedly eased to +2.5% from +2.7% in June, although it remained above the ECB's limit of 2%.

Overnight U.S. Stock News

• September S&Ps this morning are trading 6.70 points lower (-0.52%) on the failure of the House to pass the Boehner plan, which will apparently drag out the process even further. Motorola Mobility Holdings fell 2.4% on an earnings miss. The stock market yesterday closed mixed with the Dow and S&P 500 closing lower but the Nasdaq closing slightly higher: Dow Industrials -0.51%, S&P 500 -0.32%, Nasdaq Composite +0.05%. Bearish factors yesterday continued to focus on the slow pace of the debt ceiling process and the increasing probability that the U.S. will receive a credit rating cut even with a debt ceiling hike. Exxon fell 2.2% on weaker than expected earnings, dragging down the overall indexes and the oil sector. The Nasdaq index received a boost from a 2% rally in Cisco on a Goldman recommendation.

Today's Market Focus

• September 10-year T-notes this morning are up 10.5 ticks due to the global decline in stocks. T-note prices on Thursday closed higher: TYU11 +8.5, FVU11 +6.25, EDZ11 +0.01. T-note prices continue to bounce around in a relatively narrow range, having a hard time trying to decide whether to sell off on a possible rating downgrade or rally on the economic damage being done by the debt ceiling battle. Yesterday's 7-year auction was a little disappointing with a bid cover ratio of 2.63 (versus the 12-auction average of 2.85) and with indirect bidders taking 39.6% of the auction (versus the 12-auction average of 47.8%).
• The dollar index this morning is up 0.248 points on concern the U.S. debt ceiling could create another system financial crisis. USDJPY is down 0.06 yen and EURUSD is down 0.75 cents. The dollar on Thursday closed higher on some continued short-covering with the dollar index poking up to anew 1-week high: Dollar Index +0.157, USDJPY -0.31, EURUSD -0.35. However, the dollar remains vulnerable as long as the U.S. debt ceiling hike issue remains unresolved.
• Sep crude oil prices this morning are trading down $0.70 a barrel and Sep gasoline is down 0.66 cents per gallon on the stronger dollar and on concerns the debt ceiling will hurt economic growth and fuel demand. Crude oil prices on Thursday closed slightly higher yesterday but gasoline prices closed with a moderate loss: CLU11 +0.04, RBU11 -0.0193. Crude oil was boosted by Tropical Storm Don, which has winds of 40 mpg and is headed for landfall on Friday in Southeastern Texas. The storm has caused the shutdown of about 6.8% of crude oil production and 2.8% of natural gas production in the Gulf of Mexico. Meanwhile, gasoline prices continue to see pressure from Wednesday's DOE report, which showed a 1.022 million bbl rise in gasoline inventories.

Today's U.S. Earnings Reports Earnings reports (confirmed releases, sorted by mkt cap): Chevron (BEST earnings consensus $3.60), MRK-Merck (0.95), AMGN-Amgen (1.28), NEM-Newmont Mining (1.01), LYB-Lyondellbasell (1.22), AEP-American Electric (0.76), AON-AON (0.82), WY-Weyerhauser (0.08), ITT-ITT Corp (1.16), HP-Helmerich & Payne (0.98), CPN-Calpine (0.00).
Global Financial Calendar

Friday 7/29/11
United States
0830 ET	Q2 employment cost index expected +0.5%, Q1 +0.6%.
0830 ET	Q2 GDP expected +1.8% annualized, Q1 +1.9% annualized. Q2 personal consumption expected +0.8%, Q1 +2.2%. Q2 GDP price index expected +2.0%, Q1 +2.0%. Q1 core PCE deflator expected +2.3% q/q, Q1 +1.6% q/q.
0945 ET	Jul Chicago purchasing managers index expected -1.1 to 60.0, Jun +4.5 to 61.1.
0955 ET	Final Jul U.S. University of Michigan consumer confidence expected +0.2 to 64.0, previous -7.7 to 63.8.
1515 ET	Atlanta Fed President Dennis Lockhart and St. Louis Fed President James Bullard discuss monetary policy at the 3rd Annual Rocky Mountain Economic Summit.
Japan
0000 ET	Jun Japan vehicle production, May -30.9% y/y.
0100 ET	Jun Japan construction orders, May +25.5% y/y.
0100 ET	Jun Japan housing starts expected +4.6% y/y, May +6.4% y/y.
Germany
0200 ET	Jun German retail sales expected +1.7% m/m and -1.6% y/y, May -2.5% m/m and +2.2% y/y.
France
0245 ET	Jun French producer prices expected -0.1% m/m and +5.9% y/y, May -0.5% m/m and +6.1% y/y.
0245 ET	Jun French consumer spending expected +0.8% m/m and +2.2% y/y, May -1.5% m/m and -1.0% y/y.
United Kingdom
0430 ET	Jun UK net consumer credit expected +0.3 billion pounds, May +0.2 billion pounds.
0430 ET	Jun UK mortgage approvals expected +46,000, May 45,900.
0430 ET	Jun UK M4 money supply, May +0.1% m/m and -0.2% y/y.
Euro-Zone
0500 ET	Jul Euro-Zone CPI estimate expected +2.7% y/y, Jun +2.7% y/y.
Canada
0830 ET	May Canada GDP expected +0.1% m/m, Apr unchanged m/m and +2.8% y/y.
0830 ET	Jun Canada industrial product prices, May -0.2% m/m. Jun raw materials price index, May -5.2% m/m.

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