Barchart Morning Call
Overnight Developments
Global Financial Calendar
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- Global stocks are trading mixed with the European Euro Stoxx 50 down -0.40% and Sep S&Ps down -6.40 points. European and US stocks fell, the euro declined and commodities weakened after China raised interest rates and on concern the European sovereign-debt crisis may worsen after Moody's Investors Service downgraded Portugal's credit rating to junk. The cost of credit-default swaps to insure Portuguese government debt surged 93 bp to a record 864 bp, while the extra yield investors demand to hold 10-year Portuguese bonds instead of 10-year German bunds widened to a record 930 bp. A plunge in Portuguese bank stocks is leading European stock prices lower, while China's action to raise interest rates by 25 bp is another negative factor pressuring stock prices. On the positive side, May German factory orders unexpectedly rose +1.8% m/ and +12.2% y/y, stronger than expectations of -0.1% m/m and +10.2% y/y.
- The Asian stock markets today closed mixed: Japan +1.10%, China -0.28%, Australia +0.15%, South Korea +0.44%, India -0.09%. After the close of Asian markets, the PBOC raised interest rates for the third time this year after May China consumer prices rose by +5.5% y/y, their fastest pace in 2-3/4 years. The PBOC raised the 1-year deposit rate to 3.50% from 3.25% and hiked the 1-year lending rate by 25 bp to 6.56% from 6.31%, effective tomorrow. Japan's Nikkei 225 Stock Index rose to a 3-3/4 month high, led by energy producers after crude oil climbed to a 2-week high and after May US factory orders rose, which may benefit Japanese exports as it suggests manufacturing in the US economy is recovering from a slowdown.
- September S&Ps this morning are trading down -6.40 points. The US stock market yesterday finished mixed as weaker-than-expected May US factory orders and concern that the European debt crisis may worsen offset strength in energy producers: Dow Jones -0.10%, S&P 500 -0.13%, Nasdaq Composite +0.35%. The Dow posted a 1-1/4 month high and the Nasdaq climbed to a 1-1/2 month high. Bearish factors included (1) concern the European sovereign-debt crisis may worsen after Moody's Investors Service cut Portugal's long-term government bond rating to Ba2, or junk, with a negative outlook, (2) a slump in bank stocks after a Citigroup analysts said 2012 bank earnings estimates may be too high as "a prolonged low rate environment is consistent with weak earning asset growth," (3) the weaker-than-expected May factory orders (+0.8% versus expectations of +1.0%), and (4) weakness in insurance stocks after the New York Attorney General said it had subpoenaed 9 insurance companies in the past month into whether the insurance industry was adequately handling abandoned property such as unclaimed life-insurance proceeds.
- Bullish factors included (1) strength in energy producers as crude oil rallied to a 2-week high, and (2) a rally in gold producers after RBC Capital Markets said is sees potential for a second-half rally in the stocks.
- General Motors (GM) advanced 1.5% in pre-market trading after Morgan Stanley upgraded US automakers to "attractive" from "inline," saying GM is its top pick among automakers.
- Bank of America (BAC) fell 1.4% in European trading after China raised interest rates by 25 bp.
- September 10-year T-notes this morning are trading up +10.5 ticks. T-note prices yesterday finished higher on increased safe-haven demand after Moody's warned that the credit outlook for Chinese banks may be deteriorating along with the statement from S&P that a French debt-rollover plan for Greece may prompt a "selective default" rating for the country: TYU11 +21.5, FVU11 +16.5, EDZ11 -0.5. Bullish factors included (1) increased safe-haven demand for Treasuries after Standard & Poor's warned that a bond-rollover plan drafted by French banks to help Greece with its financial crisis would likely qualify as a distressed exchange and prompt a "selective default" grade on Greek securities, (2) increased safe-haven demand for Treasuries after Moody's Investors Service said the credit outlook for China's banks is deteriorating because local Chinese government debt is about a third more than its national auditors' estimate, and (3) increased safe-haven demand for Treasuries on concern the European debt crisis will worsen after Moody's Investors Service cut Portugal's long-term government bond rating to Ba2, or junk, with a negative outlook. n Bearish factors included (1) the warning from Jeffries Group that the standoff between the Obama administration and Congress over increasing the government's borrowing limit may lead to higher T-note yields and (2) the prediction from Sage Advisory Services that "interest rates are overvalued" and "despite headwinds, the economic recovery will continue into the end of the year.
- The dollar index this morning is trading higher with the dollar/yen +0.02 yen and the euro/dollar -1.06 cents. The dollar index yesterday finished higher on increased safe-haven demand for the dollar after S&P warned that a French bond-rollover plan for Greek debt may qualify as a default along with the action by Moody's to cut Portugal's credit rating: Dollar Index +0.303, USDJPY +0.245, EURUSD -0.00959. Bullish factors included (1) increased safe-haven demand for the dollar after Moody's Investors Service cut Portugal's long-term government bond rating to junk with a negative outlook, (2) the warning from Standard & Poor's that a bond-rollover plan drafted by French banks to help Greece with its financial crisis would likely qualify as a distressed exchange and prompt a "selective default" grade on Greek securities, (3) concern that the European economy is slowing, which is euro negative, after May Euro-Zone retail sales fell more than expected and the Jun Euro-Zone PMI composite was unexpectedly revised down to a 20-month low, and (4) speculation that China's efforts to tame inflation will cool global economic growth after the Information Daily reported that the PBOC is likely to raise interest rates as soon as this weekend to combat consumer price increases. Bearish factors included (1) near-certainty of an ECB inertest rate hike at this Thursday's policy meeting, which will further strengthen the euro's interest rate differentials over the dollar, and (2) speculation that Friday's Jun US nonfarm payrolls will continue to show anemic labor market strength, which may prompt the Fed to maintain its overly easy monetary policy and record low interest rates
- Aug crude oil prices this morning are down -68 cents a barrel and Aug gasoline is -2.50 cents per gallon. Aug crude oil and gasoline prices yesterday rallied to 2-week highs and closed higher after European finance ministers approved additional aid for Greece and after US May factory orders increased: CLQ11 +$1.95, RBQ11 +0.48. Bullish factors included (1) the action by European finance ministers to approve an 8.7 billion-euro aid payment to Greece, which will help Greece avoid a debt default and may help stabilize the European economy and boost fuel demand, and (2) the rebound in May US factory orders, which rose +0.8% m/m and nearly recovered all of April's -0.9% m/m decline and indicates economic strength. Bearish factors included (1) the stronger dollar, (2) the unexpected downward revision to the Jun Euro-Zone PMI composite index to a 20-month low, which signals reduced energy demand and consumption, and (3) the report from the Information Daily that the PBOC is likely to raise interest rates as soon as this weekend to combat consumer price increases, which may slow China's economy and its fuel demand.
Global Financial Calendar
| Wednesday 7/6/11 | |
|---|---|
| United States | |
| 0700 ET | Weekly MBA mortgage applications, last market index -2.7% with purchase mortgage sub-index -3.0% and refinancing sub-index -2.6%. |
| 0730 ET | Jun Challenger job cuts, May -4.3% y/y. |
| 0745 ET | ICSC (Int?l Council of Shopping Centers) weekly retailer sales. |
| 0855 ET | Redbook weekly retailer sales. |
| 1000 ET | Jun ISM non-manufacturing index expected -0.9 to 53.7, May +1.8 to 54.6. |
| 1130 ET | Weekly 4-week T-bill auction. |
| Japan | |
| 0100 ET | May Japan coincident index CI expected 106.1, Apr 103.6. May leading index CI expected 99.8, Apr 96.2. |
| 1950 ET | May Japan machine orders expected +3.0% m/m and +10.9% y/y, Apr -3.3% m/m and -0.2% y/y. |
| Germany | |
| 0600 ET | May German factory orders expected -0.5% m/m and +9.5% y/y, Apr +2.8% m/m and +10.5% y/y. |
| Canada | |
| 0830 ET | May Canada building permits expected +5.0% m/m, Apr -21.1% m/m. |
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