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Overnight Developments
Global Financial Calendar
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- Global stocks are trading mixed with the European Euro Stoxx 50 up +0.42% and Sep S&Ps up +4.40 points. As expected, the BOE left its benchmark interest rate unchanged at 0.50% and kept its asset purchase target at 200 billion pounds. Later today, the ECB is expected to raise its 2-week refinancing rate for a second time this year by 25 bp to 1.50%. Treasuries are lower and most commodities are higher, with copper posting a 2-1/4 month high, while sovereign debt insurance costs climbed to records on concern higher interest rates will exacerbate Europe's debt crisis. The euro slipped to a 1-week low against the dollar after credit-default swaps to insure the government debts of Portugal, Greece and Ireland all rose to records. European stocks received a lift after May German industrial production rose +1.2% m/m and +7.6% y/y, stronger than expectations of +0.7% m/m and +7.0% y/y.
- The Asian stock markets today closed mixed: Japan down -0.11%, China -0.39%, Australia +0.01%, South Korea +0.33%, India +1.88%. A decline in Japanese utilities led the Nikkei 225 Stock Index lower after electricity providers fell when Japanese Trade Minister Kaieda said the nation will carry out stress tests on all nuclear reactors to address concerns in the wake of the Fukushima nuclear crisis. This may lead to continued power shortages and rolling blackouts in Japan as utilities struggle to restart before the stress tests are over. Chinese bank stocks rallied despite the third interest rate hike this year by the PBOC after Barclays Plc and Citigroup said the rate increases would be positive for banks' net-interest margins. The Australian dollar gained and the Aussie S&P 200 closed higher after Jun Australian employment rose by +23,400, stronger than expectations of +15,000.
- September S&Ps this morning are trading up +4.40 points. The US stock market yesterday erased early losses brought on by China's interest rate increase and finished higher after automakers and transportation companies rallied: Dow Jones +0.45%, S&P 500 +0.10%, Nasdaq Composite +0.29%. The Dow and Nasdaq posted 1-1/2 month highs. Bullish factors included (1) strength in automakers after Morgan Stanley upgraded US automakers to "attractive" from "inline," (2) a rally in transportation stocks led by gains in Union Pacific on optimism over continued economic growth, and (3) gains in consumer-staple companies led by a rally in Costco Wholesale.
- Bearish factors included (1) concern that the action by the PBOC to raise interest rates for the third time this year to fight inflation will slow the Chinese economy and the global economy as well, (2) the +5.3% y/y increase in Jun Challenger job cuts, the first increase in 4 months, (3) the larger-than-expected decline in the Jun ISM non-manufacturing index (-1.2 to 53.3 versus expectations of -0.9 to 53.7), and (4) concern the European sovereign-debt crisis may worsen after credit-default swaps to insure Portuguese government surged to a record.
- Western Digital (WDC) climbed 1.9% in European trading after JPMorgan Chase upgraded the largest maker of computer hard-disk drives to "overweight" from "neutral."
- September 10-year T-notes this morning are trading down -7 ticks. T-note prices yesterday moved higher and finished with moderate gains on increased safe-haven demand due to fears of contagion in the European debt crisis along with concern that China's action to raise interest rates for a third time this year will slow global economic growth: TYU11 +10.5, FVU11 +7.5, EDZ11 -2.0. Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis will worsen after credit-default swaps to insure Portuguese government debt surged 93 bp to a record 864 bp, (2) concern that China's action to further tighten its monetary policy will slow the global economy, and (3) the larger-than-expected decline in the Jun ISM non-manufacturing index (-1.2 to 53.3 versus expectations of -0.9 to 53.7). Bearish factors included (1) a steepening of the yield curve after the difference in yield between 2-year T-notes and 30-year T-bonds climbed to 3.96 bp, the widest in 5 months, and (2) reduced safe-haven demand for Treasuries after stocks pared early losses and finished mixed.
- The dollar index this morning is trading higher and at a 1-week high with the dollar/yen +0.11 yen and the euro/dollar -0.30 cents. The dollar index yesterday rallied to a 1-week high on contagion fears to the European sovereign-debt crisis after Portugal became the second Euro-Zone nation after Greece to receive a junk credit rating from Moody's Investors Service: Dollar Index +0.468, USDJPY -0.148, EURUSD -0.01100. Bullish factors included (1) weakness in the euro which fell to a 1-week low against the dollar on concern the European debt crisis will worsen after the cost of credit-default swaps to insure Portuguese government debt surged to a record 864 bp and the extra yield investors demand to hold 10-year Portuguese bonds instead of 10-year German bunds widened to a record 930 bp, and (2) increased safe-haven demand for the dollar after global stocks fell on concern the global economy may falter after China raised interest rates for the third time this year. Bearish factors included (1) near-certainty of an ECB inertest rate hike at Thursday's policy meeting, which will further strengthen the euro's interest rate differentials over the dollar, and (2) the unexpected increase in May German factory orders, which is euro supportive.
- Aug crude oil prices this morning are up +66 cents a barrel and Aug gasoline is +2.09 cents per gallon. Aug crude oil and gasoline prices yesterday fluctuated on both sides of unchanged and finished mixed as a Chinese interest rate hike and a stronger dollar offset the outlook for reduced US crude supplies: CLQ11 -$0.24, RBQ11 +2.02. Aug crude rallied to a 3-week high but shed its gains and closed lower. Bearish factors included (1) the rally in the dollar index to a 1-week high, which erodes investment demand in commodities, (2) the action by China to raise interest rates for the third time this year, which may slow China's economy and its fuel demand, and (3) the larger-than-expected decline in the Jun ISM non-manufacturing index. Bullish factors included (1) the unexpected increase in May German factory orders, which signals increased energy consumption, and (2) the outlook for US crude supplies to fall for a fifth week when the DOE releases its weekly inventory figures on Thu (1-day late due to the Independence Day holiday). Expectations for the weekly DOE inventory figures are for crude oil stockpiles to fall -2.5 million bbl, gasoline supplies to stay unchanged, distillate inventories to gain +800,000 bbl and the refinery capacity rate to rise +0.2 to 88.3%.
Global Financial Calendar
| Thursday 7/7/11 | |
|---|---|
| United States | |
| 0815 ET | Jun ADP employment change expected +70,000, May +38,000. |
| 0830 ET | Weekly initial unemployment claims expected -8,000 to 420,000, previous -1.000 to 428,000. Weekly continuing claims expected -2,000 to 3.700 million, previous -12,000 to 3.702 million. |
| 1030 ET | Jun ICSC chain store sales, May +5.4% y/y. |
| 1100 ET | Treasury announces amounts of 3-year T-notes (previous $32 billion), 10-year T-notes (previous $21 billion) and 30-year T-bonds (previous $13 billion) to be auctioned Jul 12-14. |
| 1230 ET | Kansas City Fed President Thomas Hoenig speaks to the Chickasaw Nation Business and Community Leaders Luncheon in Ada, OK. |
| 1630 ET | Weekly money supply report and Fed balance sheet. |
| United Kingdom | |
| 0430 ET | May UK industrial production expected +1.1% m/m and -0.5% y/y, Apr -1.7% m/m and -1.2% y/y. |
| 0430 ET | May UK manufacturing production expected +1.0% m/m and +2.1% y/y, Apr -1.5% m/m and +1.3% y/y. |
| 0700 ET | BOE announces interest rate decision and asset purchase target (expected no change to the 0.50% benchmark rate or to the 200 billion pound asset purchase target). |
| Germany | |
| 0600 ET | May German industrial production expected +0.7% m/m and +7.0% y/y, Apr -0.6% m/m and +9.6% y/y. |
| Euro-Zone | |
| 0745 ET | ECB announces interest rate decision (expected +25 bp rate hike in the 2-week refinancing rate to 1.50%). |
| 0830 ET | ECB President Jean-Claude Trichet speaks at monthly press conference. |
| Canada | |
| 0830 ET | May Canada new housing price index expected +0.2% m/m and +1.7% y/y, Apr +0.3% m/m and +1.9% y/y. |
| 1000 ET | Jun Ivey purchasing managers index expected -1.6 to 67.5, May +11.4 to 69.1. |
| CHI | |
| 2200 ET | Q2 China business climate index, Q1 -4.2 to 133.8. |
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