Barchart Morning Call
Overnight Developments
Global Financial Calendar
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- Global stocks this morning are mixed with the Euro Stoxx 50 up +0.14% and Dec S&Ps down -5.80 points. The dollar is stronger and commodities are mixed as stocks digest yesterday's sharp gains. Klaus Regling, the CEO of the European Financial Stability Facility, flew to Beijing to persuade China to contribute to the bailout fund, while Greek Prime Minister Papandreou said the agreement by European leaders to craft a second aid package for his nation gives the country time to fix its finances. With Greece's debt worries put on the back burner for the time being, the focus now falls on Italy which has to repay 298 billion euros of debt next year, more than Spain, France or any other Euro-Zone member. Stock prices were undercut after the Italian 10-year bond yield jumped 17 bp when the country sold 7.93 billion euros of bonds, less than the 8.5 billion-euro maximum target, as Prime Minister Berlusconi vowed to boost economic growth and cut debt. Weak consumer spending in France also pressured stocks after the Sep French consumer spending unexpectedly fell -0.5% m/m and -1.3% y/y, weaker than expectations of unchanged m/m and -0.7% y/y.
- Asian stocks today closed higher with Japan up +1.39%, China +1.94%, Australia +0.12%, South Korea +0.51%, India +2.98%. Asian stock markets rallied on the heels of the European debt accord along with the 2.5% annualized growth rate in U.S. GDP. The yen held near its post WWII high despite comments from Japanese Finance Minister Azumi who said he will take "bold" action against the strong yen if needed. The BOJ cut its economic growth forecast to 2.2% for the year starting Apr 2012 from a July forecast of 2.9%. Japanese stocks received a lift from an unexpected fall in the Japanese unemployment rate when the Sep Japan jobless rate fell -0.2 to 4.1%, better than expectations of a +0.2 gain to 4.5% and the lowest in 2-3/4 years. Stock gains were limited however, after Sep Japan industrial production fell -4.0% m/m and -4.0% y/y, weaker than expectations of -2.8% m/m and -2.8% y/y.
- December S&Ps this morning are trading down -5.80 points. The US stock market yesterday settled sharply higher after European leaders reached an accord on the region's debt crisis and after U.S. economic growth expanded at its fastest pace in a year: Dow Jones +2.86%, S&P 500 +3.43%, Nasdaq Composite +3.32%. The S&P 500 posted a 2-3/4 month high and the Dow and Nasdaq posted 3-month highs. Bullish factors included (1) a surge in bank stocks after European leaders agreed to expand the EFSF to $1.4 trillion, recapitalize banks and prompt bondholders to accept a 50% haircut on Greek debt as part of an agreement to stem the region's debt crisis, (2) the +2.5% annualized increase in Q3 U.S. GDP, as expected, but the fastest pace of growth in a year as Q3 personal consumption rose +2.4%, greater than expectations of +1.9%, (3) the larger-than-expected decline in weekly U.S. continuing claims to their lowest level in 3 years (-96,000 to 3.645 million versus expectations of -19,000 to 3.700 million), and (4) reduced price pressures after the smaller-than-expected increase in Q3 core PCE (+2.1% versus expectations of +2.2%).
- Bearish factors included (1) the weaker-than-expected Sep U.S. pending home sales (-4.6% m/m and +7.9% y/y versus expectations of +0.3% m/m and +11.8% y/y) and (2) concern that consumer spending may slow because U.S. incomes aren't keeping up with price increases after Q3 after-tax income adjusted for inflation fell -1.7% y/y, the biggest drop in 2 years.
- December 10-year T-notes this morning are up +8 ticks. T-note prices yesterday fell to a 2-1/2 month low on reduced safe-haven demand as global stocks rallied sharply when European leaders reached an accord on the region's debt crisis: TYZ11 -1-8.5, FVZ11 -16.7, EDH12 +5.5. Bearish factors included (1) the action by EU leaders to expand the EFSF to $1.4 trillion, recapitalize banks and prompt bondholders to accept a 50% haircut on Greek debt as part of an agreement to stem the region's debt crisis, (2) the larger-than-expected decline in weekly U.S. continuing claims to their lowest level in 3 years (-96,000 to 3.645 million versus expectations of -19,000 to 3.700 million), (3) the +2.4% increase in Q3 personal consumption, greater than expectations of +1.9%, and (4) weak demand for the Treasury's $29 billion 7-year T-note auction that had a bid-to-cover ratio of 2.59, well below the 12-auction average of 2.83. Bullish factors included (1) the smaller-than-expected increase in Q3 core PCE (+2.1% versus expectations of +2.2%) and (2) the weaker-than-expected Sep U.S. pending home sales (-4.6% m/m and +7.9% y/y versus expectations of +0.3% m/m and +11.8% y/y).
- The dollar index this morning is higher with the dollar/yen -0.18 yen and the euro/dollar -0.13 cents. The dollar index yesterday plummeted to a 1-1/2 month low as the euro surged after European leaders agreed to an expansion of a rescue fund for indebted nations and reached an accord with lenders on writedowns of Greek debt: Dollar Index -1.367, USDJPY -0.216, EURUSD +0.02826. The yen posted to a new post WWII high of 75.66 yen per dollar. Bearish factors included (1) the surge in the euro to a 7-week high against the dollar after European leaders agreed to expand the EFSF to $1.4 trillion, recapitalize banks and prompt bondholders to accept a 50% haircut on Greek debt as part of an agreement to stem the region's debt crisis, (2) reduced safe-haven demand for the dollar as global equity markets rallied sharply, and (3) the rally in the yen to an all-time high of 75.66 against the dollar on concern the BOJ's action to expanded its credit and asset-purchase programs to a total of 55 trillion yen ($724 billion) from 50 trillion yen will be insufficient to stem the yen's rise. Bullish factors included (1) the slide in Oct Euro-Zone economic confidence to a 1-3/4 year low, which is euro negative, and (2) the as-expected +2.5% annualized Q3 U.S. GDP, the fastest pace of growth in a year, which may keep the Fed from expanding its stimulus measures.
- Dec crude oil prices this morning are down -$1.32 a barrel and Dec gasoline is -2.28 cents per gallon. Crude oil and gasoline prices yesterday finished sharply higher as European leaders reached a deal to contain the region's debt crisis and as U.S. economic growth expanded at its fastest pace in a year: CLZ11 +$3.76, RBZ11 +8.19. Dec gasoline posted a 1-week high. Bullish factors included (1) the slump in the dollar index to a 1-1/2 month low, which encourages investment demand in commodities, (2) the action by European leaders to reach an accord on how to stem the region's debt crisis, which may boost economic optimism and energy demand, (3) Q3 U.S. GDP of +2.5% annualized, the fastest rate of growth in a year and is positive for fuel demand and consumption, and (4) the prediction from the top commodity analyst of Bank of America that crude oil prices may reach a "pain point" of $130 to $140 a barrel as a third round of quantitative easing weakens the dollar. Bearish factors included (1) the slide in Oct Euro-Zone economic confidence to a 1-3/4 year low and (2) the unexpected decline in Sep U.S. pending home sales, which indicates continued weakness in the U.S. housing market that may limit economic growth and energy demand.
Global Financial Calendar
| Friday 10/28/11 | |
|---|---|
| United States | |
| 0830 ET | Q3 employment cost index expected +0.6%, Q2 +0.7%. |
| 0830 ET | Sep personal spending expected +0.6%, Aug +0.2%. Sep personal income expected +0.3%, Aug -0.1%. Sep PCE deflator expected +3.0% y/y, Aug +2.9% y/y. Sep PCE core deflator expected +0.1% m/m and +1.7% y/y, Aug +0.1% m/m and +1.6% y/y. |
| 0955 ET | Final Oct U.S. University of Michigan consumer confidence expected +0.5 to 58.0, previous -1.9 to 57.5. |
| Japan | |
| 0000 ET | Sep Japan vehicle production, Aug +1.8% y/y. |
| France | |
| 0245 ET | Sep French consumer spending expected unchanged m/m and -0.7% y/y, Aug +0.2% m/m and +0.3% y/y. |
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