Barchart Morning Call
Wed, 28 Dec 2011 07:00:00 -0600
Overnight Developments- Global stocks this morning are mixed with the Euro Stoxx 50 up +0.56% and Mar S&Ps up +2.90 points. The dollar and Treasuries are little changed and commodities are mixed as the markets move sideways in thin holiday trade. Stocks received a boost after Italy sold 9 billion euros of 179-day bills at a rate of 3.251%, down from 6.504% at a similar auction last month, while the bid-to-cover ratio was 1.70, higher than the 1.47 times seen at the Nov auction, a sign of strong demand. The decent auction results fueled a rally in Italian and Spanish government bonds, which pushed down their yields and boosted the euro as well. The ECB said Euro-Zone banks parked a record 452 billion euros with it on Tuesday, up from a previous record of 412 billion euros on Monday, as banks rather deposit their excess cans with the ECB at the overnight rate of 0.25%, incurring a loss rather than lending it for more elsewhere due to increased counter-party risk from the debt crisis that has frozen interbank lending.
- Asian stocks today closed mostly lower with Japan down -0.20%, China +0.13%, Australia -1.25%, South Korea -1.10%, India -0.92%. Japanese stocks fell on economic concerns after industrial production, retail sales and overall household spending all fell more than expected. Nov Japan industrial production fell -2.6% m/m and -4.0% y/y, weaker than expectations of -0.8% m/m and -2.0% y/y, while Nov Japan retail sales tumbled -2.1% m/m, its biggest drop in 8 months and weaker than expectations of a -0.5% m/m decline. The weakening economy fueled a retrenchment in consumer spending as Nov Japan overall household spending slumped -3.2% y/y, worse than expectations of -1.2% y/y. China's Shanghai Stock Index recovered from a 2-1/2 year low and finished slightly higher after Chinese Vice Premier Li Keqiang said fiscal policy will be targeted and "flexible" and that government spending will grow at a faster pace next year as officials seek to spur domestic consumption.
- March S&Ps this morning are trading up +2.90 points. The US stock market yesterday settled mixed as stronger than expected U.S. consumer confidence offset weak U.S. home prices and concern about Europe's debt crisis: Dow Jones -0.02%, S&P 500 +0.01%, Nasdaq Composite +0.25%. The S&P 500 posted a 1-1/2 month high, the Dow posted a 5-month high and the Nasdaq climbed to a 2-week high. Bullish factors included (1) the larger-than-expected increase in Dec U.S. consumer confidence to an 8-month high (+9.3 to 64.5, stronger than expectations of +2.5 to 58.5), which may help sustain the economic recovery, and (2) a rally in energy producers after crude oil climbed to a 2-week high.
- Bearish factors included (1) the larger-than-expected decline in the Oct S&P/CaseShiller composite-20 home price index (-0.6% m/m and -3.4% y/y, weaker than expectations of -0.2% m/m and -3.2% y/y), (2) concern that the European sovereign-debt crisis will reduce global economic growth after Focus magazine reported that the German government is revising its forecast for 1% GDP growth in 2012 and will present a lower figure in mid-Jan and (3) concern the European sovereign-debt crisis may worsen after the yield on Italy's 10-year bond rose to a 3-week high of 7.072%, above the 7% level that prompted Greece, Ireland an Portugal to seek bailouts.
- Sears Holdings (SHLD) fell -0.7% in European trading, adding to yesterday's -27% plunge, after Goldman Sachs cut its share-price estimate for the stock to $30 from $43.
- March 10-year T-notes this morning are up +4 ticks. T-note prices yesterday shook off early weakness from the stronger-than-expected Dec U.S. consumer confidence and settled higher on concern the European debt crisis will slow global economic growth: TYH2 +3.0, FVH2 +2.7, EDM2 +0.5. Bullish factors included (1) the larger-than-expected decline in the Oct S&P/CaseShiller composite-20 home price index (-0.6% m/m and -3.4% y/y, weaker than expectations of -0.2% m/m and -3.2% y/y), (2) carry-over support from a rally in German bunds as the German 10-year bund yield fell to a 1-week low after Focus magazine reported that the German government is revising its forecast for 1% GDP growth in 2012 and will present a lower figure in mid-Jan, and (3) increased safe-haven demand for Treasuries on concern the European sovereign-debt crisis may worsen after the yield on Italy's 10-year bond rose to a 3-week high of 7.072%, above the 7% level that prompted Greece, Ireland an Portugal to seek bailouts. Bearish factors included (1) the larger-than-expected increase in Dec U.S. consumer confidence to an 8-month high (+9.3 to 64.5, stronger than expectations of +2.5 to 58.5) and (2) reduced safe-haven demand for Treasuries as stock prices gained.
- The dollar index this morning is slightly lower with the dollar/yen -0.17 yen and the euro/dollar up +0.01 cents. The dollar index yesterday settled slightly lower after Oct S&P CaseShiller home prices fell more than expected and stock prices gained, which reduced the safe-haven demand for the dollar: Dollar Index -0.160, USDJPY -0.205, EURUSD +0.00245. Bearish factors included (1) the larger-than-expected drop in Oct S&P/CaseShiller composite-20 home prices, which signals ongoing weakness in the U.S. housing market that may prompt the Fed to maintain its overly easy monetary policy and (2) strength in stock prices, which reduces the safe-haven demand for the dollar. Bullish factors for the dollar included (1) the larger-than-expected increase in Dec U.S. consumer confidence to an 8-month high, which may help sustain the economic recovery and (2) increased safe-haven demand for the dollar after data from the ECB showed that European financial institutions parked 411.8 billion euros at the ECB on Monday, the most since the euro's introduction in 1999 and a sign that European banks continue to refrain from lending due to heightened counter-party risks from the European debt crisis.
- Feb crude oil prices this morning are down -36 cents a barrel and Feb gasoline is -2.19 cents per gallon. Crude oil and gasoline prices yesterday settled higher for the sixth consecutive session after Dec U.S. consumer confidence rose more than expected to an 8-month high and Iran warned it will close the Strait of Hormuz if sanctions are imposed on its crude oil: CLG12 +$1.66, RBG12 +1.53. Feb crude posted a 2-week high and Feb gasoline climbed to a 1-1/2 month high. Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) the larger-than-expected increase in Dec U.S. consumer confidence to an 8-month high, which may lead to stronger economic growth and energy demand, and (3) geopolitical concerns after the Islamic Republic News Agency reported that Iranian Vice President Rahimi said Iran will close the Strait of Hormuz, where one-sixth of the world's crude supplies flow through every day according to the DOE, if sanctions are imposed on Iranian crude exports by Western nations. Bearish factors included (1) the statement from Iraq's deputy prime minister for energy affairs that Iraqi crude production has increased to more than 3 million barrels a day, a 20-year high, (2) the statement from Libya's state-run National Oil Corp. that Libyan oil output in now "more than a million" barrels a day, and (3) the larger-than-expected decline in Oct S&P/CaseShiller composite-20 home prices, which signals continued weakness in the U.S. housing market that may crimp economic growth and energy demand.
Global Financial Calendar
| Wednesday 12/28/11 | |
|---|---|
| United States | |
| 0700 ET | Weekly MBA mortgage applications, previous -2.6% with purchase mortgage sub-index -4.9% and refinancing sub-index -1.6%. |
| 0745 ET | ICSC (Int’l Council of Shopping Centers) weekly retailer sales. |
| 0855 ET | Redbook weekly retailer sales. |
| 1130 ET | Weekly 4-week T-bill auction. |
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