Barchart Morning Call 12/30

Barchart Morning Call

Barchart.com - Fri Dec 30, 7:00AM CST

Overnight Developments

• Global stocks this morning are mostly higher with the Euro Stoxx 50 up +0.20% and Mar S&Ps up +1.60 points. The dollar and Treasuries weakened while stocks and commodities rose after German Finance Minister Schaeuble ruled out a Euro-Zone breakup and said the region is doing everything to maintain confidence in the euro. European bank stocks rose led by a 5.3% jump in Banco Comercial Portugues after the news agency Lusa reported that Chinese banks may be interested in investing in Portugal's second-biggest publicly traded bank. The yield on the 10-year U.K. gilt dropped to a record low of 1.932% after the Nationwide Building Society said Dec U.K. nationwide house prices unexpectedly fell -0.2% m/m, weaker than expectations of unchanged m/m. Undercutting the euro and limiting gains in stocks were comments from Jean-Claude Juncker, head of the Euro-Zone finance ministers, who said economic growth in the Euro-Zone "isn't good" and that the economic situation in 2012 may become more "foggy."
• Asian stocks today closed mostly higher with Japan up +0.67%, China +1.49%, Australia -0.36%, South Korea closed for holiday, India -0.57%. Most Asian stock markets finished higher as exporters gained on signs the U.S. economy is weathering the European sovereign debt crisis. The Chinese yuan strengthened to 6.2940 per dollar today, the strongest level since the country unified official and market exchange rates at the end of 1993 on signs the PBOC favors appreciation to prevent capital outflows. The Dec HSBC China manufacturing PMI rose +1.0 to 48.7, although it remains below 50.0 for a second month and in contraction mode. Another sign of an economic slowdown in China is the jump in copper stockpiles after the weekly Shanghai copper inventories rose +10,936 MT to 93,219 tons, a 2-1/2 month high, although for the year Shanghai copper inventories fell 29%, the first annual decline since 2008.

Overnight U.S. Stock News

• March S&Ps this morning are trading up +1.60 points. The US stock market yesterday settled higher on reduced European debt concerns after Italian borrowing costs declined along with stronger than expected U.S pending home sales: Dow Jones +1.12%, S&P 500 +1.07%, Nasdaq Composite +0.92%. Bullish factors included (1) carry-over strength from a rally in European stocks as debt concerns eased when Italian borrowing costs fell after it sold 3-year government notes at 5.62%, below the 7.89% at a Nov auction, and sold its 10-year notes at 6.98% compared with 7.56% at last month's auction, (2) strength in homebuilders after the larger-than-expected increase in Nov U.S. pending home sales (+7.3% m/m versus expectations of +1.5% m/m), and (3) the smaller-than-expected decline in the Dec Chicago purchasing managers index (-0.1 to 62.5 versus expectations of -1.6 to 61.0).
• Bearish factors included (1) concerns that the indebted nations of Europe may struggle to finance their debts when Italy auctioned 7.02 billion euros of bonds, below the maximum target of 8.5 billion euros, (2) the larger-than-expected increase in weekly initial U.S. unemployment claims (+15,000 to 381,000 versus expectations of +11,000 to 375,000), and (3) weakness in raw-material and energy producers after gold plunged to a 5-1/2 month low and crude oil fell to a 1-week low.

Today's Market Focus

• March 10-year T-notes this morning are down -1 tick. T-note prices yesterday settled slightly higher as European sovereign debt concerns offset the stronger than expected Nov U.S. pending home sales and Dec Chicago purchasing managers index: TYH2 +24.0, FVH2 +9.7, EDM2 -0.5. Bullish factors included (1) increased safe-haven demand for Treasuries after Italy auctioned 7.02 billion euros of bonds, below the maximum target of 8.5 billion euros, a sign of slack demand and also raises concern over how the most indebted Euro-Zone nations will be able fund their deficits and (2) the larger-than-expected increase in weekly initial U.S. unemployment claims (+15,000 to 381,000 versus expectations of +11,000 to 375,000). Bearish factors included (1) the larger-than-expected increase in Nov U.S. pending home sales (+7.3% m/m versus expectations of +1.5% m/m), (2) the smaller-than-expected decline in the Dec Chicago purchasing managers index (-0.1 to 62.5 versus expectations of -1.6 to 61.0) and (3) reduced safe-haven demand for Treasuries as Italian borrowing costs fell when Italy sold 3-year government notes at 5.62%, below the 7.89% at a Nov auction, and sold its 10-year notes at 6.98% compared with 7.56% at last month's auction. Bullish factors included (1) increased safe-haven demand for Treasuries after Italy auctioned 7.02 billion euros of bonds, below the maximum target of 8.5 billion euros, a sign of slack demand and (2) the larger-than-expected increase in weekly initial U.S. unemployment claims (+15,000 to 381,000 versus expectations of +11,000 to 375,000).
• The dollar index this morning is little changed with the dollar/yen -0.28 yen and the euro/dollar -0.21 cents. The dollar index yesterday surged to an 11-1/2 month high after the euro slumped against the dollar when Italy sold less than its maximum target at a government debt auction but the dollar settled little changed as profit taking set in: Dollar Index -0.011, USDJPY -0.308, EURUSD +0.00206. Bullish factors included (1) the plunge in the euro when Italy auctioned 7.02 billion euros of bonds, below the maximum target of 8.5 billion euros, a sign of slack demand and (2) stronger-than-expected U.S. economic data on Nov pending home sales and the Dec Chicago purchasing managers index, which signals economic strength that is dollar positive. Bearish factors included (1) the decline in Italian borrowing costs after Italy sold its 3-year notes at 5.62%, below the 7.89% at a Nov auction, while the 10-year Italian note was sold at 6.98% compared with 7.56% at last month's auction and (2) reduced safe-haven demand for the dollar as the stock market rallied.
• Feb crude oil prices this morning are up +9 cents a barrel and Feb gasoline is -0.94 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and finally settled modestly higher as geopolitical concerns overshadowed a stronger dollar and an unexpected increase in weekly DOE crude supplies: CLG12 +$0.29, RBG12 +2.38. Feb crude slid to a 1-week low but recovered its losses and finished higher. Bullish factors included (1) speculation that tensions are rising in the Middle East after the U.S. Navy said it won't accept a disruption to shipping in the Strait of Hormuz saying that "any disruption from Iran will not be tolerated," (2) the larger-than-expected fall in the weekly refinery utilization rate to a 1-3/4 month low(-0.7 to 84.2% versus expectations of -0.1 to 84.8%), which may lead to reduced output of gasoline and distillates in the weeks ahead, and (3) stronger-than-expected U.S. economic data on Nov pending home sales and the Dec Chicago purchasing managers index, which signals economic strength that is positive for energy demand. Bearish factors included (1) the rally in the dollar index to an 11-1/2 month high, which curbs investment demand for commodities, (2) the unexpected increase in weekly DOE crude supplies (+3.90 million bbl versus expectations of a -2.5 million bbl drawdown), (3) the unexpected increase in weekly DOE distillate supplies (+1.21 million bbl versus expectations of a -650,000 bbl decline, and (4) global growth concerns after Dec Italian manufacturing-sentiment fell to a 2-year low and Nov South Korea industrial production unexpectedly declined for a second month.

Today's U.S. Earnings Reports Earnings reports (confirmed releases, sorted by mkt cap): CSFL-Centerstate Banks (BEST earnings consensus -$0.14).
Global Financial Calendar

Friday 12/30/11
1000 ET	Dec Milwaukee purchasing managers index expected +1.7 to 58.4, Nov +1.2 to 56.7.
United Kingdom
0200 ET	Dec U.K. nationwide house prices expected unchanged m/m and +1.5% y/y, Nov +0.4% m/m and +1.6% y/y.

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