Barchart Morning Call
Overnight Developments
Global Financial Calendar
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- Global stocks this morning are mostly higher with the Euro Stoxx 50 up +0.33% and Dec S&Ps up +4.10 points. Stocks rose as yields on European government bonds fell after Germany got bids for 8.67 billion euros of 5-year notes at an auction today, more than the maximum sales target of 5 billion euros. Speculation is high that European leaders will agree on steps to ease the debt crisis at a 2-day summit that begins tomorrow. Strength in German industrial production also lifted stocks after Oct German industrial production rose +0.8% m/m and +4.1% y/y, stronger than expectations of +0.3% m/m and +3.5% y/y. Stocks pared gains and the euro fell against the dollar after an unnamed German government official said Germany rejects proposals to combine the current and permanent Euro-area rescue funds and because Chancellor Merkel is more pessimistic of the outcome of the summit because she feels not all EU members appreciate the seriousness of the situation. Liquidity concerns in the Euro-Zone continue to recede as dollar funding costs fall after the 3-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, narrowed to -114 bp below the euro interbank offered rate, the least that banks had to pay in the past 3 weeks.
- Asian stocks today closed higher with Japan up +1.71%, China +0.47%, Australia +0.72%, South Korea +0.84%, India +0.43%. Asian stocks closed higher on optimism European leaders will agree on steps to resolve the region's debt crisis at a summit tomorrow. Standard and Poor's affirmed China's sovereign ratings and said the outlook remains stable, citing the nation's "exceptional" growth prospects. China's chief engineer at the National Bureau of Statistics said China's inflation rate may drop to about 4.0% next year from an average of 5.5% this year, while Chong Quan, the country's deputy international trade representative, said that China's Nov export growth was lower than in Oct and "the situation is quite serious." Economic growth in Australia was stronger than expected after Q3 Australia GDP expanded +1.0% q/q and +2.5% y/y, better than expectations of +0.8% q/q and +1.9% y/y.
- December S&Ps this morning are trading up +4.10 points. The US stock market yesterday fluctuated on either side of unchanged and settle mixed as concern the EFSF may lose its top credit rating offset optimism about efforts to stem the European debt crisis: Dow Jones +0.43%, S&P 500 +0.11%, Nasdaq Composite -0.23%. Bullish factors included (1) comments from Treasury Secretary Geithner who said that he's "very encouraged" by recent European developments on the debt crisis, and (2) the statement from German Finance Minister Schaeuble who said that S&P's warning to downgrade the debt of 15 Euro-Zone countries was the "best encouragement" to drive toward a resolution of the debt crisis at the Dec 8-9 European summit in Brussels.
- Bearish factors included (1) carry-over weakness from a slide in European stocks on concern the region's debt crisis may worsen after Standard & Poor's put 15 Euro-Zone countries on review for possible downgrade, depending on the result of the summit of EU leaders on Dec 9, and warned that it may also cut the credit rating of the European bailout fund if any of its guarantors have their own debt grade lowered, and (2) weakness in bank stocks on concern their earnings may be reduced after Fed Governor Tarullo said that U.S. bank holding companies with assets of more than $50 billion could face a "modest" capital surcharge.
- Men's Warehouse (MW) rose 9.4% in pre-market trading after the company raised its full-year earnings forecast to $2.28 to $2.31 a share, higher than a Sep projection of $2.13 to $2.20.
- March 10-year T-notes this morning are up +1.5 ticks. T-note prices yesterday closed lower on reduced safe-haven demand after Germany's finance minister said the downgrade warning from S&P will help force a resolution to the debt crisis: TYH12 -7.5, FVH12 -0.7, EDM12 -0.5. Bearish factors included (1) the statement from German Finance Minister Schaeuble who said that S&P's warning to downgrade the debt of 15 Euro-Zone countries was the "best encouragement" to drive toward a resolution of the debt crisis at the Dec 8-9 European summit in Brussels and (2) comments from Treasury Secretary Geithner who said that he's "very encouraged" by recent European developments on the debt crisis, which boosted stocks and reduced the safe-haven demand for Treasuries. Bullish factors included (1) increased safe-haven demand for Treasuries after Standard & Poor's warned that the EFSF may lose its top credit rating if any of its guarantors have their own debt grade lowered and (2) the Fed's action to purchase $2.512 billion of Treasuries as part of its Operation Twist program to replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in an attempt to keep borrowing costs low.
- The dollar index this morning is higher with the dollar/yen +0.01 yen and the euro/dollar -0.24 cents. The dollar index yesterday settled little changed as the warning from Standard & Poor's that it may downgrade the European Financial Stability Fund offset optimism that this week's summit of Euro-Zone leaders will yield a resolution to the European debt crisis: Dollar Index -0.071, USDJPY -0.087, EURUSD +0.00001. Bullish factors for the dollar included (1) increased safe-haven demand for the dollar on concern the European debt crisis may worsen after S&P warned that the European Financial Stability Facility may lose its top credit rating if any of its guarantors has their own debt downgraded and (2) the prediction from ING Investment Management that the euro will weaken to $1.25 in Q1 of next year as the ECB cuts interest rates and accelerates bond purchases to support the economy. Bearish factors included (1) the +5.2% m/m increase in Oct German factory orders, the biggest in 19 months which is euro supportive, and (2) reduced dollar demand from European banks after the 3-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, fell to a 3-week low of -117 bp below the euro interbank offered rate.
- Jan crude oil prices this morning are down -21 cents a barrel and Jan gasoline is -1.90 cents per gallon. Crude oil and gasoline prices yesterday settled higher on optimism European leaders will come up with a resolution to the region's debt crisis at Friday's summit and as gasoline rose on speculation the EU may ban imports of Iranian oil, which may boost the cost to produce the fuel: CLF12 +$0.29, RBF12 +3.17. Bullish factors included (1) the stronger than expected Oct German factory orders which posted their biggest increase in 19 months and signals economic strength that is supportive for fuel consumption, (2) optimism that European leaders will resolve the region's debt crisis at Friday's summit in Brussels, and (3) strength in gasoline on speculation the EU may ban imports of Iranian oil, which will raise the cost to produce gasoline as refineries on the U.S. East Coast, where Nymex gasoline futures are delivered, primarily use oil priced versus Brent crude and Brent crude would see its price increase as Iranian oil is taken out of the market. Bearish factors included (1) the stronger dollar, and (2) the statement from S&P that the European Financial Stability Facility may lose its top credit rating if any of its guarantors has their own debt grade lowered, which reduces confidence in the economic outlook and energy demand. Expectations for the weekly DOE inventory report on Wednesday are for crude oil supplies to fall -1.25 million bbl, gasoline stockpiles to increase +875,000 bbl, distillate inventories to rise +1.15 million bbl and the refinery utilization rate to increase +0.6 to 85.2%.
Global Financial Calendar
| Wednesday 12/7/11 | |
|---|---|
| United States | |
| 0700 ET | Weekly MBA mortgage applications, previous -12.0% with purchase mortgage sub-index -0.8% and refinancing sub-index -15.0%. |
| 0830 ET | Fed Governor Sarah Bloom Raskin moderates a panel at the Richmond Fed?s Baltimore branch on the Conference on Strategic Data Use to Stabilize Neighborhoods. |
| 1500 ET | Oct consumer credit expected +$7.000 billion, Sep +$7.386 billion. |
| Japan | |
| 0000 ET | Oct Japan leading index CI expected unchanged at 91.5, Sep -2.3 to 91.5. Oct coincident index CI expected +1.3 to 90.3, Sep -1.3 to 89.0. |
| 1850 ET | Oct Japan machine orders expected +0.5% m/m and +9.4% y/y, Sep -8.2% m/m and +9.8% y/y. |
| 2330 ET | Nov Japan bankruptcies, Oct -14.1% y/y. |
| United Kingdom | |
| 0430 ET | Oct U.K. industrial production expected -0.3% m/m and -0.7% y/y, Sep unchanged m/m and -0.7% y/y. |
| 0430 ET | Oct U.K. manufacturing production expected -0.3% m/m and +1.4% y/y, Sep +0.2% m/m and +2.0% y/y. |
| Germany | |
| 0600 ET | Oct German industrial production expected +0.3% m/m and +3.5% y/y, Sep -2.7% m/m and +5.4% y/y. |
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