Barchart Morning Call
Overnight Developments - Global stocks this morning are mixed with the Euro Stoxx 50 up +0.21% and Dec S&Ps up +4.80 points. European stocks took a hit after Standard & Poor's late yesterday put 15 Euro-Zone countries on review for possible downgrade, depending on the result of the summit of EU leaders on Dec 9. The yields on French and German government debt rose, although stocks pared their losses and moved higher on speculation the ECB will take additional steps to contain the debt crisis. German Chancellor Merkel and French President Sarkozy said in a joint statement that they "took note" of the move by S&P, while German Finance Minister Schaeuble said the downgrade warning is the "best encouragement" for European leaders to ratchet up efforts to resolve the 2-year old debt crisis. The euro erased its losses after Oct German factory orders surged +5.2% m/m, stronger than expectations of +1.0% m/m and its biggest increase in 19 months.
- Asian stocks today closed lower with Japan down -1.39%, China -0.20%, Australia -1.37%, South Korea -1.09%, India closed for holiday. Asian stocks closed lower as the downgrade warning by S&P on Europe's biggest economies raises the risk the European debt crisis may worsen, which undercut Asian exporters. China's Shanghai Stock Index slid to a 1-1/4 month low as bank stocks tumbled after Fitch Ratings said a property-price correction will lead to worsening loan portfolios, while Chinese property developers weakened after the Shanghai Securities News reported that the head of the real estate department of the Ministry of Housing and Rural Development said the government will extend property control measures next year. The Australian dollar declined after the RBA cut its overnight cash-rate target by 25 bp for a second month to 4.25%, saying that "financing conditions have become much more difficult, especially in Europe."
Overnight U.S. Stock News - December S&Ps this morning are trading up +4.80 points. The US stock market yesterday finished higher on reduced European debt concerns after Italy proposed budget cuts and France and Germany pushed for a new European Union treaty to stem the region's debt crisis, although prices fell back from their best levels after the FT reported that Standard & Poor's may downgrade the credit outlooks of Euro-Zone countries: Dow Jones +0.65%, S&P 500 +1.03%, Nasdaq Composite +1.10%. The S&P 500 posted a 3-week high, the Dow climbed to a 3-1/2 week high and the Nasdaq posted a 2-week high. Bullish factors included (1) carry-over support from a rally in European stocks on reduced sovereign debt concerns after the yield on Italy's 10-year bond fell to a 1-month low after the Italian Cabinet proposed a 30 billion euro package of austerity and growth measures and after German Chancellor Merkel and French President Sarkozy pushed for a rewrite of the EU's governing treaties to tighten economic cooperation as a step to ending the debt crisis, (2) strength in hospital and medical-device stocks when Goldman Sachs said that their recent decline after a report said that Medicare may not pay for hospital stays in 11 states for heart and orthopedic procedures was an overreaction, (3) comments from Chicago Fed President Evans who said further monetary stimulus is needed now to help the U.S. economy escape from a "liquidity trap," and (4) the +1.2 point increase in the Nov Conference Board Employment Trends Index to a 3-year high of 103.7, which indicates improving job prospects in the U.S. economy.
- Bearish factors included (1) the unexpected decline in the Nov ISM non-manufacturing index to its lowest level in 22 months (-0.9 to 52.0 versus expectations of +0.6 to 53.5), (2) the larger-than-expected decline in Oct factory orders along with the downward revision to Sep (Oct -0.4% versus expectations of -0.3% and Sep revised down to a decline of -0.1% from the previously reported +0.35 increase), (3) concern the global economy was slowing after the Nov China non-manufacturing PMI contracted for the first time in 9 months and the Nov Euro-Zone PMI composite was unexpectedly revised lower, and (4) a Financial Times report that took stocks off of their best levels that said Standard & Poor's will put France and Germany on "creditwatch negative."
Today's Market Focus - March 10-year T-notes this morning are down -7 ticks. T-note prices yesterday settled lower on reduced safe-haven demand from the European debt crisis after Italy announced an austerity plan to reduce its budget deficit and France and Germany called for a new EU treaty to contain debt turmoil, but prices rose from their worst levels after the FT reported that France and Germany may receive a warning from Standard & Poor's on their top credit ratings: TYH12 -3.5, FVH12 -2.2, EDM12 +1.5. Bearish factors included (1) the statement from French President Sarkozy that the French and German governments want to have a new treaty agreed to among all Euro-Zone countries by March that imposes stricter limits on the budgets of Euro-Zone members, which reduces European debt concerns and safety demand for Treasuries and (2) the decline in the 10-year Italian bond yield to a 1-month low after the Italian Cabinet announced an austerity plan to reduce its budget deficit, which boosted the euro and global stocks and reduced the safe-haven demand for Treasuries. Bullish factors included (1) the unexpected decline in the Nov ISM non-manufacturing index to its lowest level in 22 months (-0.9 to 52.0 versus expectations of +0.6 to 53.5), (2) the larger-than-expected decline in Oct factory orders along with the downward revision to Sep (Oct -0.4% versus expectations of -0.3% and Sep revised down to a decline of -0.1% from the previously reported +0.3% increase), (3) comments from Chicago Fed President Evans who said further monetary stimulus is needed now to help the U.S. economy escape from a "liquidity trap," and (4) increased safe-haven demand for Treasuries after the Financial Times reported that Standard & Poor's will put France and Germany on "credit watch negative."
- The dollar index this morning is little changed with the dollar/yen -0.09 yen and the euro/dollar +0.09 cents. The dollar index yesterday closed lower as the euro strengthened when Italy proposed new budget cuts and as stocks rallied, which reduced the safe-haven demand for the dollar: Dollar Index -0.055, USDJPY -0.147, EURUSD +0.00089. Bearish factors for the dollar included (1) the action by Italy's cabinet to approve a deficit-cutting plan, which reduces concern the European debt crisis is worsening, (2) the meeting between German Chancellor Merkel and French President Sarkozy in which both nations called for a rewrite of the EU's governing treaties to tighten economic cooperation in the area and to avoid a repeat of the crisis, (3) the unexpected decline in the Nov ISM non-manufacturing index to its lowest level in 22 months, which may prompt the Fed to maintain its overly easy monetary policy, and (4) comments from Chicago Fed President Evans who said further monetary stimulus is needed now to help the U.S. economy escape from a "liquidity trap." Bullish factors included (1) the larger-than-expected decline in Dec Euro-Zone Sentix investor confidence to its lowest level in 29 months, which is euro negative, (2) a Financial Times report that said Standard & Poor's will put France and Germany on "credit watch negative," which took the euro off of its best levels against the dollar, and (3) expectations that the ECB will cut its 2-week refinancing rate by 25 bp at Thursday's policy meeting, which will weaken the euro's interest rate differentials against the dollar.
- Jan crude oil prices this morning are up +18 cents a barrel and Jan gasoline is +0.97 of a cent per gallon. Crude oil and gasoline prices yesterday rallied early after Italy came up with a new austerity budget plan and concerns rose that heightened tensions in the Middle East may threaten global crude supplies, but prices fell back and settled mixed after the FT reported that Standard & Poor's will put France and Germany on "credit watch negative," which may worsen the European debt crisis: CLF12 +$0.03, RBF12 -0.25. Jan gasoline posted a 3-week high. Bullish factors included (1) the weaker dollar, (2) a rally in stocks on reduced European debt concerns after Italy proposed budget cuts to help alleviate its debt problem, and (3) geopolitical concerns after an Iranian Foreign Ministry spokesman said that even verbal threats from Western nations to block exports of Iranian oil will push prices to above $250 a barrel. Bearish factors included (1) concerns that a slowing global economy will lead to reduced energy demand after the Nov ISM non-manufacturing index unexpectedly declined, the Nov China non-manufacturing PMI contracted for the first time in 9 months and the Nov Euro-Zone PMI composite was unexpectedly revised lower, (2) the statement from OPEC Secretary-General El-Badri that Libya will increase its crude production to 1 million barrels a day by the end of the year, and (3) a Financial Times report that said Standard & Poor's will put France and Germany on "credit watch negative."
Today's U.S. Earnings Reports Earnings reports (confirmed releases, sorted by mkt cap): AZO-AutoZone (BEST earnings consensus $4.43), SAI-SAIC (0.34), TOL-Toll Brothers (0.06), CASY-Casey's General Stores (0.98), TTC-Toro (0.09), VRA-Vera Bradley (0.28), MW-Men's Warehouse (0.65), CMVT-Comverse Technology (0.16), LQDT-Liquidity Services (0.20), FRAN-Francesca's Holdings (0.13), AVAV-Aerovironment (0.20), PBY-PEP Boys-Manny Moe & Jack (0.13), OXM-Oxford Industries (0.14).
Global Financial Calendar
| Tuesday 12/6/11 |
| United States |
| 0745 ET | ICSC (Int?l Council of Shopping Centers) weekly retailer sales. |
| 0855 ET | Redbook weekly retailer sales. |
| 1000 ET | Fed Governor Daniel Tarullo testifies at a Senate Banking Committee hearing on ?Continued Oversight of the Implementation of the Wall Street Reform Act.? |
| 1000 ET | Dec IBD/TIPP economic optimism expected +1.4 to 42.0, Nov +0.3 to 40.6. |
| 1130 ET | Weekly 4-week T-bill auction. |
| Euro-Zone |
| 0500 ET | Revised Q3 Euro-Zone GDP, previous +0.2% q/q and +1.4% y/y. |
| Germany |
| 0600 ET | Oct German factory orders expected +1.0% m/m and +1.9% y/y, Sep -4.3% m/m and +2.4% y/y. |
| Canada |
| 0830 ET | Oct Canada building permits expected +1.6% m/m, Sep -4.9% m/m. |
| 0900 ET | Bank of Canada announces interest rate decision (expected no change to the 1.00% benchmark rate). |
| 1000 ET | Nov Ivey purchasing managers index expected +0.6 to 55.0, Oct -1.3 to 54.4. |
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