Barchart Morning Call
Overnight Developments
Global Financial Calendar
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- Global stocks this morning are higher with the Euro Stoxx 50 up +0.61% and Mar S&Ps up +8.00 points at a 5-1/2 month high. The dollar and Treasuries fell and commodities rallied with gold at a 1-month high and copper at a 2-1/2 month high after China's Q4 GDP rose expanded more than forecast and Jan German economic sentiment improved more than expected. The Jan German ZEW survey of economic sentiment surged +32.8 to -21.6, better than expectations of +4.6 to -49.2 and its best level in 6-months. The euro rose against the dollar after Spanish borrowing costs declined when Spain auctioned 12-month debt at an average yield of 2.049%, compared with 4.05% at a similar auction last month and sold 18-month debt at 2.399%, down from 4.226% last month. Limiting gains in the euro and in European stocks were comments from the Managing Director of Fitch Ratings who said Greek 2-year notes are worth about 23% of face value and that Greece is insolvent and will default on its debts as it is unlikely to be able to honor a Mar 20 bond payment of 14.5 billion euros.
- Asian stocks today closed higher with Japan up +1.05%, China +4.90%, Australia +1.65%, South Korea +1.94%, India +1.71%. Asian stocks rose on speculation the slowest Chinese growth in 10 quarters will prompt monetary easing by the government. Q4 China GDP grew at a +8.9% y/y pace, the weakest in 2-1/2 years, although stronger than expectations of +8.7% y/y. Dec China industrial production climbed +12.8% y/y, stronger than expectations of +12.3% y/y, while Dec China retail sales rose +18.1% y/y, stronger than expectations of +17.2% y/y, which reduces concern of a hard landing in China. In a sign of policy easing, the PBOC said it injected 169 billion yuan ($26.8 billion) into the financial market through 14-day reverse-repurchase operations as sticky inflation pressures prompts the central bank to inject more cash into the market via reverse-repo operations instead of a cut in banks reserve-ratio requirements ahead of the Lunar New Year holiday that starts Jan 23.
- March S&Ps this morning are trading up +8.00 points. The US stock market sold-off last Friday amid European credit downgrade concerns along with weakness in bank stocks after JPMorgan's Q4 profit slumped: Dow Jones -0.39%, S&P 500 -0.49%, Nasdaq Composite -0.51%. The Dow posted a 1-week low. Bearish factors included (1) concern the European sovereign debt crisis will worsen after Dow Jones Newswires reported that several European nations, including France, face "imminent" credit downgrades from Standard & Poor's, which happened after the markets closed, (2) weakness in bank stocks when JPMorgan Chase reported its Q4 investment-banking revenue declined -30% from a year earlier as many of its clients stayed on the sidelines because of the ongoing European debt crisis, and (3) the Nov U.S. trade deficit which widened to -$47.8 billion, bigger than expectations of -$45.0 billion and is negative for Q4 US GDP.
- Bullish factors last Friday included (1) the larger-than-expected increase in the Jan U.S. University of Michigan consumer confidence which rose to its best level in 8 months (+4.1 to 74.0 versus expectations of +1.6 to 71.5), (2) comments from Richmond Fed President Lacker who said the inflation outlook is "reasonably good" in the U.S. and the economy will expand at a "modest" rate of +2.0 to +2.5% this year, and (3) the drop in the 10-year T-note yield to a 3-1/2 week low of 1.833%.
- Alcoa (AA) gained 2.9% in pre-market trading as metal prices rallied with copper climbing to a 2-1/2 month high.
- March 10-year T-notes this morning are down -7 ticks. T-note prices last Friday rallied to a fresh contract high and settled higher on a surge in safe-haven demand after stocks tumbled on speculation Standard & Poor's may cut the credit ratings of France and several other European nations which happened after the markets closed: TYH2 +18.5, FVH2 +8.0, EDM2 unchanged. The 10-year T-note yield fell to a 3-1/2 week low of 1.833%. Bullish factors included (1) increased safe-haven demand for Treasuries on concern the European sovereign debt crisis may worsen after Dow Jones Newswires reported that several European nations, including France, face "imminent" credit downgrades from Standard & Poor's, (2) additional safe-haven demand for Treasuries after negotiations between Greece's creditor banks and the Greek government broke off over how much money investors of Greek debt will lose by swapping their bonds, which raises default risks for Greece, and (3) the action by the Fed to purchase $4.646 billion of T-notes as part of its Operation Twist program to replace $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to keep long-term rates low. A bearish factor was the larger-than-expected increase in the Jan U.S. University of Michigan consumer confidence which rose to its best level in 8 months (+4.1 to 74.0 versus expectations of +1.6 to 71.5).
- The dollar index this morning is lower with the dollar/yen +0.02 yen and the euro/dollar +1.28 cents. The dollar index last Friday accelerated to a 1-1/3 year high as the euro plunged on speculation of "imminent" credit downgrades of several European countries: Dollar Index +0.745, USDJPY +0.204, EURUSD -0.01352. Bullish factors included (1) increased safe-haven demand for the dollar when the euro sank to a 1-1/3 year low against the dollar after Dow Jones Newswires reported that several European nations, including France, face "imminent" credit downgrades from Standard & Poor's, (2) the action by the IIF to break off talks with Greece amid a coupon dispute as bondholders say the EU agreement to exchange Greek bonds for new securities with a 5% coupon would leave them with a 65% loss in the net present value of their holdings of Greek government debt, more than the 50% haircut banks had agreed upon back in Oct, (3) comments from ECB Council member Liikanen who said that "there's a risk" that economic conditions in the Euro-Zone will continue to worsen, and (4) the larger-than-expected increase in the Jan U.S. University of Michigan consumer confidence to an 8-month high, which is dollar positive. Bearish factors included (1) the Nov U.S. trade deficit which widened to -$47.8 billion, more than expectations of -$45.0 billion and the largest deficit in 5 months and (2) reduced demand for dollars after the 3-month cross-currency basis swap, the rate banks pay to convert interest payments into dollars, narrowed to 80 bp below the euro interbank offered rate, the lowest in 4-1/2 months.
- Feb crude oil prices this morning are up +$2.12 a barrel and Feb gasoline is +6.56 cents per gallon. Crude oil and gasoline prices last Friday settled mixed as EU plans to delay a Iranian oil embargo, dollar strength and the threats of credit downgrades to European nations were offset by an increase in U.S. consumer confidence and an ongoing strike in Nigeria: CLG12 -$0.40, RBG12 +0.29. Feb crude posted a 3-week low. Bearish factors included (1) the surge in the dollar index to a 1-1/3 year high, which fueled liquidation of most commodities, (2) carry-over weakness from a late-day slide last Thursday after 2 EU officials said an embargo on Iranian crude imports may be postponed for 6 months to allow nations to find other supplies, and (3) the action by Standard & Poor''s to downgrade the credit ratings of 9 European nations, including France, which sent stocks reeling and may worsen the European debt crisis and fuel demand. Bullish factors included (1) the larger-than-expected increase in the Jan U.S. University of Michigan consumer confidence to an 8-month high, which bolsters confidence in the economic outlook and energy demand and (2) the statement from Nigerian labor unions that they will continue a strike that threatens oil exports from Africa's top producing country.
Global Financial Calendar
| Tuesday 1/17/12 | |
|---|---|
| United States | |
| 0830 ET | Jan Empire manufacturing index expected +1.0 to 10.5, Dec +8.9 to 9.5. |
| 1130 ET | Weekly 3-mo and 6-mo T-bill auctions. |
| Japan | |
| 0100 ET | Revised Dec Japan machine tool orders, previous +17.4% y/y. |
| 2330 ET | Revised Nov Japan industrial production, previous -2.6% m/m and -4.0% y/y. Revised Nov capacity utilization, previous +4.1% m/m. |
| United Kingdom | |
| 0430 ET | Nov U.K. DCLG house prices, Oct -0.4% y/y. |
| 0430 ET | Dec U.K. CPI expected +0.4% m/m and +4.2% y/y, Nov +0.2% m/m and +4.8% y/y. |
| 0430 ET | Dec U.K. core CPI expected +3.0% y/y, Nov +3.2% y/y. |
| 0430 ET | Dec U.K. RPI expected +0.3% m/m and +4.7% y/y, Nov +0.2% m/m and +5.2% y/y. |
| 0430 ET | Dec U.K. RPI ex-mortgage interest payments expected +4.9% y/y, Nov +5.3% y/y. |
| Germany | |
| 0500 ET | Jan German ZEW survey economic sentiment expected +4.6 to -49.2, Dec +1.4 to -53.8. Jan ZEW survey current situation expected -2.8 to 24.0, Dec -7.4 to 26.8. |
| Euro-Zone | |
| 0500 ET | Dec Euro-Zone CPI expected +0.4% m/m and +2.8% y/y, Nov +0.1% m/m and +3.0% y/y. Dec core CPI expected +1.6% y/y, Nov +1.6% y/y. |
| Canada | |
| 0900 ET | BOC announces interest rate decision (expected no change to the 1.00% benchmark rate). |
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