Barchart Morning Call
Fri, 18 May 2012 07:00:00 -0500
Overnight Developments- E-mini S&Ps are up 7.25 points (+0.56%) this morning on some pre-weekend
short-covering after this week's losses. T-note prices are down 6 ticks. The
dollar index is slightly higher by +0.08 points. Commodity prices are mostly
higher with crude oil up 14 cents (+0.15%), gold up $15.6 (+0.99%), and copper
up 3.3 cents (+0.93%). Commodities trading lower include gasoline, soybeans and
sugar. European stocks are moderately lower again with the Euro Stoxx 50 down
-0.36. European stocks are reacting to the news after Thursday's U.S. close that
Moody's downgraded 16 Spanish banks. In some good news for Europe, the Spanish
10-year yield today fell by 6 bp to 6.22% despite yesterday's downgrade of 16
Spanish banks by Moody's. However, Spanish government credit default swap
prices, the price of insuring against a Spanish government default, rose 8.5 bp
to a record 560 bp. Spanish bank CDS prices also rose today with CDS prices on
Bankia SA rising 68 bp to 828 bp, Banco Santander SA up 25 bp to 468.5 bp, and
Banco Popular Espanol up 34 bp to 785 bp. Santander's stock price, however, is
up 3% this morning on a report that Spanish banks are calling for a
reintroduction of a ban on short selling on financial stocks. Bankia, which has
been pummeled over the past two weeks, is up 20% today. Bankia was the subject
of reports and denials yesterday about whether it has been subject to heavy
depositor withdrawals since it was recently taken over by the Spanish
government. President Obama meets late this morning with new French President
Hollande before today's start of the 2-day G-8 meeting at Camp David. The G-8
Summit agenda includes the Greek debt crisis, global food security, and using
strategic oil reserves to offset the European embargo on Iranian oil that begins
on July 1. After the G-8 meeting, leaders will be traveling to Chicago for the
NATO summit on Sunday and Monday. The Wall Street Journal is reporting that
JPMorgan's derivatives loss may widen to $5 billion from the $2 billion amount
initially announced last Thursday. Asian stocks fell sharply today across the
board in reaction to Thursday's weak U.S. economic data and the Moody's
downgrade on 16 Spanish banks: Japan -2.99%, Hong Kong -1.30%, China -1.53%,
Taiwan -2.79%, Australia -2.67%, Singapore -1.54%, South Korea -3.53%, India
+0.51%, Turkey -0.43%. The price of new homes in China fell on a year-on-year
basis in 46 of the 70 cities tracked by China's National Bureau of Statistics.
New home prices in Beijing fell 1% y/y and in Shanghai fell 1.3% y/y. Goldman
Sachs today lowered its forecast for Chinese Q2 GDP to +7.9% from +8.5%, and cut
its full year forecast to +8.1% from +8.6%.
- June E-mini S&Ps this morning are trading +7.25 points (+0.56%) as some
short-covering has emerged ahead of the weekend. Facebook (FB) starts trading
today after the company in its IPO sold 421.2 million shares at $38 per share to
raise $16 billion, which valued the company at $104.2 billion. There are
earnings reports today from DCI-Donaldson (consensus $0.43), FL-Foot Locker
(0.74), and TTC-Toro (2.13). U.S. stocks on Thursday closed lower: S&P 500
-1.51%, Dow Jones -1.24%, Nasdaq 100 -2.05%. U.S. stocks received some support
Wednesday night from the news that Japan's Q1 GDP was stronger-than-expected at
+4.1% (q/q annualized). However, the news became progressively worse with
reports of a run on Spanish bank Bankia and a continued rise in most peripheral
European credit default swap prices and bond yields. In addition, Thursday's
U.S. economic data was weaker-than-expected with unchanged initial unemployment
claims at 370,000 (versus expectations of 365,000), a drop in the May
Philadelphia Fed index to -5.8 from 8.5, and a 0.1% drop in the April LEI
(versus expectations of +0.1%). The Euro Stoxx 50 on Thursday closed the day
down 1.1%, undercutting U.S. stocks. In addition, reports emerged during the day
that Moody's after the close would downgrade Spanish banks, which in fact
occurred. After the close, Facebook released news that it priced its IPO at $38.
- June 10-year T-notes this morning are trading -6 ticks on the higher trade
in E-mini S&Ps and the lack of any fresh negative news out of Europe. T-note
prices on Thursday closed mixed: TYM2 +11, FVM2 -0.25. The 10-year T-note yield
on Thursday closed at 1.70%, which was only 3 bp above the record low of 1.67%
posted last September. T-note prices were boosted yesterday by the weak U.S.
economic data combined with worries about Greek and Spanish banks. In addition,
T-note prices were boosted by speculation that the recent spate of bad news may
force the Fed into at least extending its Operation Twist program when it
expires at the end of June, which would be bullish for the longer-term of the
Treasury curve where the Fed is making its securities purchases. The dollar
index this morning is slightly higher by 0.08 points. EUR/USD is up 0.0009 and
USD/JPY is up 0.11 yen. The dollar index on Thursday closed mildly higher:
Dollar Index +0.14, EUR/USD -0.0018, USD/JPY -1.05. USD/JPY fell sharply as the
yen was boosted by the stronger-than-expected Japanese Q1 GDP report of +4.1%
(q/q annualized). The dollar index edged to a new 4-month high but again stopped
just short of taking out the 1-2/3 year high of 81.784 posted in mid-January.
The euro was again undercut by this week's reports this week of depositor
withdrawals from banks in Greece and Spain, which is putting increased pressure
on the ECB for another big long-term loan operation or possibly even a rate cut,
which would be euro-bearish events. July WTI crude oil prices this morning are
trading +14 cents (+0.15%) but July gasoline is down 1.19 cents (-0.42%). July
Brent crude oil today is down 56 cents (-0.52%) at $106.93, which is now only
about $7 above the $100 target mentioned earlier this week by Saudi Oil Minister
al-Naimi. Crude oil and gasoline prices on Thursday closed lower: CCLN12 -0.25
(-0.27%), RBN2 -0.0477 (-1.66%). July gasoline on Thursday fell sharply to a new
4-month low while July crude oil consolidated above Wednesday's 6-month low.
Crude oil prices on Thursday continued to be pressured by the stronger dollar
and concern about global economic growth with the problems in Greece and Spain
and with Thursday's weaker-than-expected U.S. economic data. Nymex gasoline
prices (NY harbor), which are priced more off Brent crude than WTI crude, were
weak yesterday as the market bets on a narrowing of the Brent-WTI spread with
the reversal of the Seaway pipeline. Enbridge said yesterday that work has been
completed on reversing the Seaway Pipeline and that the 500-mile pipeline this
weekend will start transporting oil from the hub at Cushing, Oklahoma to the
Gulf of Mexico coast. That should cause a slow drawdown in crude oil inventories
at Cushing, which is where the Nymex WTI futures contract is priced. The
pipeline will initially deliver 150,000 bpd of crude oil, rising to more than
400,000 bpd by Q1-2013. The drawdown will be very slow considering that oil is
flooding into Cushing from North Dakota and Canada and that it would take 10
months for the Seaway pipeline to drain the 45.127 million barrels of oil at
Cushing even if oil completely stopped flowing into Cushing from elsewhere.
Global Financial Calendar
| Friday 5/18/12 | |
|---|---|
| United States | |
| 0830 ET | Factory orders and durable goods orders benchmark revisions. |
| n/a | G-8 Summit at Camp David (Fri/Sat) |
| 1500 ET | USDA Cattle-on-Feed report. |
| Japan | |
| 0130 ET | Japan Apr nationwide department store sales, Mar +14.1% y/y. Apr Tokyo department store sales, Mar +26.7% y/y. |
| Germany | |
| 0200 ET | German Apr producer prices expected +0.3% m/m and +2.5% y/y, Mar +0.6% m/m and +3.3% y/y. |
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